finance

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WAR is truly everwhere. At home Xstine and I are havin’ a blast playing Warhammer Online: Age of Reckoning, and almost every itch we had from leaving WoW has been epicly scratched. And boy were we itchy because the end-game in WoW left some unhappy scabs.

Outside of our world of epic vritual battles, one has already been fought an lost on Wall Street. Some friends have asked for my perspective on the bail-out mess, and I want to use a WAR analogy. In WAR lore, the evolution and advancement of warriors comes from the endless combat between the legions of Order and the minions of Chaos. A great story and its great heroes can only be made with this precarious balance. Too much one way is complacency, too much the other way is anarchy.

You may think it’s far-fetched to compare a fantasy video game to financial crisis in this way, but there’s one thing to consider. In Jared Diamond’s Guns, Germs and Steel he recounts his finding that over the historic rise of civilizations, what built the greatest ones was a combination of geography and natural resources that promoted an optimal state of controlled competition. To have less was complacency, to have more was anarchy. Sound familiar?

Now look at the bail-outs. Chaos has lost, if you believe the anti-free-market crowd. Order has failed if you know better than to believe the Fed. The problem was that Order assisted Chaos, and vice versa. No one knew their roles. The Fed answers to the market now. The market believed the Fed would save them.

What I’m trying to say is that a healthy distrust between the private and the public was lost, Freddie and Fannie being prime examples. What we face now is an extreme reaction as the Fed and Paulson nationalize the market. Chaos has learned that losing the battle means being saved by Order. Where’s the impetus to fight?

Now, I give the Fed credit for not bailing out Lehman brothers, as they knew the books were probably so toxic nothing could be done. And F&F? Ok, sure, they were a GSE, blah blah. But bailing out AIG? An insurer? Forcing BoA to take on Merrill Lynch? And now hints at extending help to foreign banks? Unlimited Sec. of Treasury power? For those who think cash is safe, I’ll point out that the (maybe) $45 billion left in FDIC divided by the $100,000 insured per account is not a happy number. Plus each of these banks going under have tons of employees; Lehman alone has 26,000+. NY is depressing. I can’t even make a conhesive paragraph out of all of it.

And somehow Bernanke is in the back saying a recession is imminent if there is no bail-out. Hello, the recession has arrived, but the punishment for misdeeds has not. Will not? Well that depends on how many tax-payers realize it’s angry mob time.

If you listen to the anti-capitalists, they will tell you that the answer is “none, the market will fix the problem.” And then they’ll tell you that the market hasn’t fixed the problem, and that’s why Freddie Mac and Fannie Mae should be taken back into tight government control.

If you are an intelligent human being, you should understand that that line is a turd of bullshit so large you’d never stop counting the agendas embedded in it like corn in crap. Was that disgusting enough imagery for you? ‘Cuz that’s how you should be feeling right now.

What part of “backed by the government, yo” tattooed on F&F’s back sounds privatized? You see, it’s not just how you run the company, it’s not just what investors are rubbing your balls in cash, it’s what your contingency plan is. And when that plan is “the Treasury will bail us out” then that is NOT free market. Unless you think it has no effect on the decisions/mistakes they make.

F&F are GSEs. This means they were created by the government, for the government, regardless of how “privately” they are run. The Fed gives them cheap loans that they securitize for a profit and then pass on to borrowers, who have special faith in that relationship.

So now look at the Fed’s latest bail-out plan:

  • F&F CEO removed… GOOD, though I’m sure they get some nice parachutes…
  • F&F Conservatorship… RIGHT, because the goverment’s had such a good track record before…
  • Buyer of the Last Resort… WHAT? So the Fed keeps F&F stock afloat with $200 billion of our money? BTW there is only the “last resort” left, ding dong.
  • 10% per annum portfolio reduction… WTF?! Who the hell? Wha…? How are you going to achieve this, how is this relevant, and what are you saying when you tell a company to reduce its business as you buy up its stock with our money?

All that does is keep or lower existing mortgage rates. Solving the credit crisis is not going to address the lack of DEMAND for things to DO with that credit. Like I’m really going to buy a house now that lending rates fell 1% when the nation is facing mass unemployment and inflation. Like I’d really solve the latter by doing the former anyways.

You’d think the Republicans would be against ham-handed intervention. Too bad they’ve confused F&F with Terry Schiavo.

The last two weeks, Xstine and I made some house-hunting trips. At the moment, I believe that the end of 2008 will be a prime time to buy a house in the Bay Area if you plan on staying at least another 5 years. In many counties, prices have fallen over 25% with supply volume soaring. I'd like to catch a deal before 2009 when non-conforming loan limits drop. This coming winter, a cyclically low season, will be the perfect time to do so.

My God it's a disaster out there. We went out to Brentwood, the edge of flat earth, and found massive tracts of abandoned new construction. It looked like a city that tried to cash in on rising property taxes, but with no facilities to keep anyone there. Nothing but endless residentials. A surburban wasteland.

It's absolutely hilarious to me that angry forum posters on Zillow.com are threatening them with legal action, claiming the site's price estimate algorithm is destroying their property values. Aside from some isolated errors, I'd say their house values are being overestimated, and if they want to sue for "defamation" or whatever, they need to show proof that the site cost them damages. Which means you sell for significantly more than the estimate. Which none of them are going to be able to show because prices continue to plummet.

We decided we like the beautiful Concord/Walnut Creek area, which has had excellent price drops and lies in mostly convenient, comfortable location. A local Fry's Electronics and Rasputin's Music didn't hurt either. With this spring taking such big hits (with the exception of February), I am quite excited that such a great deal has come along in our lifetime. If this sounds predatory, so be it. Americans need to learn to spend only what they can afford.

No doubt you’ve heard the news that Henry Paulson wants to tighten standards on banks now that the country is falling apart. Sit back, ‘cuz I got a heck of a story for you:

While I am completely sympathetic to how much people hate our current President and his disastrously arrogant administration, it infuriates me to hear people claim Bush brought about this recession. We’ve been in a recession since Nixon, we just didn’t know it yet. The worst is how people believe that Clinton balanced the budget, and that Bush subsequently ruined it. How slick is Willy. I think I need to explain exactly why this is an outright urban legend.

The whole charade depends on the semantics of accounting. We actually have two different debts that add up to become the National Debt. They are Public Debt and Intergovermental Debt. The first is what the people owe, the second is what the government owes itself (that the people will repay). The government owes itself? Right, the government, much like our brains, is actually several semi-independent entities that interact to govern, and therefore can take loans from each other as if they were separate.

What Clinton did was borrow from the government (Intergovernmental Debt) to pay off Public Debt. If you check the U.S. Treasury records, National Debt continued to increase throughout the Clinton administration, albeit slower than the previous presidencies. How in the world can increasing National Debt be considered a budget surplus? …

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I haven't time to comment much on the economy recently, thanks to Super Smash Bros. Brawl and… oh who am I kidding… I didn't even do a portfolio postmortem for last year. We are clearly in a recession right now, something I predicted in 2005 after much research, and my wishes go out to everyone in the American workforce… except those in the game industry! We don't need it! We are recession-proof! Hah!

Well, predicted sounds arrogant… I didn't predict a recession, I just tried to point out the mountain of evidence that it would happen. It's no surprise to me that games are recession-proof, though. Entertainment in general follows different fundamentals than other industries. Games often get compared to film, but there are two key differences that have made us an industry that has begun to intimidate Hollywood in size. …

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Here's a choice bit of wisdom from Warren Buffet's Q&A with Emory's Goizueta Business School and McCombs School of Business at UT Austin. He and Charles E. Kirk of The Kirk Report have been the people I look up to the most in investing, because they outperform everyone else yet remain humble, and morally uncompromised. This is Warren's take on happiness and success:

I enjoy what I do, I tap dance to work every day. I work with people I love, doing what I love. The only thing I would pay to get rid of is firing people. I spend my time thinking about the future, not the past. The future is exciting. As Bertrand Russell says, “Success is getting what you want, happiness is wanting what you get.” I won the ovarian lottery the day I was born and so did all of you. We’re all successful, intelligent, educated. To focus on what you don’t have is a terrible mistake. With the gifts all of us have, if you are unhappy, it’s your own fault.

I know a woman in her 80’s, a Polish Jew woman forced into a concentration camp with her family but not all of them came out. She says, “I am slow to make friends because when I look at people, I have one question in mind; would they hide me?” If you get to be my age, or younger for that matter, and have a lot of people that would hide you, then you can feel pretty good about how you’ve lived your life. I know people on the Forbes 400 list whose children would not hide them. “He’s in the attic, he’s in the attic.” Some of them keep compensating by joining board seats or getting honorary degrees, but it doesn’t change the fact that no one will give a damn when they are gone. The most powerful force in the world is unconditional love. To horde it is a terrible mistake in life. The more you try to give it away, the more you get it back. At an individual level, it’s important to make sure that for the people that count to you, you count to them.

What if you could buy 10% of one of your classmates and their future earnings? You wouldn’t buy the ones with the highest IQ, the best grades, etc, but the most effective. You like people who are generous, go out of their way, straight shooters. Now imagine that you could short 10% of one of your classmates. This part is usually more fun as you start looking around the room. You wouldn’t choose the ones with the poorest grades. Look for people nobody wants to be around, that are obnoxious or like to take all the credit. If you have a 500 HP engine and only get 50 HP out of it, you’ll be beat by someone else that has a 300 HP engine but gets 250 HP output. The difference between potential and output comes from human qualities. You can make a list of the qualities you admire and those you despise. To turn the tables, think if this is the way I react to the qualities on the list, which is the way the world will react to me. You can learn to turn on those qualities you want and turn off those qualities you wish to avoid. The chains of habit are too light to be felt until they are too heavy to be broken. You can’t change at 60; the time to look at that list is now.

The word mortgage comes from French, combining the meanings of the words "mortal" and "engagement" into one dysphemistic way to describe the deathly pact we make when we buy a house. With the ensuing real estate stagnation, which could easily turn into an all-out freefall at any second, I've been looking more seriously at buying. I'm betting on house prices in the Bay Area falling another 10% or more by the election. This year, the economic stimulus package will allow us to borrow up to $729k before getting jumbo loan interest rates (as opposed to $417k).

So over the weekend, I made myself this nifty little fixed mortgage calculator. There are probably some bugs in it, but it helped me a lot. Unlike other Rent vs. Buy calculators out there, this one also compares 15yr to 30yr investment growth. For example, if I took a 15 year mortgage, paid it off, then invested the money I would have spent for the next 15 years, how would that compare to just getting a 30 year mortgage? Unsurprisingly, a simple 30 year mortgage would just beat a 15 year mortgage for the first 15 years, and then the 15 year would take a major lead.

Therefore, my plan is to buy something small, like a condo, with a monthly payment we could afford, on a 15 year fixed mortgage (low interest), and maximize our tax benefit (short time span). If we survive, we'll be able to buy a real house in the future for half the interest, with the only major risk being a real estate rut that lasts over 5 years. Now obviously the better my investment yield the bigger a hit it is to buy a house, and while my yield is pretty good, that's not the only reason to buy a house, and houses tend to be inflation-safe.

And that's how I'll sign my own death warrant.

Yeah, hot on the heels of EA acquiring Bioware and Pandemic, we have the Activision + Blizzard merger, which is big news and has Xstine wishfully talking about getting a free subscription now… but I have something else on my mind.

You, fair reader, must ask yourself. Was Jeff Gerstmann's review (above) of Kane & Lynch wrong? Was it unfair? Was it a justifiable reason for him to be to be fired from Gamespot after an offended Eidos snatched back stacks of advertising dollars with an angry yoinks? Probably not. But somehow, I don't feel the slightest sympathy for him. I'll tell you why his firing pleases me, and why it should please all those gamers who hope their medium is taking its rightful place among the world.

Criticism. What does it mean? Why does film, art, and music criticism surpass video game criticism? Because criticism, as an artform in and of itself, teaches you something about what it criticizes. It deconstructs the craftsmanship, the message, and the greater context of a work's role in the pantheon. Video game reviews, however, are nothing but paid opinions of what Steve adroitly described as "people who couldn't get into the game industry." Fanboys, backseat game designers, internet experts, and such forth.

Their reviews contribute little to the creation of a better game because these people have no experience working in games. On the other hand, music reviewers can play instruments, art critics can create art, and movie reviewers can have academic backgrounds. What do game reviewers have besides a subjective internal list of what they'd rather vege on a couch playing? I'm not ignoring the flaws of other forms of criticism, but let's be honest here, even at it's best, game reviews are bad. At the end of the day, games are designed for someone in particular, unlike movies which generally can be enjoyed by anyone when done well. Games are inherently fantasy fulfillment, not fantasy creation, and have to be judged on how well they satisfied gamers of a particular type. It is on that level where, for some, Bejeweled can be as good of a game as World of Warcraft.

Gamespot reviewers think that by arbitrarily demanding some games to have innovation, some games to just be fun, some games to be an "experience," whatever their pseudo-standard is, they are "raising the bar." Bullshit. Until there is a real literary quality in games that can be criticized, game journalism is just a recommendation to buy. We all know game advertisement pays for reviews, don't kid yourself. There isn't even anything wrong with that, and I bring up Penny Arcade reviews as an example of it done well. People are simply shopping for the review they need, and for your site to pretend it's creating a golden metric for an immature medium is ridiculous.

To those who want to go out and picket for Jeff, who think the review above sounds like something of senior editor quality at a major game mag, who think they're fighting the evil corporations who are "corrupting" this brilliant stuff with sponsorship, you've already lost. That shit ain't free, nor should it be. Ask yourself how any criticism is paid for. Then demand a higher standard. Abolish this bullshit point system.

Go with the Netflix 5-star system:
:star: hate it,
:star::star: didn't like it,
:star::star::star: liked it,
:star::star::star::star: loved it,
:star::star::star::star::star: unmissable
.

Ultimately, the only two factors that matters for a game are fun and value. Game review snobs demean the whole industry, just like snobs in any other industry.

I wanted to share a huge missed opportunity in my trades that happened recently. I've been trading ACH in and out, and making very good profits, but when the huge pullback the two weeks ago happened, I backed away. For the last few days, I was following ACH again, watching the rounded top chart pattern forming. Something told me that this was not a bearish signal as it usually is, and I thought about putting a limit buy at $35, at the where the last resistance formed mid-May.

As you can see in the chart, the stock exploded after it hit $35, hitting a high of $50 in less time than I could react to. It had a one day gain of +15%. I was crushed that I didn't seize the opportunity.

My mistake is obvious to me now. The rounded top happens on the chart from mid-June to mid-August. Rounded tops indicate that buying pressure dissipates as the price climbs, then people lose confidence and get out as it crosses the peak and starts falling. The volume on a real rounded top is the shape of the top but inverted, meaning that the volume is lowest at the high point of the price.

Look at the chart. The volume was rising. The drop in price was probably due to other factors, such as the global pullback. The moment I should have known was August 6th when the price fell but the volume kept trending up. People wanted ACH, they had interest, they were fighting the price. And then it happened: on August 16th, the price hit a low but closed above the last high on May 14th. A reversal was coming. The price had hit a previous top at $35, where the price exploded afterwards into the beginning of the rounded top, but it closed above at $37! What was I thinking!

Even more damning was the fact that when it hit that $35 resistance, it crossed below the lower Bollinger Band (red lines). Normally, I consider this to be a moderately bullish signal that the price is at a statistical low, but what made this one special was how the top BB band did not rise. Usually, BB bands diverge (top band rises, low band falls) when volatility increases. This wasn't it.

Anyways, looking at it even closer the yesterday, I realized that from Aprl to June there was a rising double top kinda thing that I should have realized was a sign that this stock had a lot of dedicated, inspired buyers (like myself, silly!). With aluminum being one of the worst performing sectors anyways, ACH was something I should have stuck with, not just traded. Profit is sometimes found in the faith.


So with what looks like a slow, struggling recovery, I may be wrong about the stock market's resilience. It wouldn't be the first time. To be honest, fancying myself a technical trader, I've never been very good at the buy-and-hold game. Accumulators probably had a ball with this dip. I took it as an oppotunity to accumulate high dividend stocks. I am no baller in this arena, and I will not play the rebound on a court I don't know. I'll remain cautious, and more importantly, I will not regret gains I might miss out on. That's my style, I'm stickin' to it.

After Nintendo's amazing financial statement came out, Sony follows up with equal aplomb… in the form of pompous bullshit. It's shocking that Sony CFO Kobuyuki Oneda said:

"Actually, because the number of units [of PS3] sold was not as high as we hoped, the loss was better than our original expectation,"

Ignoring the massive costs of R&D, support, and over-manufacturing, let's just think about the sheer illogicity of this spin. If I were the worlds ugliest hooker and had my legs spread on the street next to a bedpan with "five bucks a fuck" scratched into the rim, I'm less of a slut than the rest since no one would be taking me up on the offer.

Get real.

Meanwhile, I am trying very hard to find an Xbox 360 to buy, probably an elite. I've already pre-ordered Bioshock, and I'm just waiting to see if the system price drops on August 12th. This coming gaming season is going to be unmissable, and the raving reviews of the 300 HD-DVD makes my wallet suicidal.