Validation

A friend is quitting his high-paying job to teach, a not uncommon decision for baby boomers who sense that time is running out on opportunities to give their lives meaning. He is willing to pay the economic penalty because my friend and his wife, who has worked for over 25 years in a well-known Bay Area company, have amassed a comfortable nest egg, along with a spacious home in a tony community.

(Pause button: after looking again at the previous sentence, I incorrectly used the term “economic penalty”. My friend is maximizing his personal utility by teaching, just as many of us trade money for leisure by, say, not working overtime. Shouldn’t confuse money with happiness!)

What takes me aback is that he wants to start a business after he teaches for a few years. At his stage in life that seems to be a curious choice: he will not be embarking on his entrepreneurial journey out of necessity. He will voluntarily be submitting to the stress of a startup, where there are no guarantees of success, and—here I speak from experience--most of the tasks are repetitive and mundane. His goal can’t simply be to make more money, when he has enough to live comfortably for the rest of his life.

No, he says he wants to start a business so that he can hold his head high in the company of his friends and relatives, many of whom are business-owners. After decades of absorption of the Sixties’ march-to-your-own-beat values, it sounds jarring that a mature individual would be so influenced by what other people think.

I would be more critical except that a moment’s reflection brought forth numerous instances where my own behavior is influenced by what other people think of me. Last weekend I spent hours working on the front yard. Do I want a green lawn to please myself or my neighbors? Do I push my children for their sake or that I may bask in their reflected glory? Do I exercise for my health or to look good [okay, less decrepit, let’s not get too carried away!]?

Despite our efforts to ignore superficialities, sometimes it is so difficult to make headway that we are forced to let it be known how we in our individual callings are validated by society. (Pickup line: excuse me, I dropped my Olympic medal/Academy Award/Silver Star under your chair.)

A woman in grungy sweats walked into the stockbroker’s office to straighten out a problem with a retirement account, which contained a few thousand dollars. The broker’s young assistant punched up the account in such a lackadaisical, uninterested manner that the woman quietly asked to check the balance in her other accounts. When the assistant viewed the size of those accounts, she immediately changed her attitude and service improved.

A parent is trying to make an appointment with an admissions officer, who never returns his calls. Not one to name-drop but at the limits of his patience, he finally mentions that he is a close acquaintance of two members of the board of trustees; the appointment is scheduled shortly thereafter.

The problem of earning society’s respect so that it will leave us free to do what we want is as old as the hills. One of the first Greek philosophers, Thales, who famously said that everything is derived from water, was apocryphally chastised for not having useful skills, so he put his deep-thinking on hold to show that he could be successful in commerce, thereby silencing his critics:

Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty

Nearly 3,000 years after Thales, we continue to reproach others---not all the time, but often enough---for their poverty. © 2005 Stephen Yuen

Quick Trip

Over Oakland.

On Monday I parked the car at Oakland Airport and boarded the Southwest 737. The flight east was uneventful, although there were banks of storm clouds that presaged the thunderstorms that will hit Chicago later this week.

After arrival, I scrutinized the mass transit maps. If I’m traveling light, I like to take the train into the city because, compared to a taxicab, it: 1) is faster, especially during rush hour; 2) is cheaper; 3) pollutes much less; 4) offers better scenery; 5) gives one a better sense of the rhythms of the city.

I worked up a sweat hoofing my bags to the Orange line in the humid, 80-degree breezeless evening and paid $1.75 for the fare to the Chicago & State Street station, one block from the company apartment. (The cab fare was $26 on today’s return to the airport; the spirit of adventure takes a back seat when one is trying to make a flight home.) More hoofing as I transferred to the Red line at Roosevelt Station and reached my destination about 90 minutes after I had landed (someone who knew what he was doing could cut that time in half.)


Tunnel connecting the Orange and Red lines.

Although the trains were clean and fast, there were moments when I regretted my transportation decision, because there were unsavory characters who seemed to be eyeing me and my parcels, and the hour was getting late.

The business meetings went well, and I drank too much and ate too much red meat, as often happens when I travel to the Midwest. But when in Rome....


Chicago's skies were clear on Tuesday

But turned foggy on Wednesday

Business Travel

Working for a large company has its benefits. No, I’m not referring to retirement, health, or expense-account packages--which often are more generous-- I’m referring to the apartments that are owned in heavily-trafficked cities. You have to make a reservation early, and most of the time I get bumped to a regular hotel, but yesterday I lucked out.

Chicago Apartment - Bar

The Cash of Civilization

I got the tax return done on time again but had to take a vacation day to do it. Yes, yes, if I were more motivated and organized, I could have completed it without last minute heroics, but as I’ve written before, it’s like pulling teeth. Come to think of it, I would rather go to the dentist.

The alumni association sent its annual ballot to elect an alumni “fellow”. Colleges and universities have been lambasted (in my view, justifiably) for their ideological uniformity, political correctness, and antipathy toward the society that gives them succor. But occasionally one sees a reminder that the ivy was planted long before today’s fads arose and will still be around long after they’re gone. That’s because the faddists haven’t seized permanent control of the language.

Balloting was open to “graduates of the first degree” or higher, a quaint description for alumni who hold at minimum a bachelor’s degree. I glanced at my dust-covered diploma, which is written in Latin on a plain parchment. “Praeses et socii” (President and Fellows) of the university, it begins, and the Latin seemed to give all that cramming, footnoting, regurgitating, and bloviating a little patina of dignity.

Mao’s revolution damaged but didn’t erase Chinese cultural history. The beauty of literary Chinese still resonates with millions and bespeaks the persistence of culture. (For an interesting, not-too-technical article that compares ancient Latin and Chinese, please see the following.) When the postmodern left begins to offer meaningful rituals (and I don’t mean Kwanzaa), or even hummable tunes for the hoi polloi, that will be time to worry about the demise of western civilization.

Today is Tax Freedom Day 2005, the day in the year when we are done paying for that civilization and go to work for ourselves. © 2005 Stephen Yuen

Small Talk

One Market, the old Union Pacific building, when the sun came out last week.

Weather
The weather has been choppily inconsistent, with March’s warmth followed by April’s storms. The cold dampens spirits, but it also lowers the pollen counts and keeps the mosquitoes at bay, a fair exchange in my book. The spring heat made me guilty of premature extrapolation; I had turned off the furnace but had to re-light the pilot over the weekend when the temperature dipped into the forties.

Stocks
When the Internet bubble burst, I stopped opening my brokerage and 401(k) statements, because ignorance, while not blissful, was not depressing. After four years my portfolio has recovered much of its losses, and I’ve started to check my share prices every day, a sure sign of a market top.

The stocks that I seem to have done the best with are the companies which call me a customer. This is a variation on the strategy touted by former Fidelity guru Peter Lynch:

amateur investors can continue to reap exceptional rewards from mundane, easy-to-understand companies they encounter in their daily lives.

I’ve held Apple Computer (AAPL) and Pacific Gas and Electric (PCG) for many years and recently bought SBC Communications (SBC). Their prices always fell after I bought them, so Warren Buffett I’m not, but at least I have the satisfaction of knowing that I’m getting back a little of the profits they’re making off me.

Fitness
I’ve never joined a gym in my life---which is obvious by a glance at my physique---but the promotion was too good to pass up. The local fitness club did a database search of all residents who, to the best of its knowledge, had never been a member of any gym in the area, and offered a two-year membership for $200. (They’ve been around for over ten years, and I just have to use the facilities for three months in order to extract fair value: yes, I did consider the risk of business failure.) Sloth sometimes does pay.

Politics
While democracy has gotten all the ink, we are reminded this week that there are ancient institutions that employ, successfully, other methods of naming their leaders. The College of Cardinals will soon select the next Pope, the direct spiritual successor of Saint Peter, and it will be hard to argue they did a poor job the last time. And the death of Monaco’s Prince Rainier, who was a beloved and successful monarch, bequeathed the kingdom’s keys to his son, Prince Albert. Sad to say, there is no foolproof method of identifying the philosopher-king, the chimerical individual who is wise, virtuous, and a seeker of truth and who has risen to prominence without succumbing to human appetites and failings. © 2005 Stephen Yuen

Float

"Float" by Mark Lere in the lobby of the Landmark Building, One Market.

Rueful Observation

Despite my most earnest efforts, the iPod resisted all attempts at resuscitation. It would emit whirring and clicking sounds until the battery was depleted. The pesky folder-with-exclamation-point icon wouldn’t go away, and although various websites said it was a software problem, it sure sounded like something was wrong with the disk drive. The person who is never wrong asked me how long I had spent diddling (technical term which means spending hours working on a problem that a trained professional could fix in 10 minutes) with the iPod. I shaved my estimate: “About eight hours.” I flashed back to my auditing days when I wouldn’t charge my clients for all the time I spent diddl--- uh, performing research. “Why don’t you get a new one? You can afford it.” Note the subtle appeal to the male ego: scrapping a $400 piece of equipment is nothing to a distinguished gentleman of means. But that would also mean kissing off the $30 I spent on the battery, not to mention the time spent pursing my lips and sighing. She just doesn’t understand. I took it to the Apple Store. The bearded wizard at the Genius Bar (Apple’s designation for the technical help desk…cool, huh) shook the iPod, turned it on, and raised it to his ear. “It’s the disk drive,” declared the genius. He input the serial number into the terminal and gave me the bad news. The warranty expired last year, and the fix would cost $250. Apple wouldn’t even bother repairing it, he explained, they would just give me a new unit, albeit last year’s model. My crestfallen expression stimulated his pity, and he jotted down the name of a company who would do repairs. For $29 iPodResQ sent me a box with prepaid overnight round-trip shipping to its Kansas office; diagnosis of the problem was included in the price. I wrapped the iPod in the foam packing material and deposited it in the DHL dropbox. iPodResQ confirmed that the 30-gigabyte drive was fried (another technical term) and offered to install a new one for $190. My self-help urges had long since abated, so I agreed to their terms--actually spending a few more dollars for a drive with larger capacity. The iPod has been functioning smoothly during the past week, and normalcy has returned to our household. No moral, dear reader, just the rueful observation that I still make mistakes deciding when to trade off money for time. © 2005 Stephen Yuen

No Glory

Imports arrive at San Francisco Bay

Early in my senior year my postgraduate plans were set, so I was on the prowl for “gut” courses where I could earn credits without doing any work. (On the East Coast we called them “guts” while in California they were called “micks”, as in “Mickey Mouse.” In that era Mickey Mouse was an overused, consequently imprecise term; for example, “Deep Throat” was a Mickey Mouse movie.)

At some point in their college lives half the undergraduates at my college took Drama 36. The professor was a theater critic who commuted from New York City and gave weekly lectures on 20th century plays. There were no mid-terms, and it didn’t matter whether we read the plays or even attended class. The only requirement was that we turn in a five-page essay (wide margins with double-spacing) concerning any topic related to one of the plays covered by his lectures.

I happily enrolled. By senior year I could knock off a five-page paper in my sleep, which I often did to the irritation of my roommates at 4 a.m. on the day the paper was due.(My 1950-vintage manual Remington was exceptionally noisy.) The other legendary guts were Introduction to Geology (“rocks for jocks”) and the Sociology of Deviant Behavior (“nuts and sluts”), but their perfection was marred by a mid-term exam. Drama 36 stood alone.

Seeking to build on that success, I kept looking for other courses that would enable me to coast to graduation. The title had promise, so I signed up for Game Theory, thinking that it was about cards, pinball, chess, foosball, or the new computer games that had started to appear on the university mainframe. A course that offered instruction about my favorite diversions and earn quick credits….hopes were high.

Much to my disappointment, it was taught by a mathematical economist whose pedagogical method consisted of covering the blackboard with Greek letters. I retain little of his sleep-inducing disquisitions on Pareto optimality or the Prisoner’s Dilemma, but there was one insight which has stayed with me, represented by the following graph:

The correlation between great wealth and power is intuitively obvious, but what about negative wealth? If you were just an average deadbeat, you would be at the mercy of your creditors. But if you owed TEN MILLION DOLLARS (this was the Seventies, Dr. Evil), you had as much influence over the bank as if you had a ten million dollar deposit. The bank could not declare you to be in default because bankruptcy would take them down with you; the lender would bend over backwards to keep you alive.

And that is why foreigners continue to ship us TV sets, shoes, and barrels of petroleum while we send them more pieces of paper inscribed “In God We Trust” to add to the many billions they already hold. Stopping or slowing the process would disrupt their economies as much as ours. The gut economy: easy credits and the final exam that may never come. &copy 2005 Stephen Yuen

If It's Thursday, It Must Be Maundy

Return of the Prodigal
Our collegian returned for spring break last weekend, but we haven’t had a chance to bond. He’s either out or incommunicado during the evenings, and when I leave in the morning he’s still asleep. He needs to recover from the stress of school, his mother says, so leave him alone. I wonder silently why no one in the past 30 years has worried about my stress. Self-pity by a groan man.

Defense
The ants invaded our kitchen again, so I walked slowly around the house peering at the foundation. A line of them had climbed a fence connected to the living room wall, so I saturated the entry point with pesticide. That reduced the invading force from two divisions to one. Several years ago ants gained access by means invisible, probably a crack in the cement or an electric conduit, so we’re forced to use bait. I put out stakes and ant traps and after three days the infestation is subsiding. I suspect there are some colonies under the bushes outside, so next weekend I’ll strap on the old sprayer and go a-hunting. The best defense.

Good Advice
As I was getting ready to leave the office last night, T. called to pitch a structure that involved a seller of a residual interest in a lease, an intermediary entity, a lender who would eventually acquire the interest, and a residual value guarantee from the seller. It took me 20 minutes just to understand what he was talking about; the objective was to produce a good result on the income statement for all parties, coupled with minimum current tax cost.

I advised T. about some post-Enron accounting rules that he had to surmount. More importantly, CEO’s and CFO’s these days don’t want to be bothered with complicated financial structures. Business, credit, and interest-rate risks they know how to handle, but the risk of seeing their name in the news, not the business, section? That “Headline” risk they avoid like the plague. “Stick to the knitting”, said the best management book of the past quarter-century. Good advice then, good advice now.

Open House
The youngster and I went to the open house at the middle school. We looked at the posters on the wall and talked to the teachers, who I found a little disconcerting to address as “Mr. Smith” and “Ms. Jones” when they’re half my age. The science teacher showed student-produced videos on the environment, complete with snappy tunes, charts, pictures, and voice-over narration.

Flashback, Way Back
I flashed back to my second-year Latin class, when I gave a presentation on Julius Caesar’s Gallic Wars [which begins Gallia est omnis divisa in partes tres (all of Gaul is divided into three parts), one of ancient literature’s most famous opening lines.] I remember describing the Roman campaigns in a dreary monotone and wonder how long today’s students would sit through a lecture which didn’t have music and flashing colors.

My mother thought that Latin would help me become a doctor or lawyer, but I didn’t turn out to be either. Verbal facility in Latin--or English for that matter--isn’t required in my line of work (can’t you tell). Once in a great while I recognize a word’s Latin root, but that’s thin gruel for hours of sweating over the genitive and ablative cases.

Non sequitur: Yesterday the church continued its celebration of Holy Week by commemorating the Last Supper on Maundy Thursday. Maundy is not a misspelling but is derived from the same word as mandate, after Jesus’ command to serve others by washing their feet.

At least Latin is becoming cool again. © 2005 Stephen Yuen

One Too Many

Watching Terry Schiavo starve to death is one of those moments where an horrific event is happening in front of our eyes, yet there’s nothing we can do about it. Except this is not a car accident and the incident is playing itself out in days, if not weeks, of slow motion.

Perhaps all the following are true: 1) Mrs. Schiavo’s brain is so damaged it will never achieve any semblance of human functioning. 2) She did tell her husband that she wouldn’t want to live under these circumstances. 3) He is doing what he believes is best for her.

But isn’t there a smidgeon of doubt about any of these claims by even the most ardent backers of Michael Schiavo? And even if we decide to allow Terry Schiavo to die, why can’t her death be speedy and painless rather than one of prolonged suffering? The legal system that produced this worst-of-both-worlds result probably would have split the baby in one of history’s most famous legal proceedings.

Today we wrestle over weighty issues connected to life’s end and life’s beginning. Precedents are murky, as well as the morality for each course of action. President Bush has said there should be a presumption in favor of life, and that is the proper conservative position. If one chooses life, then one can always change one’s mind later. When one walks the other path, there is no going back.

If we are sincere about a “culture of life” being a first principle, then we must adhere to it when our emotions run counter to our beliefs. The position is clear when the subject is abortion. But what about capital punishment? Unquestionably there are people who we can prove with absolute certainty have committed appalling crimes, who are irredeemably evil, and who, if the law allows, deserve capital punishment.

But is this true of everyone who awaits execution? All who sit on death row have been put there by the same infallible legal system that has determined Mrs. Schiavo’s fate. And if there is one innocent man who is wrongfully put to death, he is one too many. The presumption in favor of life is a noble principle, but we have yet to face its full implications. Terry Schiavo is deserving of rescue, and so is Scott Peterson. © 2005 Stephen Yuen

Front Street, St. Patrick's Day

Front Street, St. Patrick's Day 2005

The St. Patrick's Day celebration outside Harrington's pre-dates cell phones and flash mobs. The police close Front Street between Sacramento and California. We are already making plans for next year's party, which will be on a Friday.

Capricious and Arbitrary

When I worked for one of the Big Eight accounting firms* in the ‘70’s, I spent two years in the Tax Department. For most problems I could generally figure out what to do without looking it up, because our income tax system was based on certain principles.

For instance, there’s the tax benefit rule, which taxes income if the taxpayer had received a benefit for deducting that item previously. The example most often cited is the treatment of State income taxes on the Federal return: if the filer had itemized deductions in the previous year, and had enjoyed a benefit from the deduction of State income taxes, then he must report the refund of those taxes on next year’s return. However, the refund should not be declared if the filer had used the standard deduction last year and therefore had not claimed a specific deduction for State income taxes.

We see the tax benefit rule applied to the host of education, medical, and retirement accounts that the government, in its wisdom, has established to encourage activities it deems worthwhile. Contributions to these accounts are either exempt from income or deductible while withdrawals are declared as income.

On the other hand, if items have already been taxed, such as the Social Security contributions which are deducted from an employee’s paycheck, the old rule was that it wouldn’t be taxed when the payment was made back to him. But now if a retiree’s other income is sufficiently high, Social Security receipts count as taxable income.

Developments like these I regard as disturbing because basic, long-standing definitions in finance and economics are being thrown out the window. In the arrangement of their personal affairs people accept that tax rates can change but not a fundamental principle such as, for example, the prohibition against taxing the same income more than once.

Returning to the example of the income taxability of Social Security, transactions are taxed when everyone makes their deposits into the Trust Fund and again on the “rich” when they receive it. (It’s no different from imposing a tax when you put money into your savings account and again when you take it out.) Furthermore, it is possible that many Social Security recipients who are not blessed with longevity will get back less than they put in, yet their losses will be magnified by the “income” taxes they pay on both ends of the transaction.

Today I don’t believe it is possible to prepare a tax return without consulting a reference guide for nearly every line. Why items are included or excluded is impossible to determine through the application of logic, leading to the conclusion that our income tax system is capricious and arbitrary. I’m glad I’m no longer in the business.

* Arthur Andersen, Arthur Young, Ernst & Ernst, Coopers & Lybrand, Deloitte Haskins & Sells, Touche Ross, Peat Marwick Mitchell, Price Waterhouse
© 2005 Stephen Yuen

Shirtsleeve Day

Vaillancourt Fountain

It was a shirtsleeve morning, bright and warm, no fog. A couple more days like these and the Chron will shelve its homeless articles and start another series on global warming.

At one o’clock I went downstairs to the new Subway and ordered the $2.49 daily special, a six-inch Italian on whole wheat. A couple of ladies from the office huffed in after their noon jog and ordered the full lunch. Well, they’re entitled. Vice-presidents, mothers, attractive, and blonde, they’ve got the world on a string. Actuarially…or is that actually?...they’re gonna outlive me by ten years. The weaker sex indeed.

Back to the office for a conference call with the boys from Chicago. They told me it was snowing and in the 20’s, and I looked at our placid, azure Bay and guiltily experienced a flash of pleasure at the contrast.

Long in the Tooth

While she was shopping at a nearby market, an out-of-town relative lost her filling. She spied a dentist’s office across the street. The young doctor replaced the filling without charge and sent her on her way. One good deed deserves recompense, and so, having put off an exam for five years, I had my teeth X-rayed and cleaned at Stan’s. That was over 20 years ago, and I’ve been going to him ever since.

From the age of eight Stan knew that he wanted to be a dentist. (I don’t know anyone else who discovered his life’s purpose at such an early age.) He went to Berkeley, then hung his shingle at an old wooden building by the freeway. He kept his offices clean, and his equipment, although not state-of-the-art, was well-maintained.

He expanded his practice and moved to an office just off El Camino Real, the north-south boulevard that runs between San Francisco and San Jose. He always bought the latest gadgets and happily responded to inquiries about them. Using a minicamera, he recorded and expounded upon close-ups of my teeth, which I thought were the epitome of grossness until another doctor showed me pictures a bit south of my mouth.

Stan’s practice has plateaued because he never gives his patients the hard sell. He’ll comment that an old filling may have to be replaced with a gold crown and that I should “keep an eye on it”. Well, I’ve been watching that filling for ten years. And he’s never broached the topic of whitening, although it’s obvious that I’ve been a coffee drinker throughout my adult life.

Finding someone like Stan, who is good at and loves what he does, and whose primary motivation isn’t money, is a pleasure. Now if I can just find an honest mechanic……

Electric Toothbrush
At my most recent check-up Stan recommended that I begin using an electric toothbrush. Having been discouraged by their messiness and expense, I hadn't used one for over ten years. At Costco we picked up a Braun mid-range model, and I was surprised by the noticeable improvement over manual brushing. The Braun scrubbed the plaque off of hard-to-reach crevices while it massaged the gums with just the right amount of pressure. Technology marches on.

Take Care of Your Teeth and Live Longer
Among health tips for baby boomers in yesterday's Wall Street Journal:

Floss your teeth: Everyone knows dental hygiene is important for healthy teeth. But it is also important for your heart. A growing body of research shows a link between periodontal disease and stroke and heart disease.

In a study published last year in the journal Stroke, for example, those with severe periodontal disease (gum disease) had a 4.3 times greater risk of stroke than those with either mild or no periodontal disease. Scientists believe that infection in the mouth increases level of inflammation in the blood, which can help create blood clots that lead to strokes and heart attacks. Periodontal disease is most common in those older than 50.

© 2005 Stephen Yuen

Young Person's Game

Our subscription to Bloomberg Financial Services entitles us to unlimited training seminars at no additional cost. The sessions are held at Bloomberg’s capacious offices on the 35th floor at 345 California Avenue in the heart of the Financial District. Yesterday, after registering at the receptionist’s desk and affixing a photo ID to my jacket, I lingered over the large assortment of cookies, snacks and drinks outside the training room. Too bad I just had lunch.

Only ten of us had signed up for the foreign exchange class, so the room felt empty with no one sitting at most of the 50 dual-monitor state-of-the-art workstations. The instructor raced through the introduction, the help screens, and the basics on how to pull up historical and current information on any currency. He then moved to intermediate foreign exchange topics, such as forwards, futures, and options. The last 20 minutes were oriented toward currency traders—how to get real-time bid-ask (“are you a market maker or market taker?”) quotes from different firms and place an order—which (a) was not useful to me in my line of work and (b) was too esoteric for me to follow, anyway.

Currency trading is a young person’s game. One has to be able to recognize patterns on a rapidly scrolling screen and know what to do, in a matter of seconds, when the yen yield curve flattens while corporate debt spreads are rising in the U.S. The largest demographic was young, Asian, and female; their soul-sisters can be found in Bay Area multimedia and videogame companies, as well as the accounting firms, except these gals probably make (a lot) more money-an MBA from Chicago or Wharton is the price of entry to their world. There were some old guys like me, corporate treasurers and financial officers, who were just trying to learn enough lingo not to embarrass ourselves in conversation with the new generation of finance geeks.

The Bloomberg system is an admixture of 21st century information married with an interface from the dawn of the computer age. I don’t envy Bloomberg its task---receiving, sorting, and analyzing millions of pieces of financial information every hour---but Bloomberg could use some help in the area of user-friendliness. For example, to get the current price of interest-rate swaps I have to type in commands like IRSB or SWYC, not readily retrievable from long-term memory if I don’t work with the system every day.

I grabbed a bottle of cranberry juice and headed back to the office. Think I'll sign up for the fixed-income securities class next---at least it will have some relevance to my retirement. © 2005 Stephen Yuen