From my favorite Fund Manager...



January 19, 2004
Spinning Muons

John P. Hussman, Ph.D.
All rights reserved and actively enforced.

Last week physicists at the Brookhaven National Laboratory sent four billion spinning muons down a particle racetrack at nearly the speed of light, in hopes of confirming the existence of new matter. Muons, in case you missed that day in grade school, are tiny spinning particles – heavier cousins of electrons – that emerge from the spray of fragments created by shooting protons at high speed from an Alternating Gradient Synchrotron into a nickel plate.

The elusive new matter is predicted by an unconfirmed theory called supersymmetry. The New York Times offered this report: “According to the theory, every known particle in the universe from the electron to the neutrino has a counterpart that has eluded detection. Seemingly empty space is populated by a kind of fizz of particles that flit into and out of existence. If not for the background fizz of other particles, the frequency with which the muons zip around the track would be the same as their wobble frequency. But a set of 24 detectors found that they were different. The findings seem to agree with the group's earlier examination of positive muons, suggesting to some scientists that the shadow universe of supersymmetry may have been dimly sighted.”

There are a lot of reasons this story is important. From the standpoint of physics, the idea of supersymmetry is really a notion of everything having been created from nothing; taking zero and splitting it apart into one and negative one; and yet that if we were to take everything in the universe and crush it back together, it would all add up to nothing again. From the standpoint of philosophy, there is a Buddhist teaching that everything we call self is composed of non-self elements, just like a sheet of paper is made of the sun and the rain and the earth; that there is no truth to the belief that we are entities separate from others, even from our enemies; that the essence of compassion is to understand that “this is because that is, and this is not because that is not.”

Information is in the divergences

From the standpoint of finance, the best part of the article was a sentence explaining why this experiment was the path to new information. Essentially, the muons seemed to be bumping into that “fizz” of particles, which slightly changed their wobble. The Times wrote “Only through differences between the expected and observed behavior of the muons could the existence of new matter be inferred.”

Long-time readers of these comments should recognize that concept, because it is exactly the approach we use to learn information from the markets. Information is never in the news itself, but rather in the deviation between the actual news and the news that would be expected given the surrounding context. The information is always in the divergences – the surprises – that we see in market action. A market that produces uniformly good performance across a wide range of securities, indices, and industries is a market where investors are comfortable taking risk. A market that produces unusual or subtle breakdowns in its internal action is a market where investors are quietly becoming skittish. As a highly ranked U.S. chess champion recently told me, “when your opponent makes a very peculiar move, there's something wrong.”

Market Climate

Which brings us to the current Market Climate for stocks. There is faintly an end to the criticisms that we could heap on the current status of the stock market: it is steeply overvalued on the measures that we've found most reliable; sentiment is extreme, with just 10.1% of individual investors bearish (AAII) and 18.8% of investment advisors bearish (Investors Intelligence), while corporate insiders are selling stock at nearly the highest rates on record; the CBOE volatility index has plunged to just 15%, exhibiting a sleepy complacency about risk; and the major indices are clearly stretched, with 1027 issues on the NYSE hitting new highs last week and over 90% of industry groups technically overbought. Over the long-term, it is difficult to see how the poor fundamentals of the market and the economy will end well for investors.

Yet despite these conditions, we still do not observe the sort of internal divergences that would lead us to take anything but moderate precautions here. There is currently very little in market action that suggests the sort of investor skittishness that typically emerges prior to or early into major market declines, or that has been associated with a poor return/risk profile for stocks. In the Strategic Growth Fund, we've hedged about 50% of our exposure to market fluctuations, with a small contingent put option position (a fraction of 1% of assets) sufficient to hedge another 25% of the portfolio in the event of a decline of more than 4% or so.

In short, we still don't observe the creeping aversion to risk that would move us to a fully defensive position. The current Market Climate is sufficient to hold us to a moderately hedged position, but we would expect to benefit from further market advances if they occur.

In the bond market, the Market Climate remains characterized by modestly unfavorable valuations and modestly unfavorable market action. The Strategic Total Return Fund continues to maintain an overall portfolio duration of about 2 years (meaning that a 100 basis point move in interest rates would be expected to impact the Fund by about 2% on the basis of bond price fluctuations). As I noted last week, there was some potential for strength in the U.S. dollar, which we in fact observed. That sent gold stock prices down sharply; much more than the metal in fact, and that created a very small opportunity to place a few percent of the Fund's assets into precious metals shares.

Where might the returns come from?

Despite the still-benign Market Climate in stocks, the over-broad consensus that stocks will advance until at least election day is slightly unnerving. We don't take positions based on scenarios, but I would not be at all surprised to see the market clear the current overbought condition with a potentially sharp pullback, but one that is met with fresh speculative interest. Advancing markets seldom shift gears to outright plunges (though we don't rule out the possibility). Instead, they tend to roll over gradually. And it's during that extended period of rolling over – declines met by fresh advances and marginal new highs, followed by declines met by fresh advances and marginal new highs – that cracks often begin to appear in the foundation of market action.

My opinion, which we don't trade on and neither should you, is that we probably won't see the market adhering to the very popular pre-election rally theme. Instead, I wouldn't be surprised to see a wide sideways path in the months ahead, with marginal new highs sufficient to maintain bullish hopes, but not much for buy-and-hold investors to show in the end.

In a wide sideways market, stock selection and convexity (a property of options that allows the capture of returns when market volatility exceeds the volatility implied by the options) would likely be the primary sources of potential return, while market risk would not be worth much at all. Again, we aren't positioned on the basis of scenarios like this, but we would easily welcome this sort of outcome.

In a bond market that is not priced to deliver strong long-term returns, the sources of potential return must be something other than passive holding. This is precisely why we designed Strategic Total Return Fund to allow flexibility in the overall portfolio duration taken by the Fund depending on market conditions, as well the ability to invest limited amounts of Fund assets in alternatives such as Treasury Inflation Protected Securities, precious metals shares, utility stocks, foreign currencies, and foreign government bonds. While there is no assurance that this approach will outperform a passive investment in bonds, it is difficult to see how bond market strategies lacking this flexibility will maneuver through a low yielding environment with very thin credit spreads and an extraordinary overhang of debt. That's probably why at least one famous bond fund manager has liquidated his personal investments the fund he manages … and is certainly why I haven't had any such impulse.

COMMENTS ARE WORKING AGAIN! - Old comments have been restored. Thanks to HaloScan for importing the Blogspeak data.

What are they really up to in space?
As Ken was pointing out, they don't give a crap about Mars. They want to get rid of the expensive space shuttle, pay their friends to put missiles on the moon, and monopolize resources in another landgrab.
Yahoo! News - U.S. Eyes Space as Possible Battleground

U.S. National - Reuters

U.S. Eyes Space as Possible Battleground
Sun Jan 18, 2:27 PM ET

By Jim Wolf

WASHINGTON (Reuters) - President Bush (news - web sites)'s plan to expand the exploration of space parallels U.S. efforts to control the heavens for military, economic and strategic gain.

Defense Secretary Donald Rumsfeld long has pushed for technology that could be used to attack or defend orbiting satellites as well as a costly program, heavily reliant on space-based sensors, to thwart incoming warheads.

Under a 1996 space policy adopted by then-President Bill Clinton (news - web sites) that remains in effect, the United States is committed to the exploration and use of outer space "by all nations for peaceful purposes for the benefit of all humanity."

"Peaceful purposes allow defense and intelligence-related activities in pursuit of national security and other goals," according to this policy. "Consistent with treaty obligations, the United States will develop, operate and maintain space control capabilities to ensure freedom of action in space, and if directed, deny such freedom of action to adversaries."

No country depends on space and satellites as its eyes and ears more than the United States, which accounted for as much as 95 percent of global military space spending in 1999, according to the French space agency CNES.

"Yet the threat to the U.S. and its allies in and from space does not command the attention it merits from the departments and agencies of the U.S. government charged with national security responsibilities," a congressionally chartered task force headed by Rumsfeld reported 10 days before Bush and he took office in 2001.

Theresa Hitchens of the private Center for Defense Information said the capabilities to conduct space warfare would move out of the realm of science fiction and into reality over the next 20 years or so.

"At the end of the day it will be political choices by governments, not technology, that determines if the nearly 50- year taboo against arming the heavens remains in place," she concluded in a recent study.

Outlining his election-year vision for space exploration last week, Bush called for a permanent base on the moon by 2020 as a launch pad for piloted missions to Mars and beyond.

One unspoken motivation may have been China's milestone launch in October of its first piloted spaceflight in earth orbit and its announced plan to go to the moon.

"I think the new initiative is driven by a desire to beat the Chinese to the moon," said John Pike, director of GlobalSecurity.org, a defense and space policy research group.

Among companies that could cash in on Bush's space plans are Lockheed Martin Corp., Boeing Co. and Northrop Grumman Corp., which do big business with the National Aeronautics and Space Administration as well as with the Pentagon (news - web sites).

The moon, scientists have said, is a source of potentially unlimited energy in the form of the helium 3 isotope -- a near perfect fuel source: potent, nonpolluting and causing virtually no radioactive byproduct in a fusion reactor.

"And if we could get a monopoly on that, we wouldn't have to worry about the Saudis and we could basically tell everybody what the price of energy was going to be," said Pike.

Gerald Kulcinski of the Fusion Technology Institute at the University of Wisconsin at Madison estimated the moon's helium 3 would have a cash value of perhaps $4 billion a ton in terms of its energy equivalent in oil.

Scientists reckon there are about 1 million tons of helium 3 on the moon, enough to power the earth for thousands of years. The equivalent of a single space shuttle load or roughly 30 tons could meet all U.S. electric power needs for a year, Kulcinski said by e-mail.

Bush's schedule for a U.S. return to the moon matches what experts say may be a dramatic militarization of space over the next two decades, even if the current ban on weapons holds.

Among other things, the Pentagon expects to spend at least $50 billion over the next five years to develop and field a multi-layered shield against incoming missiles that could deliver nuclear, biological or chemical weapons.

Ultimately, this shield -- first proposed by President Ronald Reagan (news - web sites) and dubbed "Star Wars" by critics -- may include space-based interceptors, the first weapons in space, as opposed to sensors that guide weapons.

Last year, the Pentagon's Missile Defense Agency obtained $14 million for research on basing three or more missile interceptors in space by the end of the decade for tests.

The plan would field satellites armed with multiple "hit-to-kill" interceptors capable of destroying a ballistic missile through a high-speed collision shortly after its launch, according to Wade Boese, research director of the private Arms Control Association. Such a system could also function as an anti-satellite weapon.

No decision has been made yet to deploy space-based interceptors as part of the U.S. missile defense program "although we are conducting research and development activities in that area," a Defense Department official said Friday.

More China Stuff

Quick info on China's currency
Chinese Paper Currency

Interesting Analysis by UPI Courtesy of Brett:
Analysis: China, today's Creditanstalt?

Analysis: China, today's Creditanstalt?
Thursday, 16-Oct-2003 4:01PM PDT Story from United Press International
Copyright 2003 by United Press International (via ClariNet)
--------------------------------------------------------------------------------
WASHINGTON, Oct. 16 (UPI) -- Wednesday, the American Enterprise Institute held a seminar to discuss whether China will revalue the renminbi. The bottom line was: economically, they should, but it would be very difficult and so they won't. The seminar's analysis, however, was more interesting than the conclusion.

The general view was that the Chinese authorities would prefer to keep the renminbi at around 8.3 to the dollar, because their principal concerns are unemployment and the agricultural sector, rather than the country's balance of payments. In any case, China's balance of trade as a whole is far less positive than its balance of trade with the United States; the $100 billion per annum surplus with the United States is offset by a $70 billion per annum deficit with the rest of the world, primarily other countries in emerging Asia. Approximately two thirds of China's exports are processed goods, with substantial amounts of the inputs coming from other Asian countries, and China supplying primarily the labor factor. Thus the net surplus on current account, 3 percent of gross domestic product in 2002, will be less than 2 percent of GDP in 2003.

At the time of the Asian crisis of 1998, there was considerable expectation that the renminbi might decline against the dollar (it has been pegged at its current exchange rate for a decade.) However, the continued high level of foreign investment in China (currently around $50 billion per annum by official figures, although half or more of that may be "round-tripping" of domestic money exported illegally) and the consequent rise in China's foreign exchange reserves has since made the renminbi strong rather than weak. In the past year, the decline of the dollar against the euro and to a lesser extent the yen has been tracked by the renminbi, and by a number of other Asian currencies that also track the dollar, and whose economies are intimately bound up with that of China. Currently, the top 5 Asian holders of foreign reserves own around $1.8 trillion of U.S. Treasury bonds, of which China owns $350 billion.

China's capital account is also an upward force on the renminbi. According to Nicholas Lardy, of the Institute for International Economics, China's capital account was positive by about $30 billion in 2002, a similar amount to the previous year. However, its foreign exchange reserves are building more rapidly than the surplus on capital account, having risen above $350 billion in the first half of 2003. The errors and omissions item in the balance of payments, which generally represents unreported private capital transfers, having fluctuated around $10 billion negative (transfers out) in the years from 1994-2002, was nearly $10 billion positive (unrecorded transfers in) in 2002, and is likely to be larger in 2003 as Chinese savers speculate on a possible revaluation of the renminbi.

Harvey Chen, of Shanghai Jiao Tong University, pointed out that the major political pressure on China to revalue comes from those U.S. multinationals which have not relocated part of their production to China, and from the European Union, against whose currency the renminbi has of course substantially declined, in line with the dollar. U.S. multinationals manufacturing in China would suffer from any substantial revaluation.

Because of the high foreign content in much of the Chinese export volume, it is likely that a revaluation of the renminbi will affect the balance of payments much less than might at first be expected; Lardy estimated that a revaluation of 15-25 percent would be necessary to remove the Chinese payments surplus of only 3 percent of GDP.

Yusuke Horiguchi, of the Institute for International Finance, suggested that rather than a single revaluation, China might widen the trading bands of the renminbi against its current central rate, so that the currency appreciated gradually; repeated such steps, and re-peggings of the central rate, could be undertaken over a period, so that Chinese exporters, and more particularly China's weak banking system, would have time to adjust.

The most difficult problem facing the Chinese government if it wished to revalue the renminbi is in the banking system. This is funded by the very high savings of the Chinese people, who are not allowed to take money out of China, except in very limited circumstances, or to hold non-renminbi deposits with Chinese banks, unless they earned the foreign currency abroad. As Randal Quarles, U.S. Treasury's Assistant Secretary for international affairs pointed out, since only about a third of the increase in foreign exchange reserves has been sterilized, the result has been a huge increase in the Chinese money supply, by 22 percent in the 8 months to August 2003.

This money in turn has been recycled by the state owned Chinese banking system into loans, which according to Lardy are likely to increase by a staggering 33 percent of Chinese GDP, 3.6 trillion renminbi ($435 billion) in 2003. Non-performing loans, which were already around $500 billion, have risen significantly in 2003 and are of course likely to rise even more rapidly as 2003's new loans go sour. Much of the money has been lent to real estate and industrial park developers, to the benefit of U.S. multinationals seeking to manufacture in China, but with a high probability of producing a huge space glut in the near future. China's increase in loans in 2003 is a larger relative increase than in any of the Asian bubble economies of the middle 1990s; as John Makin of AEI pointed out, China has the potential to be the "third bubble" after 1990 Japan and 2000 Wall Street.

In Lardy's words, the Chinese banking system is currently insolvent, in that its liabilities exceed its assets by a substantial margin, but it is not illiquid, as Chinese savers have nowhere else to put their money. This does however mean that for China to remove exchange controls would be highly dangerous; Chinese savers, to whom the parlous condition of the domestic banks cannot entirely be a secret, would instantly move their savings out of the system and into foreign banks. The foreign exchange effect of this would probably be bearable, given China's huge volume of dollar reserves, but the banking system effect, by making the domestic banks both insolvent and illiquid, would almost certainly cause a collapse, the immediate effect of which would however be felt primarily by the Chinese savers with deposits in the banks, rather than by foreign multinationals in China or by the international banking system which (unlike in other Asian countries) does not have a huge exposure to China.)

Of course, if China does not remove exchange controls, it is impossible for a true market rate for the renminbi to be determined. Nevertheless, as a number of participants pointed out, an exchange rate system of either fixed or floating exchange rates can in practice be combined with capital controls relatively easily; this was done in Europe until the middle 1980s.

The principal beneficiaries of a revaluation of the renminbi would be the Chinese middle classes, who would also be the principal beneficiaries from a relaxation of exchange controls, that would allow them to move their money to safer, more lucrative environments abroad. If the Chinese government was motivated purely by the welfare of its people, it would in my view revalue the renminbi by around 10 percent, and at the same time engage in a substantial relaxation of exchange controls that was heavily weighted towards the small saver, rather than to business, as is currently contemplated, or towards the rich (who can mostly get their money out anyway.) For example, if each family was allowed to convert $10,000 worth of renminbi into foreign currency deposits, of which $2,000 could be removed from the Chinese banking system altogether -- in cash or by wire transfer to a foreign bank -- the adverse liquidity effect on the Chinese banking system could be moderated, and the small saver in particular granted that most precious of economic freedoms, the right to remove his money from the system if he wishes. Since transfers would be made through domestic Chinese banks, policing the "once a year" requirement would in principle be straightforward.

The collapse of the Chinese banking system is in the long run inevitable; by 2007 foreign banks must be allowed to enter China, under China's World Trade Organization obligations, and the poor quality of the current tsunami of loans will presumably become apparent well before then. Much more important than prolonging the lives of the Chinese banks, however, is preserving as much as possible of Chinese middle class savings from the collapse. Such savings are the only way in which small businesses can be funded, and if they are allowed to be expropriated by the collapsing banking system, the result will be a recession lasting a decade or more, as new business formation drops catastrophically and unemployment soars.

In 1929, a huge U.S. stock market boom burst. In 1930, the stock market began to recover, at a lower level, and the U.S. economy was also only moderately affected by the collapse. In May 1931, the Austrian bank Creditanstalt failed, causing a knock-on liquidity crisis throughout Europe, the insolvency of many European countries, a collapse in world trade, and a downward spiral into the Great Depression.

It is unlikely that China will revalue the renminbi, or free up exchange controls for its unfortunate citizens; the short term political and economic costs are too great. Doing so, however, would at least mitigate the cost of a Chinese banking system collapse, since it would prevent that collapse from destroying the Chinese domestic savings base. In such a case, the Chinese banking system could indeed prove today's Creditanstalt, causing a collapse of world trade, and a re-run of the Great Depression.

We should start a new blog called "TodaysCorporateGiveAwayByBUSH". This is the sort of stuff that has me worried.

Peer Review Plan Draws Criticism (washingtonpost.com)

and this:

Yahoo! News - Bush Challenges U.N. Report on Obesity

Jerry's thoughts on China
Posted by Matt in the absence of our comment system...

It will hurt, but it will be a good hurt: things from China are simply
too cheap and they distort the worlds value system. In making the
materials of the earth so cheap they are disposable, we are enticed
into the process of converting the sacred into the profane.
As to democracy in Taiwan... Taiwan belongs to China: it is in its
sphere of influence as much as the entire western hemisphere is in
ours, though we take umbrage at yellow people having anything like a
Monroe Doctrine (the Europeans felt we were totally nuts when we
established that doctrine! Who??? those Americans, dressed in buckskin
and living side by side with Indians???)
We also threatened England in no uncertain terms while they supported
the southern rebellion. And we still treat Cuba as some 1800 lunatic
fit to be locked in a primitive dungeon.
Honk Kong is gone. Taiwan will also go. And China is indeed becoming
reasonable democratic, and what with our moving toward them with
iterations of the patriot act, who knows where we will end up in the
ranking.
I like the notion of easing up trade with China. I like the notion of
staying a little closer to home, with Mexico and Canada and Central and
South Amreica. I like the notion of the US cleaning up its own house.
Mostly, we use Chinese goods like we use Mexican labor: to keep the
labor costs to local American corporations cheap. Screw the heath
care, OSHA, etc.
What are we going to do when China starts using its fair share of air
and then some? Who you gonna call then? (Ghostbusters... NOT)
Our national focus is on long term economic growth, and short term
economic gain, but things like eating, the arts, the good life,
spirituality, and the true heart of man.... nah.
We, the people, all the people, love our children. The governments,
the IMF, the WMF... they don't. It ain't "evil" but it sure is true,
and truth is what you deal with.

Another outtake from the Project for a New American Century paper, pg. 42. Emphasis mine

American landpower remains the essential link in the chain that translates U.S. military supremacy into American geopolitical preeminence. Even as the means for delivering firepower on the battlefield shift – strike aircraft have realized all but the wildest dreams of air power enthusiasts, unmanned aerial vehicles promise to extend strike power in the near future, and the ability to conduct strikes from space appears on the not-too-distant horizon – the need for ground maneuvers to achieve decisive political results endures. Regimes are difficult to change based upon punishment alone. military preeminence.

Good point about Bush's moon plan Ken. I think you're right on. They probably couldn't sell another military strategy to the public with things in Iraq going poorly, so why not capitalize on the media frenzy surrounding the Mars landers and sell everyone on colonizing the moon. They just haven't mentioned the part about putting missiles up there yet, but that is in their plan for sure.

Pentagon Report Calls for the United States Control of Space:
"Issued September 30 (2001), the QDR report was the product of senior civilian and military leadership of the DoD. "This report outlines the key changes needed to preserve America's safety and security in the years to come," writes Donald Rumsfeld, U.S. Secretary of Defense, in the foreword to the report."

Yuan Revalue? Lots to think about with regard to China these days. When they revalue, Wal-Mart and the whole industry that centers around cheap Chinese goods will take a hit as the products become more expensive.

From New York Times: Small Business: Struggling With the Falling Dollar
Key point: The cost of imports from China, the United States' fastest-growing trading partner, have not gone up significantly because Beijing pegs its currency, the yuan, to the dollar. Yet that exchange parity has added to the pain of some American small-business owners who import goods from Europe and elsewhere that compete with Chinese-made products. Complicating matters, China has come under international pressure to revalue the yuan, and any relaxation of its policy could suddenly make its goods more expensive to Americans, too.

And in the news...

News reports regarding revaluing the Yuan (removing the peg). Conflicting reports, but it looks like it will happen soon.:
Google Search: china yuan revalue

The Bush administration threatens our security with short term focus on his election. Iraq, weak dollar, leads to debt and subservience to China

From http://www.saag.org/papers9/paper858.html

China currently has nearly 500 missiles aimed at Taiwan and has been increasing them at nearly 15% each year. In addition, it periodically issues loud threats to the renegade province and even warns the US to rein in Taiwan and restrain itself. This leads to insecurity and anger on the island. The Taiwanese president seeking re-election and previously flirting with declaring independence has chosen to hold a referendum on the withdrawal of Chinese missiles. This is a euphemism for independence. China has stated indirectly through high-ranking Peoples Liberation Army officials, that it is willing to face economic and military setbacks to prevent Taiwan from declaring even an intention of independence. The warning is to America that trade sanctions or gunboat diplomacy will not work and the One China policy is sacrosanct. China is smart. It knows that America is bogged down in Afghanistan and Iraq. North Korea has thumbed its nose at the US in nuclear proliferation and it needs Chinese help in the six party talks to put the North Korean genie back in the bottle. China and Hong Kong hold over half a trillion dollars in US treasuries and can sink the dollar. This, an America with budgetary and current account deficits projected infinitely in the future cannot afford, especially with an ambivalent Saudi Arabia and hostile Iran waiting in the wings to price oil in Euros and dethrone the dollar as a reserve currency. China has ignored the desperate pleas of the Bush administration to revalue its currency upwards. Not that it would help too much, because it would ultimately ignite the dormant fire of American inflation. The Congress is sliding towards huge tariffs on Chinese exports. TVs and textile quotas have already been restricted. Punitive tariffs would decimate the Chinese economy and aggravate the regional economic disparities that are already a present threat of fissiparous disintegration to China. This would make it abandon restraint and make it more aggressive towards renegade Taiwan.

This is why America is sending emissaries to stop the Taiwanese referendum and contrary to its hypocritical democracy preaching preventing the progress of democracy in Taiwan. Latin America and much of Asia have already realized that. The Middle East and Africa are getting there. When Taiwan utters the words that some Cherokee nay have uttered on the Trail of Tears---The Great White Father in Washington speaks with a forked tongue the whole world may become enlightened.

http://www.china-ready.com/news/WeakUSDollarPolicyWillBoostChinaInvestment052803.htm

[...]
According to their thinking, a cheaper US dollar will stimulate exports, as US products will become cheaper. Increased demand for US products will lead to hiring of more US workers, which will stimulate more US consumer spending. Happier US consumers and a smoother economy will be less likely to vote out the Bush administration in 2004. At least, that is the conventional wisdom.

But the reality may be very different. A weak US dollar is like a crack high; it may make you feel like the king of the world for a short while, but the comedown can be a potential killer. Foreign investors will not put their capital in the US because their rate of return will be way down. Importers of foreign goods in the US will at first absorb smaller profit margins in order to remain competitive, but will then be forced to raise prices. In order to bring in more foreign capital to finance US debt, interest rates will have to go up, causing inflation. Remember, the US economy relies on foreign capital and investors to finance its debt. And it is unlikely that foreign companies will choose to put their manufacturing in the US because of weak consumer demand and higher costs. Handled poorly, the US economy will end up with the worst of all possible worlds: little or no job creation, weak consumer demand and inflation.

When it comes to job creation in the US, the best that can be said for the Bush administration's economic policies are that the link between tax cuts, economic stimulus and job creation are very tenuous. When it comes to new business, most US companies are trying to offer a security angle in the hope that they can get federal contracts from the Department of Homeland Security, since they seem to be the only organization with any purchasing budget.

So where will the capital go?

Capital always goes where it generates the best rate of return, and it continues to be China, even after the SARS crisis. China is now the factory to the world in many sectors, and this pace will accelerate with the depreciation of the dollar. Because the Chinese yuan is pegged to the US dollar at 8.2 to 1, Chinese products will become even cheaper and Chinese makers will enter more manufacturing sectors and markets. As China's export markets reach full capacity, Chinese companies will turn their attention to developing and stimulating demand in the Chinese domestic market. When the manufacturing sector reaches capacity, growth will be focused on China's service sector.

US, Japanese and European makers will continue to enter the China market and set up factories, but more and more, the emphasis will be on serving the China market instead of their own stagnant markets because that's where the growth will be. Competition in the Chinese consumer market, already hot, will become red hot.

US baby boomers will begin retiring in 2010. Faced with a foreign debt overhang, low job creation, a stretched health insurance and social security system, US consumers will cut their spending even more, which will in turn lead to a fall in the US standard of living. Interest on foreign debt will take a growing piece of the US budget. Hardest hit will be US workers entering the US workforce after 2010; they will have to support all the retiring baby boomers and the combined deficit/demographic timebomb, where a smaller, shrinking tax-paying population supports a growing deficit and growing retired population.
[...]

From
http://www.dailyfx.com/article_rr_005.html

President George W. Bush has told the markets repeatedly that his administration is committed to a strong dollar. However, the Bush administration's recent monetary and fiscal policy initiatives lead us to believe that behind the scenes the US is actually supporting a weak dollar policy. [...]

Bush promises us the Moon.

Well yesterday President Bush came out with his great plan about going to the moon. We hear from excited space geeks about how wonderful it all is. About how human mission to Mars is now just around the corner. We hear from spoilsports who tell us we cannot afford to do it (since when were we afraid to spend a little money on our dreams?). Bush said the cost is expected to be $12 billion. (Wow, with the $87 billion that Bush is laundering in Iraq we could have built 7 moon outposts. That sure puts the Bush theft in perspective.) Yet people associated with space exploration say such a cost target is far too low. When the first Bush ruled a proposal to send a team to Mars was estimated at $400 billion, and that is in 1989 dollars.

So why is Bush promising us the moon and under funding it? Well that is nothing new. This administration is renowned for promising all sorts of stuff but not funding it

9-11 Commission Funding Woes.

Senator urges Bush to fully fund 'No Child' law.

Homeland security funding isn't reaching most cities, report finds

So it is no big surprise that, once again, Bush gives a promise that he does not actually plan to keep. But I think that the real reason is different. I think that this Moon-Mars plan is, a ruse, a deception, a cover (sort of like Iraq is a means to transfer large sums of cash from the U.S. Treasury to Bush’s pals.) The plan here is to spend this money to militarize space.

Let me give you the most important piece of advice when it comes to trying to figure out what the Bush administration is up to. When they announce some big plan, go to The Project for a New American Century web site and search for a similar project. These are the people who gave us the Iraq war and the desire for control of the Middle East. Here is an outtake from their first project paper

From page 12…

CONTROL THE NEW “INTERNATIONAL COMMONS” OF SPACE AND “CYBERSPACE,” and pave the way for the creation of a new military service – U.S. Space Forces – with the mission of space control.

INCREASE DEFENSE SPENDING gradually to a minimum level of 3.5 to 3.8 percent of gross domestic product, adding $15 billion to $20 billion to total defense spending annually.

So there you have it. The REAL reason we are “going to the moon” is to divert everyone’s attention while we militarize and "take control of" space.

Ken

"To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public". - Theodore Roosevelt, 26th US President (1858-1919)

"Now what I get a sense of from all of this -- and then topped obviously by spending all the money in 2000 to basically buy the election -- is that this is not a family (Bush) that has a particularly strong commitment to American democracy. Its sense of how to win elections comes out of a CIA manual, not out of the Declaration of Independence or the Constitution."
-- Kevin Phillips former Nixon staffer and author of "The Emerging Republican Majority.”


I love my country and because I do, I fear the president.

Comments aren't working currently because Blogspeak is down.
http://www.bighar.com/blogspeak/

Below is a pro-Iraq-War email that I received. I thought it was offensive in many ways, not to mention a pretty bad example of how to teach your children. I forwarded this email to Ken, who said it got him riled and his response (also below) just sort of poured out. I think Ken's retort does a good job showing how ignorant the point of view presented in the pro-war email is.

The original email:

A LESSON TO MY SON
by A PROUD AMERICAN Irma S. Chambers

The other day, my nine year old son wanted to know why we were at war.
My husband looked at our son and then looked at me. My husband and I
were in the Army during the Gulf War and we would be honored to serve
and defend our country again today. I knew that my husband would give him a
good explanation.

My husband thought for a few minutes and then told my son to go stand in
our front living room window. He told him:

"Son, stand there and tell me what you see?"

"I see trees and cars and our neighbors houses." he replied.

"OK, now I want you to pretend that our house and our yard is the
United States of America and you are President Bush."

Our son giggled and said "OK."

"Now son, I want you to look out the window and pretend that every
house and yard on this block is a different country." my husband said.

"OK Dad, I'm pretending."

"Now I want you to stand there and look out the window and see that
man come out of his house with his wife and he has her by the hair and is
hitting her. You see her bleeding and crying. He hits her in the face,
he throws her on the ground, then he starts to kick her to death. Their
children run out and are afraid to stop him, they are crying, they are
watching this but do nothing because they are kids and afraid of their
father. You see all of this son....what do you do?"

"Dad?"

"What do you do son?!"

"I call the police, Dad."

"OK. Pretend that the police are the United Nations and they take
your call, listen to what you know and saw but they refuse to help. What do
you do then son?!"

"Dad, but the police are supposed to help!" My son starts to
whine. "They don't want to son, because they say that it is not their place
or your place to get involved and that you should stay out of it," my
husband says.

"But Dad...he killed her!!" my son exclaims.

"I know he did...but the police tell you to stay out of it. Now I
want you to look out that window and pretend you see our neighbor who you're
pretending is Saddam turn around and do the same thing to his children."

"Daddy...he kills them?"

"Yes son, he does. What do you do?"

"Well, if the police don't want to help, I will go and ask my next
door neighbor to help me stop him." our son says.

"Son, our next door neighbor sees what is happening and refuses to
get involved as well. He refuses to open the door and help you stop him,"
my husband says.

"But Dad, I NEED help!!! I can't stop him by myself!!"

"WHAT DO YOU DO SON?"

Our son starts to cry.

"OK, no one wants to help you, the man across the street saw you ask
for help and saw that no one would help you stop him. He stands taller and
puffs out his chest. Guess what he does next son?"

"What Daddy?"

"He walks across the street to the old ladies house and breaks down
her door and drags her out, steals all her stuff and sets her house on fire
and then...he kills her. He turns around and sees you standing in he
window and laughs at you. WHAT DO YOU DO?!!!"

"Daddy..."

"WHAT DO YOU DO?!!!"

Our son is crying and he looks down and he whispers, "I close the
blinds, Daddy."

My husband looks at our son with tears in his eyes and asks him...
"Why?"

"Because Daddy.....the police are supposed to help...people who needs
it....and they won't help....You always say that neighbors are supposed
to HELP neighbors, but they won't help either...they won't help me stop
him...I'm afraid....I can't do it by myself...Daddy.....I can't look out
my window and just watch him do all these terrible things
and...and.....do nothing...so....I'm just going to close the
blinds....so I can't see what he's doing........and I'm going to pretend that it is
not happening."

I start to cry.

My husband looks at our nine year old son standing in the window,
looking pitiful and ashamed at his answers to my husbands questions and he tells
him...."Son"

"Yes, Daddy."

"Open the blinds because that man....he's at your front
door..."WHAT DO YOU DO?!!!!"

My son looks at his father, anger and defiance in his eyes. He balls up
this tiny fists and looks his father square in the eyes, without
hesitation he says: "I DEFEND MY FAMILY DAD!! I'M NOT GONNA LET HIM
HURT MOMMY OR MY SISTER, DAD!!! I'M GONNA FIGHT HIM, DAD, I'M GONNA
FIGHT HIM!!!!!"

I see a tear roll down my husband's cheek and he grabs my son to his
chest and hugs him tight, and cries..."It's too late to fight him,
he's too strong and he's already at YOUR front door son.....you should have
stopped him BEFORE he killed his wife. You have to do what's right,
even if you have to do it alone, before......it's too late." my husband
whispers.

THAT scenario I just gave you is WHY we are at war with Iraq. When good
men stand by and let evil happen is the greatest EVIL of all. Our
President is doing what is right. We, as a free nation, must understand

that this war is a war of humanity. WE must remove this evil man from
power so that we can continue to live in a free world where we are not
afraid to look out our window and see crimes on humanity.
So that my nine year old son won't grow up in a world where he feels
that if he just "closes" that blinds the atrocities in the world won't
affect him. Today the second day of "WAR on IRAQ" I felt compelled to
write this and pass it along. Hopefully, you will understand the lesson my
husband tried to teach our son.

"YOU MUST NEVER BE AFRAID TO DO WHAT IS RIGHT! EVEN IF YOU HAVE TO DO
IT ALONE!" BE PROUD TO BE AN AMERICAN! BE PROUD OF OUR PRESIDENT! BE
PROUD OF OUR TROOPS!! SUPPORT THEM!!! SUPPORT AMERICA!! SO THAT IN THE
FUTURE OUR CHILDREN WILL NEVER HAVE TO CLOSE THEIR BLINDS...."

Ken's Response Email
Now son imagine that Mr. Saddam the neighbor has a lot of really good stuff that we like and he is willing to sell it to us for less. Not only that, but these really nasty people moved in next to him, the Iran family, and we really don’t like them and our neighbor agrees to not like them too and to even start shooting into their house and try to take it. Now, since he is our friend and is selling stuff we really like for cheap we return the favor and sell him loads and loads of guns and ammunition and chemical weapons in order to help him with his attack.

Well, as it turns out, his wife doesn’t like how mean he is to all the children and how he treats her and doesn’t like the idea of attacking the neighbors so she tries to change things. Well the man then starts using all the guns and ammo and the chemical weapons on his own family to show them who is in control. So you know what I do son? Well, I sell him more of all these things since 1) He is our friend and 2) we make a nice little profit off all that stuff we sell.

Well the other neighbors complain and they take their complaints to the UN cops, but since the cops have no weapons to protect themselves they always call us when they do need help. So son we just tell them that everything is OK.

But then one day son, that Mr. Saddam comes out and takes the house of that other friend of ours, the Kuwait family, that also sells us that stuff we like for really cheap. Well now son we need to show that man (and the rest of the neighborhood) who is boss. So we go to the cops and point out the injustice of the take over and the entire neighborhood gets together and kicks him out.

Well we still don’t like that Mr. Saddam because he showed the neighborhood that he could stand up to us and there wasn’t anything we could do about it. So you know what I did son? I made up an excuse to go over there and take his home away from him, one that you and mom would believe, so that I could show the other neighbors that they should keep in line. Then here at home I have good buddies of mine who can make up cute little stories, like one about a dad showing his son why he took that mans house, to sooth everyone back to sleep so that they don’t have to worry why I used to be such good friends with the man, why I sold him all his weapons and used to ignore what he did to his family back then.

George Will


Ken's comments in BOLD

Afflicted By Comfort

"What good is happiness? It can't buy money."

— Henny Youngman


Social hypochondria is the national disease of the most successful nation. By most indexes, life has improved beyond the dreams of even very recent generations. Yet many Americans, impervious to abundant data and personal experiences, insist that progress is a chimera. Maybe because Americans are not comparing their lives with 50 years ago but four years ago?


Gregg Easterbrook's impressive new book, "The Progress Paradox: How Life Gets Better While People Feel Worse," explains this perversity. Easterbrook, a Washington journalist and fellow of the Brookings Institution, assaults readers with good news.


American life expectancy has dramatically increased in a century, from 47 to 77 years. Our great-great-grandparents all knew someone who died of some disease we never fear; as recently as 1952, polio killed 3,300 Americans. Our largest public health problems arise from unlimited supplies of affordable food. This is great. Of course 100 years ago no one died from West Nile, or SARS, or AIDS. But it is true that life IS better today than it was 100 years ago. How about better than 4 years ago?


The typical American has twice the purchasing power his mother or father had in 1960. A third of America's families own at least three cars. In 2001 Americans spent $25 billion — more than North Korea's GDP — on recreational watercraft.


Factor out immigration — a huge benefit to the immigrants — and statistical evidence of widening income inequality disappears. This is REALLY good news. The statistic that household incomes are only moderately higher than 25 years ago is misleading: Households today average fewer people, so real dollar incomes in middle-class households are about 50 percent higher today. Since 1970 the number of cars has increased 68 percent and the number of miles driven has increased even more, yet smog has declined by a third Thanks to federal government regulation that this administration wants to weaken. and traffic fatalities have declined from 52,627 to 42,815 last year. Once again thanks to federal governemnt regulations that once again could face weakening. In 2003 we spent much wealth on things unavailable in 1953 — a cleaner environment, reduced mortality through new medical marvels ($5.2 billion a year just for artificial knees, which did not exist a generation ago), the ability to fly anywhere or talk to anyone anywhere. The incidence of heart disease, stroke and cancer, when adjusted for population growth, is declining. Good news.


The rate of child poverty is down in a decade. America soon will be the first society in which a majority of adults are college graduates.


And so it goes. But Easterbrook says that such is today's "discontinuity between prosperity and happiness," the "surge of national good news" scares people, vexes the news media and does not even nudge up measurements of happiness. Easterbrook's explanations include:


"The tyranny of the small picture." The preference for bad news produces a focus on smaller remaining problems after larger ones are ameliorated. Ersatz bad news serves the fundraising of "gloom interest groups." It also inflates the self-importance of elites, who lose status when society is functioning well. Media elites, especially, have a stake in "headline-amplified anxiety."


"Evolution has conditioned us to believe the worst." In Darwinian natural selection, pessimism, wariness, suspicion and discontent may be survival traits. Perhaps our relaxed and cheerful progenitors were eaten by saber-toothed tigers. Only the anxiety-prone gene pool prospered.


"Catalogue-induced anxiety" and "the revenge of the plastic" both cause material abundance to increase unhappiness. The more we can order and charge, the more we are aware of what we do not possess. The "modern tyranny of choice" causes consumers perpetual restlessness and regret. Well said, I agree.


The "latest model syndrome" abets the "tyranny of the unnecessary," which leads to the "10-hammer syndrome." We have piled up mountains of marginally improved stuff, in the chaos of which we cannot find any of our nine hammers, so we buy a 10th, and the pile grows higher. Thus does the victor belong to the spoils. Once again, well said.


The cultivation — even celebration — of victimhood by intellectuals, tort lawyers, politicians and the media is both cause and effect of today's culture of complaint. Agreed. It's funny to hear all these people (especially on the right) talk about responsibility yet run to victumhood when the public eye turns on them (e.g. Rush Limbaugh and G.W. Bush).


Easterbrook, while arguing that happiness should be let off its leash, is far from complacent. He is scandalized by corporate corruption and poverty in the midst of so much abundance. Good! And he has many commonsensical thoughts on how to redress the imbalance many people feel between their abundance of material things and the scarcity of meaning that they feel in their lives. The gist of his advice is that we should pull up our socks, spiritually, and make meaning by doing good while living well.


His book arrives as the nation enters an election year, when the opposition, like all parties out of power, will try to sow despondency by pointing to lead linings on all silver clouds. His timely warning is that Americans are becoming colorblind, if only to the color silver. The irony here is that so much that Will points out about what is good is under attack by this administration.

BuzzFlash interview: Kevin Phillips
Author of American Dynasty: Aristocracy, Fortune and the Politics of Deceit in the House of Bush


This interview originally appeared on BuzzFlash, the pro-democracy news source.


"Now what I get a sense of from all of this -- and then topped obviously by spending all the money in 2000 to basically buy the election -- is that this is not a family that has a particularly strong commitment to American democracy. Its sense of how to win elections comes out of a CIA manual, not out of the Declaration of Independence or the Constitution."
-- Kevin Phillips

Hey, you would expect this kind of talk from a lefty, right. But Kevin Phillips ain't no lefty. He's a former Nixon staffer and authored "The Emerging Republican Majority" back then. He hasn't had any transformation that has turned him into a -- God Forbid! -- Democrat. As he tells BuzzFlash, he voted for Reagan twice and would have eagerly voted for John McCain.

He hasn't stopped being Republican. It's just that he's appalled at what the Republican Party has become under the Bush dynasty.

In "American Dynasty," Phillips weaves evidence of the Bush family's dynastic sense of entitlement -- and corruption -- throughout this erudite book.

"Few have looked at the facts of the family's rise, but just as important, commentators have neglected the thread -- not the mere occasion -- of special interests, biases, scandals (especially those related to arms dealing), and blatant business cronyism" Phillips writes in his preface. "The evidence that accumulates over four generations [of the Bush family dynasty] is really quite damning."

"Three generations of immersion in the culture of secrecy...deceit and disinformation have become Bush political hallmarks," Phillips notes.

Entitlement, elitism, privilege, secrecy, mediocrity, corruption, financial cronyism, bailouts of family failures by the taxpayers -- these are some of the true characteristics of the Bush Dynasty, according to Phillips.

To Phillips, however, the greatest threat to America posed by the Bush dynasty is not its inherent unfitness to rule. What most offends and angers Phillips is the threat that the imposition of the Bush dynasty on America poses to democracy itself. The American rebellion in 1776 represented the creation of a nation built on the foundations of a government elected by the people, not determined by the restoration to power of corrupt bloodlines.

No book makes a stronger case against an American sitting in the White House who believes that he is in power because of hereditary entitlement and divine choice. Patriots rebelled against King George in 1776. Phillips notes that Americans have the opportunity to dethrone the Bush dynasty at the polls in 2004.

That is if the electronic software is not rigged in favor of the monarchy.

More on Keven Phillips .

Fome the Hussman funds site again.

January 12, 2004
Blame Keynes

John P. Hussman, Ph.D.
All rights reserved and actively enforced.

Einstein once said every theory should be made as simple as possible, but no simpler. I think about that a lot when I work on financial analysis. It's clear that making things very complicated can be dangerous – every extra element has the potential to interact with the others. While there is only one relationship to examine between two points, there are 15 relationships between 6 points. The possible relationships increase by nearly the square of the number of elements you have in your theory [n x (n-1)/2 to be exact].

An overly complicated model quickly becomes impossible to analyze, and as the geniuses at Long Term Capital Management found out, it can become completely unstable even if the relationships change a tiny bit.

At the same time, oversimplifying can be equally dangerous if you leave out important elements. There is probably no better example of this than the field of economics.

Apart from a tiny group of academic economists who write arcane mathematical articles intended for a tiny group of academic economists who write arcane mathematical articles, the popular view of how the economy works is broadly speaking, an entirely unrealistic caricature of reality (though I say this as a former academic economist who used to write arcane mathematical articles.)

As long-term readers of these comments know, I blame Keynes. It's no exaggeration that if college graduates remember anything of their economics courses, they escape with little but Keynes. During my years in academia, I was constantly amazed to see even brilliant colleagues reduced to Keynes-blubbering pod people when they were asked questions about the actual economy. See, most academic economists don't actually study the economy. They study economies in a very abstract sense, as in “consider an economy in which there are two islands, a turnpike, and five guys named Jack, one of whom is the government but nobody knows it…”

Garbage in, garbage out

The main problem with Keynes is that he assumes that the economy consists of a single good, that investment is fixed, and that even though there are investment goods, they effectively serve no purpose (there is no production function in standard Keynesian theory).

The basic idea goes something like this. The economy produces output Y which is equal to consumption C, plus investment I, and government spending G. People consume some fraction c of income Y, so C = cY. So we've got

Y = C + I + G

Y = cY + I + G

So Y = (I + G) / (1 – c)

Now assume that investment I is fixed, and people try to save more of their income (c declines, so the denominator gets larger). In that event, output falls. End of story. The reason this “recession” happens is that as a rule, saving has to equal investment, and by assuming that investment is fixed, the attempt to save cannot actually translate into more saving either, so income has to fall. And look, with investment I fixed, the only way to drive the economy higher is to a) increase government spending G, or b) spend more and save less, so c increases and (1-c) becomes as close to zero as possible. In Keynesian theory, the best outcome is for people to spend 99.999999% of their income.

And that, in a nutshell, is why people think saving is bad for the economy and makes recessions worse. The implicit assumption is that greater saving will not translate into greater investment. Anyway, investment is really just another kind of spending to Keynes. Since there is no production function in Keynesian theory, there's no reason to invest anyway. It's not like the investment is what produces the output, for gosh sakes, so the spending might as well be consumption.

Don't worry. Be happy.

In Keynes' view, recessions are essentially periods when individuals erroneously decide to save rather than consume. As a result, Keynesian theory offers a simple way to counteract recessions: get the government to spend money. Drop it from helicopters. Or as Keynes suggested in his General Theory, fill bottles with money and bury them at suitable depths for enterprising young men to dig up. Recent U.S. fiscal and monetary policy have been based on precisely these notions.

Unfortunately, the result of these policies is that U.S. households, businesses, the government, and the nation itself have developed the worst balance sheets in history.

Despite the so-called recovery in the U.S. economy, the American Bankers Association reports that credit card delinquencies and defaults have just reached a new record. There has been precious little improvement in corporate balance sheets – the reduction in default rates and the narrowing in credit spreads has much more to do with swap financing tied to unsustainably low short-term interest rates, along with improvements in equity prices that have reduced debt/equity ratios. The U.S. now faces the deepest current account deficit in the nation's history, meaning that even current levels of U.S. consumption and investment activity are dependent on the largest continuous inflows of foreign capital than we've ever required. Meanwhile, mainstream economists have completely ignored how cyclical productivity growth can be, and how unreliable rapid short-run productivity growth is as an indicator of long-term trends. Indeed, they've even fooled themselves into confusing the rapid expansion of imports and labor downsizing with beneficial growth in productivity (see the November 10th comment for more on the “productivity boom”).

Recessions imply a mismatch between what is demanded and what is supplied

If our nation is to improve its balance sheet and achieve sustainable economic growth, the first thing is to understand that the economy does not produce a single good. It is exactly the emergence of new goods, their associated scarcity and profitability, and expansion of those industries through new investment and competition that drives economic growth forward.

Recessions result when a mismatch develops between what is demanded versus what is supplied. Economic downturns are not simply periods where people reduce their consumption of some “representative good.” Rather, we see most industries virtually unaffected by recessions, with a few industries actually experiencing shortages, but with a handful of industries experiencing devastating drop-offs in demand. Turning this around is not as simple as “stimulating aggregate demand,” because quite literally, buyers don't want the stuff that those industries are producing.

So recessions are really periods of adjustment. As a result of overconsumption, overinvestment, competition from new substitutes, or changes in preferences, some industries simply fall out of favor. New industries may or may not emerge, and of course, there is no easy transition for workers from the industries in downturns to other industries that may or may not emerge to replace them. This is a painful process for some industries, as we've seen in technology and telecom during recent years. But it's hardly noticeable in others, as we've seen in retail and health care.

The implication is that policy cannot simply be geared to mindlessly stimulating demand, particularly in an economy that is precariously burdened with debt. The best and most seriously overlooked policy toward this economy would be tax incentives for research and development. In addition, to the extent that we've seen a Keynesian weakness in investment, the objective should not be to seek remedies through greater consumption, but instead to encourage productive investment through much more direct means than rebate checks and capital gains reductions.

Above all, the U.S. economy has a balance sheet problem. This will not be solved by spending more. Even here, increased saving would at least allow the U.S. to reduce its dependence on foreign capital and allow the nation to avert a dollar crisis that is otherwise likely at some point in the next few years.

If one thing is entirely clear, it is that this “expansion” is far different from those of the past. Capacity utilization remains low, employment growth has profoundly lagged typical patterns, consumption has been unusually and even recklessly stimulated as an alternative to balance sheet improvement, and rather than beginning from a current account surplus as all previous expansions have, this expansion began with the deepest current account deficit on record.

Call me a skeptic, but watching the panorama of bullish economists and Wall Street analysts is almost like walking into one of those 3-D movies where everybody is wearing those geeky glasses with the red and green lenses. Except that here, all the lenses seem rose colored.

Here's another

Another good one.

What do you think?

Bush ad

From Hussman Funds site.

Investor's Intelligence reports that “sentiment readings are the worst since 1987 for advisors, and now just below the worst ever for insiders. Insiders are now selling just under seven shares for every share bought.” Investment advisory bullishness has been above 50% and bearishness below 25% for thirty-five consecutive weeks. In 1987, bullishness was above 50% for twenty-three weeks, and even those were not consecutive. The percentage of industry groups in uptrends is an extremely overbought 92.8%.

That strong uniformity of industry uptrends confirms what we observe from our own measures of market action, and is an indication that investors remain willing, for now, to take speculative risk. This speculative merit - alone - is why we continue to hold a generally positive (though moderate) exposure to market risk. However, given that market action is also extremely overbought, we also hold a small “contingent” position in put options (a fraction of 1% of assets) sufficient to hedge another 20-25% of our market exposure in the event of an abrupt decline.

In short, the market continues to have a favorable, but increasingly precarious speculative tone.

The Black Commentator
Well worth a read.

A recent visit by two very nice Jehovah's Witnesses

Yesterday I stood with bare feet on the front porch and felt my toes becoming numb as I listned to biblical quotations and arguments against evolution presented by two nicely dressed visitors. They left me a book entitled Life - How did it get here? By Evolution or by creation?. I scanned the book and found it to be mainly propaganda supported by misrepresented contextual snippets from reputable publications. Since my visitors took it upon themselves to supply me with propaganda and presented it as objective discussion material to further a healthy discussion, I have decided to prepare a bit of a material of secular humanist and atheist nature and supply it to them when they return to my door in a few days. Any other suggestions?

Here is the list of items I have quickly uncovered on the net:

A reviews of the JW book they provided me with: Evolution and Creationism: Probabilities

Another review of the book: Life-How did it get here? by a former Witness

A sample chapter from The Ghost in the Universe: by Taner Edis.

Nice little snippet from the end of an article.

From the AP found on Boulder's Daily Camera newspaper.

"Bush reiterated that he doesn't read newspapers and prefers getting the news — without opinion, he said — from White House chief of staff Andrew Card and national security adviser Condoleezza Rice. First Lady Laura Bush, who appeared briefly during the interview, said she does read the papers and often discusses them with her husband."

The "most powerful" person on Earth (of course he has no personal power, it was millions of Americans working hard and trillions of taxpayer dollars as well as prior presidents that created a powerful military, but I digress) Again, the "most powerful" person on Earth gets his news input from two or three people?

More on the Ashcroft flying thing...

CBS News July 26th 2001

Fishing rod in hand, Attorney General John Ashcroft left on a weekend trip to Missouri Thursday afternoon aboard a chartered government jet, reports CBS News Correspondent Jim Stewart.

In response to inquiries from CBS News over why Ashcroft was traveling exclusively by leased jet aircraft instead of commercial airlines, the Justice Department cited what it called a "threat assessment" by the FBI, and said Ashcroft has been advised to travel only by private jet for the remainder of his term.

"There was a threat assessment and there are guidelines. He is acting under the guidelines," an FBI spokesman said. Neither the FBI nor the Justice Department, however, would identify what the threat was, when it was detected or who made it.

A senior official at the CIA said he was unaware of specific threats against any Cabinet member, and Ashcroft himself, in a speech in California, seemed unsure of the nature of the threat.

"I don't do threat assessments myself and I rely on those whose responsibility it is in the law enforcement community, particularly the FBI. And I try to stay within the guidelines that they've suggested I should stay within for those purposes," Ashcroft said.

MORE

www.therightchristians.org
The rightchristians answer to the christian right. Take a peek: it is inspirational.

port vs. sherry

Classified together as liqueur wines, Port and Sherry are polar opposites in terms of style. Both are fortified with grape spirit - Sherry after fermentation which means the wine is dry, Port during fermentation which means the wine retains sugar and sweetness.

Sherry has risen like a phoenix from the ashes. With the current trend for drier styles of wine, the popularity of Sherries such as Fino and Manzanilla has never been higher.

Port also is unique but, like Sherry, produces a range of styles. From Ruby with its fiery character, to soft and mellow aged Tawny, Port is an ideal drink with which to chill out at the end of the day. At the top of the pile stands vintage Port -incomparable and unsurpassable. Produced only in the finest years, vintage Port is the flagship for the port houses, but is not for the faint-hearted. A monster of a wine with HUGE intensity, power and concentration, it should ideally mature for 15 to 20 years before opening.

WHITE HOUSE ADMITS PRE-9/11 WARNINGS; BUSH STILL DENIES IT

At his press conference yesterday, President Bush was asked about charges that he had received warnings prior to the September 11th attacks that a terrorist incident was imminent. He answered that even asking such a question was "an absurd insinuation." It was the same sentiment expressed by Bush's National Security Adviser Condoleezza Rice, who said in May of 2002 that "[no one predicted] that they would try to use an airplane as a missile, a hijacked airplane."

The problem for the president and the administration is that the White House has previously admitted that the president had personally received such specific warnings. As ABC News reported in May of 2002, "White House officials acknowledge that U.S. intelligence officials informed President Bush weeks before the September 11th attacks that Osama bin Laden's terrorist network might try to hijack American planes." As Condoleezza Rice said at a hastily called press conference to spin these revelations, the President specifically received an "analytic report" on August 6th, 2001 at his Crawford mansion that "talked about Osama bin Laden's methods of operation" and "mentioned hijacking." According to Reuters, that report was congruent with "intelligence since 1998 that said followers of bin Laden were planning to strike U.S. targets, hijack U.S. planes.".

While the administration claims that the president's pre-9/11 warning was actually "not a warning," the threat was specific enough for Attorney General John Ashcroft to stop flying commercial airlines. While no warning was issued for the general public after Bush's personal intelligence warning, Ashcroft was flying exclusively by leased jet instead of commercial airlines because of an official "threat assessment by the FBI."

Read the Mis-Lead --> http://daily.misleader.org/ctt.asp?u=1675067&l=12260

Check out Jerry's Blog: pollitics as usual

Robert Rubin, in an interview on the News Hour, suggested that the Clinton recovery was NOT good luck, that is WAS the result of good stewardship: attacking and actually defeating the deficit, that was presented for over a decade as a looming catastrophe. That action renewed the peoples faith in democratic financial institutions and gave them the confidence to build and invest. Besides that, interest rates were reasonable, goverment was actually effectively doing things. And the boom followed.
That really could have "changed everything." In an Uncertain World , by Robert Rubin

Matt: Is this an OK entry?
Humanity? Maybe It's in the Wiring By SANDRA BLAKESLEE
Published: December 9, 2003
...There are specialized neurons at work, as well — large, cigar-shaped cells called spindle cells...

...Spindle cells are not present at birth. They appear around age 4 months and gradually increase during the second and third year of life, the same time that guilt and embarrassment appear.

...The only other animals known to have such cells are the great apes. These neurons are exceptionally rich in filaments. And they appear to broadcast socially relevant signals all over the brain.

Free Antivirus
Courtesy of J.B

J.B. mentioned a recent email he received in which a note mentioned the the email had been checked for
viruses by AVG software from www.grisoft.com. The software is free for home users for Linux and Wintel.
That's worth spreading around!

http://www.grisoft.com

pass it on :-)

Dragster Facts
Courtesy of J.B. & J.G.

One Top Fuel dragster 500 cubic inch Hemi engine makes more horsepower
than the first 4 rows at the Daytona 500.

* Under full throttle, a dragster engine consumes 1-1/2 gallons of
nitromethane per second; a fully loaded 747 consumes jet fuel at the
same rate with 25% less energy being produced.

* A stock Dodge Hemi V8 engine cannot produce enough power to drive the
dragster supercharger.

* With 3000 CFM of air being rammed in by the supercharger on
overdrive, the fuel mixture is compressed into a near-solid form before ignition.
Cylinders run on the verge of hydraulic lock at full throttle.

* At the stoichiometric (stoichiometry: methodology and technology by
which quantities of reactants and products in chemical reactions are
determined) 1.7:1 air/fuel mixture for nitromethane the flame front temperature
measures 7050 degrees F.

* Nitromethane burns yellow. The spectacular white flame seen above the
stacks at night is raw burning hydrogen, dissociated from atmospheric
water vapor by the searing exhaust gases.

* Dual magnetos supply 44 amps to each spark plug. This is the output
of an arc welder in each cylinder.

* Spark plug electrodes are totally consumed during a pass. After ½
way, the engine is dieseling from compression plus the glow of exhaust
valves at 1400 degrees F. The engine can only be shut down by cutting the fuel
flow.

* If spark momentarily fails early in the run, unburned nitro builds up
in the affected cylinders and then explodes with sufficient force to blow
cylinder heads off the block in pieces or split the block in half.

* In order to exceed 300 mph in 4.5 seconds dragsters must accelerate an
average of over 4G's. In order to reach 200 mph well before half-track,
the launch acceleration approaches 8G's.

* Dragsters reach over 300 miles per hour before you have completed
reading this sentence.

* Top Fuel Engines turn approximately 540 revolutions from light to
light!

* Including the burnout the engine must only survive 900 revolutions
under load.

* The redline is actually quite high at 9500rpm.

* The Bottom Line; Assuming all the equipment is paid off, the crew
worked for free, and for once NOTHING BLOWS UP, each run costs an estimated
$1,000.00 per second.

The current Top Fuel dragster elapsed time record is 4.441 seconds for
the quarter mile (10/05/03, Tony Schumacher). The top speed record is 333.00
mph. (533 km/h) as measured over the last 66' of the run (09/28/03 Doug
Kalitta).

Putting all of this into perspective:

You are driving the average $140,000 Lingenfelter "twin-turbo" powered
Corvette Z06. Over a mile up the road, a Top Fuel dragster is staged and
ready to launch down a quarter mile strip as you pass. You have the
advantage of a flying start. You run the 'Vette hard up through the
gears and blast across the starting line and past the dragster at an honest
200 mph. The 'tree' goes green for both of you at that moment.

The dragster launches and starts after you. You keep your foot down
hard, but you hear an incredibly brutal whine that sears your eardrums and
within 3 seconds the dragster catches and passes you. He beats you to the
finish line, a quarter mile away from where you just passed him. Think about
it, from a standing start, the dragster had spotted you 200 mph and not only
caught, but nearly blasted you off the road when he passed you within a
mere 1320 foot long race course.

That folks, is acceleration.

Hey this is fun. Check out the War Era poster on this page. Hilarious! Where can I get one?

"George W. Bush is a miserable failure," a project of Old Fashioned Patriot.

Do a google search on "miserable failure" See if you agree with the results

What you've always wanted to know

from here.


Gregorian Calendar


How do we keep track of time? When do we plant our crops, how do we know when to observe religious holidays? Societies need some way to keep track of time, and complex calendars (the word comes from the Roman term for the beginning of the
month) were developed early in human history. In agricultural societies the seasonal cycle of the Sun is crucial, but for shorter periods the lunar cycle suggests itself as well. Historically the problem was that the year does not contain a whole number of days or months. The mean interval between successive vernal equinoxes (365.2424 days), is about 11 minutes less than 365 1/4 days; the synodic period of the Moon (the time between successive full moons or new
moons) is about 29 1/2 days, and thus 12 months add up to about 354 days. Constructing a calendar that incorporates both the movements of the Sun and Moon is therefore not a simple business. Various solutions have been tried.

The Egyptian calendar was perhaps the simplest solution. The year was made up of twelve months of thirty days each, and five days were added at the end. Since this meant an error of about 1/4 day per year, the starting date of the year slowly drifted forward with respect to the seasons until after 1460 years it had returned to where it started. The rising of the Nile, the crucial event in the Egyptian agricultural cycle, was predicted by the heliacal rising of Sirius,[1] the brightest star in the heavens. No attention was paid to the Moon.

Most cultures in the ancient Near East relied on a calendar in which months had alternating lengths of 29 and 30 days and added a month about every third year. Thus, in ancient Israel the elders added an extra month of 29 days every third year after the sixth month (Adar). But these 29 days would not make up entirely for the entire deficit of 3 x 11 1/4 days, and therefore in some years two extra months had to be added. In the Greek city states months were added haphazardly as needed and no consistent system of intercalation was ever developed.

The most sophisticated system of keeping the motions of both the Sun and Moon harnessed in a single calendar was developed in Mesopotamia. By the Persian period, ca. 500, the system incorporated the so-called Metonic cycle (we name it after the Greek Meton, ca. 425 BCE) in which the following relationship is
used: 19 solar years contain 6939 3/4 days; 110 months of 29 days plus 125 months of 30 days add up to 6940 days. 19 years, then, contained 235 months, and starting in (on our calendar) 499 BC, the calendar in that part of the world was regulated on a cycle of intercalating 7 extra months in 19 years, as shown in the following scheme (in which a dash indicates a year of 12 months and a VI or XII indicated a year in which a month was added after the sixth or twelfth month):

- - XII - - XII - XII - - XII - - XII - - VI - XII

After a few irregularities, starting in 384 BCE, this scheme was rigorously adhered to, through the Greek and Roman conquests, until 75 CE, when cuneiform texts ceased.


For convenience, the month was usually subdivided into smaller time periods. The Greeks divided the month into three periods of ten days, but a division of seven days was older and more common in the Near East. We find the seven-day week already in Genesis. The names that we assign to the days have their origin in the division of the day into 24 hours, which originated in Egypt. In the Hellenistic period (300 BCE - 100 BCE) it became common to assign a ruling planet (including the Sun and Moon) to each hour of the day. The common order of the wandering heavenly bodies was Saturn-Jupiter-Mars-Sun-Venus-Mercury-Moon. The first hour of the first day was assigned to the Sun, the second to Venus, the third to Mercury, etc., repeating the cycle in the order given above. The 24th hour was thus assigned to Mercury and the first hour of the second day to the Moon. Naming the days after the planets that rule their first hours, we thus arrive at the sequence Sun's day-Moon's day-Mars's day-Mercury's day-Jupiter's day-Venus's day-Saturn's day.[2] The modern English variations on these names are due to substituting Nordic or Saxon gods for some of the Roman names: Tiw for Mars, Wotan for Mercury, Thor for Jupiter, Frigg for Venus.


Our civil method for reckoning time, then has a mixed origin. Our division of the hour into minutes and seconds is derived from the sexagesimal system of the Mesopotamians; the division of the day into 24 hours originated with the Egyptians; the seven-day week originated in the ancient Near East, while the names are derived from a Greek convention developed during the Hellenistic period. Our calendar is based on the motion of the Sun alone, but our various religious calendars are based on a combination of the motions of the Sun and Moon. Our civil calendar derives from the Romans with some alterations. Its origin is described nicely in the "Calendar" article in the 11th edition of the Encyclopedia Britannica (1910), which reads in part:



The civil calendar of all European [and American] countries has been borrowed from that of the Romans. Romulus[3] is said to have divided the year into ten months only, including in all 304 days, and it is not very well known how the remaining days were disposed of. The ancient Roman year commenced with March, as is indicated by the names September, October, November, December, which the last four months still retain. July and August, likewise, were anciently denominated Quintillis and Sextillis, their present appellations having been bestowed in compliment to Julius Caesar and Augustus. In the reign of Numa[4] two months were added to the year, January at the beginning and February at the end; and this arrangement continued till the year 452 BC., when the Decemvirs[5] changed the order of the months, and placed February after January. The months now consisted of twenty-nine and thirty days alternately, to correspond with the synodic revolution of the moon [full moon to full moon], so that the year contained 354 days; but a day was added to make the number odd, which was considered more fortunate, and the year therefore consisted of 355 days. This differed from the solar year by ten whole days and a fraction; but to restore the coincidence, Numa ordered an additional or intercalary month to be inserted every second year between the 23d and 24th of February, consisting of twenty-two and twenty-three days alternately, so that four years constituted 1465 days, and the mean length of the year was consequently 366 1/4 days. The additional month was called Mercedinus or Mercedonius, from merces, wages, probably because the wages of workmen and domestics were usually paid at this season of the year. According to the above arrangement, the year was too long by one day, which rendered another correction necessary. As the error amounted to twenty-four days in as many years, it was ordered that every third period of eight years, instead of containing four intercalary months, amounting in all to ninety days, should contain only three of those months, consisting of twenty-two days each. The mean length of the year was thus reduced to 365 1/4 days; but it is not certain at what time the octennial periods, borrowed from the Greeks, were introduced into the Roman calendar, or whether they were at any time strictly followed. It does not even appear that the length of the intercalary month was regulated by any certain principle, for a discretionary power was left with the pontiffs,[6] to whom the care of the calendar was committed, to intercalate more or fewer days according as the year was found to differ more or less from the celestial motions. This power was quickly abused to serve political objects, and the calendar consequently thrown into confusion. By giving a greater of less number of days to the intercalary month, the pontiffs were enabled to prolong the term of a magistracy or hasten the annual elections; and so little care had been taken to regulate the year, that, at the time of Julius Caesar, the civil equinox differed from the astronomical by three months, so that the winter months were carried back into autumn and the autumnal into summer.
In order to put an end to the disorders arising from the negligence or ignorance of the pontiffs, [Julius] Caesar abolished the use of the lunar year and the intercalary month, and regulated the civil year entirely by the sun. With the advice and assistance of Sosigenes,[7] he fixed the mean length of the year at 365 1/4 days, and decreed that every fourth year should have 366 days, the other years having each 365. In order to restore the vernal equinox to the 25th of March, the place it occupied in the time of Numa, he ordered two extraordinary months to be inserted between November and December in the current year, the first to consist of thirty three, and the second of thirty-four days. The intercalary month of twenty-three days fell into the year of course, so that the ancient year of 355 days received an augmentation of ninety days; and the year on that occasion contained in all 445 days. This was called the last year of confusion. The first Julian year commenced with the 1st of January of the 46th before the birth of Christ, and the 708th from the foundation of the city.

In the distribution of the days through the several months, Caesar adopted a simpler and more commodious arrangement than that which has since prevailed. He had ordered that the first, third, fifth, seventh, ninth, and eleventh months, that is January, March, May, July, September and November, should have each thirty-one days, and the other months thirty, excepting February, which in common years should have only twenty-nine day, but every fourth year thirty days. This order was interrupted to gratify the vanity of Augustus, by giving the month bearing his name as many days as July, which was named after the first Caesar. A day was accordingly taken from February and given to August; and in order that three months of thirty-one days might not come together, September and November were reduced to thirty days, and thirty-one given to October and December. For so frivolous a reason was the regulation of Caesar abandoned, and a capricious arrangement introduced, which it requires some attention to remember. [8]

The additional day which occurred every fourth year was given to February, as being the shortest month, and was inserted in the calendar between the 24th and 25th day. February having then twenty-nine days, the 25th was the 6th of the calends of March, sexto calendas; the preceding, which was the additional or intercalary day, was called bis-sexto calendas,--hence the term bissextile, which is still employed to distinguish the year of 366 days. The English denomination of leap year would have been more appropriate if that year had differed from common years in defect, and contained only 364 days. In the modern calendar the intercalary day is still added to February, not, however, between the 24th and 25th, but as the 29th.

. . .

Although the Julian method of intercalation is perhaps the most convenient that could be adopted, yet, as it supposes the year too long by 11 minutes 14 seconds, it could not without correction very long answer the purpose for which it was devised, namely, that of preserving always the same interval of time between the commencement of the year and the equinox. Sosigenes could scarcely fail to know that this year was too long; for it had been shown long before, by the observations of Hipparchus [ca. 125 BCE], that the excess of 3651/4 days above a true solar year would amount to a day in 300 years. The real error is indeed more than double of this, and amounts to a day in 128 years; but in the time of Caesar the length of the year was an astronomical element not very well determined. In the course of a few centuries, however, the equinox sensibly retrograded towards the beginning of the year. When the Julian calendar was introduced, the equinox fell on the 25th of March. At the time of the Council of Nicea, which was held in 325, it fell on the 21st . . . .


The Julian Calendar was naturally adopted by the successor of the Roman Empire, Christian Europe with the Papacy at its head. By about 700 CE it had become customary to count years from the starting point of the birth of Christ (later corrected by Johannes Kepler to 4 BCE). But the equinox kept slipping backwards on the calendar one full day every 130 years. By 1500 the vernal equinox fell on the 10th or 11th of March and the autumnal equinox on the 13th or 14th of September, and the situation was increasingly seen as a scandal. The most important feast day on the Christian calendar is Easter, when the suffering, death, and resurrection of Christ are celebrated. In the New Testament we find that Christ's crucifixion occurred in the week of Passover. On the Jewish calendar, Passover was celebrated at the full moon of the first month (Nissan) of spring. In developing their own calendar (4th century CE), Christians put Easter on the first Sunday after the first full moon after the spring equinox. If the equinox was wrong, then Easter was celebrated on the wrong day. Most other Christian observances (e.g., the beginning of Lent, Pentecost) are reckoned backward or forward from the date of Easter. An error in the equinox thus introduced numerous errors in the entire religious calendar. Something had to be done. After the unification of the Papacy in Rome, in the fifteenth century, Popes began to consider calendar reform. After several false starts, a commission under the leadership of the Jesuit mathematician and astronomer Christoph Clavius (1537-1612) succeeded. Several technical changes were instituted having to do with the calculation of Easter, but the main change was simple. In 1582 Pope Gregory XIII (hence the name Gregorian Calendar) ordered ten days to be dropped from October, thus restoring the vernalequinox at least to an average of the 20th of March, close to what it had been at the time of the Council of Nicea. In order to correct for the loss of one day every 130 years, the new calendar dropped three leap years every 400 years. Henceforth century years were leap years only if divisible by 400. 1600 and 2000 are leap years; 1700, 1800 and 1900 are not.

The new calendar, although controversial among technical astronomers, was promulgated from Rome and adopted immediately in Catholic countries. Protestant countries followed suit more slowly. Protestant regions in Germany, and the northern Netherlands adopted the calendar within decades. The English, always suspicious of Rome during this period, retained the Julian Calendar. Further, while others now began the new year uniformly on 1 January, the English began it on 25 March (an older custom). Now, for example, the date 11 February 1672 in England was 21 February 1673 on the Continent. After 1700 in which the Julian Calendar had a leap year but the Gregorian did not, the difference was eleven days. The English and their American colonies finally adopted the Gregorian Calendar in the middle of the eighteenth century. George Washington was born on 11 February on the Julian Calendar; we celebrate his birthday on 22 February.

Note, finally, that the Gregorian Calendar is useless for astronomy because it has a ten-day hiatus in it. For the purpose of calculating positions backward in time, astronomers use the Julian Date.

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THE DAILY MIS-LEAD http://daily.misleader.org/ctt.asp?u=1675067&l=10731
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AS WHITE HOUSE CHANGES STORY, BRITISH AIRWAYS REFUTES BUSH STORY OF PILOT SIGHTING

In his trip to Baghdad, President Bush said he would have immediately turned around had his cover been blown. In trying to play up the secrecy and dangerous nature of the trip, Bush's aides said that a British Airways pilot spotted the president's plane, radioing, "Did I just see Air Force One?" The White House said Air Force One responded: "Gulfstream 5" - a code word to disguise the plane - and the British Airways pilot "seemed to sense he was in on a secret and replied 'Oh.'"

But now it appears the story was a complete fabrication, designed only to hype the story. According to Reuters, "British Airways said yesterday that none of its pilots made contact with President Bush's plane during its secret flight to Baghdad on Thanksgiving, contradicting White House reports of a midair exchange that nearly prompted Bush to call off his trip."

Making things worse, the White House revised its story after revelations of the distortion. The White House now says "it had left the wrong impression" and that actually the conversation took place between Air Force One and the airport tower in London. But again, British Airways refuted this tale, with a spokesman for the company telling media "that none of its pilots has come forward to acknowledge either making or overhearing the purported conversation."

Read the Mis-Lead --> http://daily.misleader.org/ctt.asp?u=1675067&l=10732

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