Bushwreck

With apologies to both Dr. Mayer, my art history teacher, and the great Caspar David Friedrich.

Bush's press conference today offered this ditty: "I'm not an economist, but I do believe we're growing," he said. "I'm an optimist. I believe there's a lot of positive things for the economy."

He's proclaimed his sunny optimism at various junctures in the past. Just how a happy disposition has any effect on reality I don't know, but I'm reminded of the time years ago when a young man tried to convince me that solipsism was a legitimate metaphysical idea. When I offered to bust him in the head by way of rebuttal, he grew very quiet.

Rant II

Fundalarm is an amusing and informative site that provides sometimes caustic and usually very reliable information about mutual funds and the investment services industry. The "highlights and commentary" page they offer is updated on the first of every month. I just got around to checking the July edition this afternoon. Along with critiques of some failing investment funds and information about new fund offerings on the horizon, David Snowball (can that be his real name?) offers these tidbits on the state of equity fund investing:

Investors in the red-hot Chinese markets are feeling especially cursed. Oberweis
China Opportunities with +80% and +60% returns in the last two years has rewarded shareholders with a 35% loss so far in 2008. Several dozen funds have fared even worse...

Ultra-the-wrong-sector funds: It turns out that owning a leveraged financial sector fund is twice as horrible right now as owning a financial sector fund. But not nearly so horribly as owning . . .

India funds: These latest bright ideas from the fund marketers have been whacked for losses of between 35-45% so far this year.

Now everybody in India and China may be just whiners or they may suffer from a pernicious psychological malaise, but I doubt it. Fundalarm's numbers, by the way, are more current than what I blogged about earlier. They refer to declines suffered in the first half of 2008.

While we may not technically be in a recession as the dismal scientists define such things, the situation for us middle class types ain't at all rosy. In fact, I've been more than a little tempted to swear (not whine, mind you) as I've watched significant chunks of savings disappear from our retirement accounts in recent months. Here's a guy who plays by the rules. Saves and invests. Does what financial gurus say is smart. Actually researches his options so he can make an informed choice. Weighs the relative merits of growth, value, and dividends. Reads up on NAV's, ROA's, EBITDA's, P/E ratios, and a buncha shit like that.

And SPLAT. The financiers juggling CDOs and CMOs and what the business pages of the NY Times persist in calling "complex derivatives and mortgage-based financial instruments" outsmart themselves causing a general miasma to descend on the market while gubment regulators and bond rating corporations sit on their thumbs and hum ditties about the wisdom of the markets and letting the market run its course and regulation is bad for the economy and de-doo-do-do de-daa-da-da in the immortal words of the Police.

Here's a good one: A synthetic collateralized debt obligation. Here's the Forbes-sponsored Investopedia's explanation:

A form of collateralized debt obligation (CDO) that invests in credit default swaps (CDSs) or other non-cash assets to gain exposure to a portfolio of fixed income assets. Synthetic CDOs are typically divided into credit tranches based on the level of credit risk assumed. Initial investments into the CDO are made by the lower tranches, while the senior tranches may not have to make an initial investment.

All tranches will receive periodic payments based on the cash flows from the credit default swaps. If a credit event occurs in the fixed income portfolio, the synthetic CDO and its investors become responsible for the losses, starting from the lowest rated tranches and working its way up. Synthetic CDOs are a modern advance in structured finance that can offer extremely high yields to investors. However, investors can be on the hook for much more than their initial investments if several credit events occur in the reference portfolio.

Synthetic CDOs were first created in the late 1990s as a way for large holders of commercial loans to protect their balance sheets without actually selling the loans and potentially harming client relationships. They have become increasingly popular because they tend to have shorter life spans than cash flow CDOs and there is no extended ramp-up period for earnings investment. Synthetic CDOs are also highly customizable between the underwriter and investors. into the CDO are made by the lower tranches, while the senior tranches may not have to make an initial investment.

Got that? It's a financial instrument based on financial instruments based on financial instruments based on a bundle of loans. (I don't think I left a layer out.) These guys were selling shit like that to each other as a matter of course. The trouble was it turned out a lot of it was backed by lousy loans. Turns out a "credit event" occurred. In fact, LOTS of credit events occurred. Gotta love those credit events. Now there are a passel of CDOs out there (synthetic or otherwise) that nobody knows how to value.

And I lose money.

McCain said in an interview today that his presidential role model is Teddy Roosevelt. It was TR, during his trust-busting period, who spoke of "malefactors of great wealth." Allowing the unregulated -- or barely regulated -- financial system to continue to operate as it has operated will guarantee more of the same. More malefactors of great wealth. There is a reason for regulation in the market. That's why Dr. Phil's dumbass comments the other day were so amazingly off pitch. Deregulation made this happen.

His era has come to an end.

Rant

Reading through a very dry mutual fund semiannual report last night uncovered this little nugget: the fund family’s total international market fund – with investments in Europe, Asia, South America, etc. – lost nearly $3 billion in the six months between November 1, 2007 and April 30, 2008. Shares of companies in China, India, Germany, France, Great Britain, Australia, Brazil, Mexico, Russia, South Korea, Spain, Sweden, Japan, South Africa, Malaysia, Italy, Singapore, Belgium, and just about everywhere in between lost value during the reporting period. The six-month decline represents a little over 12.4% of the value of all the major businesses in the world outside the US. Not all of them went down that much; in fact, I don’t know that all of them went down. Some may have gained value. It could happen. But the aggregate was a downhill slide.

I don’t have any data for the period between May 1, 2008 and today, but dollars to donuts (and what’s the difference anyway?) if the declines haven’t continued or even accelerated, I’ll kiss Phil Gramm’s ass on Main Street.

I can’t begin to pretend to understand the causes of the current economic troubles, but I’m pretty sure that mental recessions and one lone nation of whiners isn’t at the root.

To my way of thinking, a better target might be a gaggle irresponsibly managed financial institutions that led to a culture of unsustainable credit buoyed by the illusion of ever rising real estate values. Set them loose in a nation with a crushing and inflationary national debt because of a stupid, unjustifiable war. Toss in some smart guys with wacky-but-so-very-clever financial instruments based on said real estate valuations. Mix in a toxic dose of failed deregulation. Add a dollop of over-leveraged lenders for good measure. And guess what? The smart guys suddenly discover they’ve lost the crown jewels. They can’t tell what their debt obligations and mortgage-based securities are worth anymore. Nobody can. Not Wendy Gramm. Not even Dr. Phil himself. It’s not collateral if you can’t place a market value on it. If you ain’t got collateral, you ain’t gonna borrow money from the smart guys.

So credit starts to shrivel here and abroad. And markets need credit like cars need oil. It keeps things sliding along with little or no friction.

Hey Dr. Phil, you and yours conjured this little mind game of a recession for all of us with your anti-regulation ideology. And, of course, your numbskull trust in the virtue of capital to get it right. Capital intoxicates people and makes them act irrationally. That's why Bear Sterns found itself with $30 of debt for every $1 it held when the fat lady started singing. Now you want to blame us for the mess? The pity is that anybody at all believes you.

iHam

A friend sent me this link. Be sure to read the manual.

Food

Discussing Michael Pollan's writings about agriculture and our relationship to the things we grow and eat with a friend yesterday evening got me thinking about sustainable agriculture in general and how much the pork chops I smoked for last night's dinner cost in terms of money and petroleum imports in particular.

For folks who may be interested in such things, here are a couple of search engines which specialize in locating purveyors of sustainably produced meats and vegetables within a reasonable distance of your home.

Local Harvest

Eat Well Guide

Entering you zip code and hitting "search" returns information from their databases on sources for pastured meats, free range eggs, organic produce, etc. within a specified radius.

As Joe Bob Briggs used to say: "Check it out."

Good teacher syndrome

Our house was built in 1952 by an architect for his family. The scion of a locally prominent family (they owned the ice house), he graduated from MIT in 1948 and returned home to practice his trade. I've found blueprints for the house dated 1948. Likely it was a senior thesis project. He had very good teachers. Wasn't Isamu Noguchi at MIT then?

The design is elegant and very smart. It faces east and utilizes a series of parallel north/south-oriented planes of increasing visual and physical density to establish an east-to-west progression that connects the inside to the outside. A breezeway in the front slices off a portion of the yard to create an empty courtyard (still outside, but contained). Behind that, is a screened in porch (both inside and outside). The plane of the easternmost wall of the house proper is interrupted by a double sliding glass door (solid, but transparent). Lastly, the rear (western) wall is standard construction: drywall inside and redwood planks outside. (The whole building is clad in redwood.)

Throughout the house I've found numerous instances of his use of the Golden Ratio--a/b=b/a+b -- from the aspect ratio of the rectangles in the porch screen's grid to the position of a low stone wall that divides the livingroom from the dining area. Someday I'll buy a lottery ticket with 1618 among its numbers, just for the proportionality of it.

It's a beautiful building. Living here is like inhabiting a sculpture.

The architect had very good teachers. But I've concluded that the design reflects much more of them than him. And they were not here in exurban NE Texas to supervise the construction. The number of downright dumb mistakes in the building is alarming. The glass doors were installed backwards and can't be adequately locked. The sewer lines were so messed up we speculated they were a collaboration between Dr. Seuss and Rube Goldberg, and they were drinking heavily at the time. There are two vent hoods in the kitchen -- one over the stove, the other inexplicably over a counter across the room. The light switch in one bedroom doesn't control anything so far as we can tell. Several other switches also appear to be merely decorative, but the one in the bedroom is particularly irksome. The interior finish in several rooms is cheap, fake paneling. The list goes on.

I'm left to conclude that God is no longer in the details.

When we bought the house, we also bought the architect's office next door. It's my studio, and it's a victim of the same sort of dumb mistakes and screwy slips in planning and execution.

I spent all day yesterday trying to make the front exterior lights work. I've failed so far. The knucklehead installed interior recessed lighting fixtures out there and did it in such a way that you have to tear out a section of the soffit to replace them.

I'm not teaching anymore. But the designer of my house and studio makes me wonder about what students learn from their teachers. What do they actually learn? Here's a guy who had a fantastic education, but who installed sliding glass doors backwards in a house that reflects a rarefied and subtle understanding of space and how geometric planes and materials of varying densities can divide it and maintain its continuity. Obviously he had very good teachers. But what did he learn?

What did my students learn?

Writing about the Art Bomb

My review of Robert Wilhite's The Bomb is online. I mentioned Wilhite's show at Barry Whistler Gallery in a June 14th blog. At that time I only had a cell phone picture of it. Below is a great shot by photographer Allison V. Smith.


Another review has passed through the final edit and has been approved for publication here. A third, destined for publication here is still in the rewriting stage. Writing for an online journal like Glasstire is a real pleasure. Fast turnarounds = instant gratification.

Happy Fourth of July. Let us now contemplate the Fat Man.