Thursday, July 31, 2008

Bottoms up?

Some very interesting options action in EMC yesterday. Seventeen times the normal volume in options trades, with a 3.5-to-1 ratio of calls to puts. Some very large institutional buyer was snapping up huge blocks of the Aug 15 calls...which means they believe very strongly this stock is going to be above $15 in just three weeks. And no one seems to know why! There was no public news on EMC yesterday. Insider information, anyone? At least I'm on the right side of this trade, I doubled down on my holding around $13 a few days ago, so maybe I can finally start to make a little money back after a horrific year so far.

Meanwhile, Cramer called the bottom of this bear market yesterday, on the one year anniversary of his amazingly prescient rant against Ben Bernanke and the Fed. If we get any kind of buying opportunity today, it's not a bad time to pick some extra Goldman or GE. Jim was also big on Research in Motion but I might have to pass, since I recently added both EMC and CSCO.

Watched The Dark Knight again last night, and it was just as good as the first time.

Tuesday, July 29, 2008

Free Market Economics: Demand Destruction

The recent drop in gas prices - nearly $.50 / gallon in the past few weeks - is an interesting case study in free market economics. What we're seeing is a natural process called demand destruction. There's nothing magical about it - high prices lead to lower demand which leads to lower prices - but the lower prices are exactly what a lot of us needed. These lower prices were achieved without government regulation or interference, and in fact, could only be achieved without government interference.

Miles driven in the U.S. from November - May were down almost 41 billion from the previous year, in spite of an expanding population and an expanding number of cars. That means the miles driven per person were down even more significantly.

This is a record drop...higher gas prices achieved what no government project, program, or tax ever has. No doubt we like to think of ourselves as noble creatures who would willingly cut back on our driving for environmental causes, or to reduce our nation's dependence on foreign oil. But evidence clearly demonstrates that economic incentives are far more effective than moral ones.

Reduced demand, triggered by higher prices, is demand destruction. It can be a brutal process for some, as the pain of increased fuel costs are not spread evenly across the population. In spite of the inherent inequity, it's necessary for government to get out of the way and let it happen. If government subsidizes the cost of gas, demand is kept artificially high, so prices don't decrease. The "summer gas tax holiday" which was bandied about my multiple politicians, would have reduced the price of gas by 18.4 cents, much less than the $.50/gallon that the free market achieved on its own.*

Of course the transition is painful - I don't envy truckers one bit - but eventually the escalating prices drive changes in behavior, which in turn helps to regulate the demand and reverse the price increase. It doesn't happen right away, but at $4/gallon, carpooling and public transportation starts to look a lot more attractive. That Prius suddenly seems more practical than the Escalade. Your next house may be a little closer to work, or you might negotiate harder for the right to work from home for a few days. The sum of all these little decisions, over time, creates less demand for gas and lower prices for everyone. Lower consumption is also good for the environment, reduces congestion on our roads, and a boon for the U.S. politically, as we send less of our hard-earned money to countries that are trying to kill us.

So which would you prefer? A government-induced decrease in prices, which keeps demand artificially high, reduces tax income (means higher taxes elsewhere), and continues to burn oil at a higher rate...or a larger reduction in price, caused by more efficient consumer decisions? This is a no-brainer, but government needs to be willing to get out of the way and let the markets do their job.

No one likes higher prices, but fair prices for limited resources are the best way to encourage conservation, bar none. Notice during a drought how ineffective 'voluntary restrictions' are on water usage. We all have those neighbors who continue to water their lawns and wash their cars...but what if the cost of water was not regulated, allowed to move higher, accurately reflecting its scarcity? Would a finanical incentive be more effective than a moral one? The answer is clear.

Markets aren't perfect, and they aren't always fair, but they are by far the most efficient way to distribute resources. The more bureaucrats you have mucking around in the system, the more time it takes for imbalances to correct themselves. It might not make you feel any better when you pay $75 to gas up the SUV, but try to take some comfort in the fact that higher prices are forcing us to make choices that are more efficient and less wasteful. Choices that are better for the country economically, politically, and environmentally. And run screaming from any politician who thinks the government can redistribute resources more effectively than the marketplace.

*Correction 07/31/08: Originally I wrote that the gas tax holiday would have been $.50/gallon.

Thursday, July 24, 2008

Movie Review: Dark Knight

Very good.

Heath Legder's Joker is one of the best-conceived, best-executed villains I've seen on film. His eerie performance, complemented by a dark script and a minimalist score (similar, though less powerful than There Will Be Blood) create a pervasive aura of creepiness throughout the film.

It's easy to pigeonhole the Joker as simply crazy, but there is more depth and philosophical complexity to his character than superhero movies usually deliver. The multiple conflicting stories about his scars, the fluctuation between homocidal and suicidal, the apparent lack of motivation for his actions, and a supernatural ability to anticipate human behavior, combine to make him much more than a cardboard supervillain.

Spoilers follow...

The Dark Knight also tackles Two-Face, who is portrayed more as a bitter, vengeful victim than a flamboyant criminal mastermind. But the movie might have been better to leave the full arc of the Two-Face story for another installment...from creation to death, he's around for a very short time (30, 40 minutes?) His demise left me with the feeling that the writers took on too many subplots and were forced to wrap them up too quickly. I'd have liked to see the transformation of Harvey Dent into Two-Face, but a full treatment of him saved for a sequel.

Other minor problems include over-the-top Batman gadgetry, and the unbelievable ease with which Joker hides tons of explosives in every room of a hospital, two ferries, warehouse buildings, a man's stomach...just about everywhere, really. There's also a curious lack of reaction from Batman when his childhood friend and long-time love is blown to bits by the Joker. This tragedy compels the Elliot Ness-like Harvey Dent to transform into a killer, but Batman only needs a few minutes moping in a chair to get over her loss. I certainly don't need the emotional sappiness of Spiderman, but a little rage would have been believable. The movie would have been better to explore the effect of her death on Batman at the expense of the Two-Face storyline.

Overall, though, it's a great flick that's worth watching again...if for no other reason than to see the Joker in action.

Monday, July 21, 2008

Back from the Beach

Now that I'm back from that grotesquerie of obese lobsterflesh known as the beach, I can finally comment on the sports happenings of the past several days...

  • The Packers' brass has to feel like Brett Favre is jerking them around. And sure, their ego is hurt by a player who can't make up his mind. But you know what? This is a business about winning Super Bowls, nothing else, so welcome him back and give him the ball. Enough drama already...he's the best QB on your team, so let him play.
  • Greg Norman's record is 2-7 when leading a major after three rounds. Tiger Woods: 13-0. Give Norman a lot of credit for leading the Open on Saturday, but his choke artist ways haven't changed a bit. And while Harrington played great, and deserves an asterisk-free win, everyone in the world knows that Tiger shoots -2 and walks away with the Claret Jug if he plays.
  • Jason Taylor to the Skins - it makes them better, but frankly it's still a stupid move for the Skins. While it definitely gives them an extra win or two this season, a second- and sixth-round draft pick are a lot to give up for a guy who's only playing one more year, maybe two. And the Redskins aren't winning the Super Bowl anyway, so why mortgage your future for a mediocre now? Maybe I'm just bitter because the Eagles have to play him twice.
  • Jeremy Shockey to the Saints makes them an instant NFC contender, even without a defense. 27+ points per game, easy.
  • Give Brian Westbrook a new contract? That's a tough one...he certainly deserves more money, but is that enough of a reason to give it to him? He's currently signed through 2010 and will be 32 when his contract is it seems like terrible business to extend him. Is team morale, which would improve if the Eagles paid Westbrook, worth the wasted millions?
  • Not sports related, but Genentech shot up $13 on a takeover bid (sort of) today...don't be surprised if it soon disappears from the right column of this blog.

Saturday, July 05, 2008

Move Review: Wanted

Brainless fun.

Emphasis on brainless.

It's not enough to suspend your disbelief as you watch this movie, you simply need to accept that the writers don't take the action scenes seriouly and neither should you. The rules of physics are not bent in consistent fashion, they are discarded whenever convenient. When a single bullet from a handgun travels through eight human skulls while continuing on a precise 360-degree path, all attempts to explain or understand are rendered futile.

Characterization is minimal, never venturing beyond well-established Hollywood boundaries of wimp-turned-badass, hot super-assassin, and mysterious-good-guy-revealed-as-bad-guy (whoops! hope I didn't ruin the "plot" for you.) The predictable result is that your emotional involvement with the characters is nil, but then again, their emotional involvement with each other is equally absent.

Morality, always a ripe subject for exploration in a movie about assassins, is given lip-service when Fox (a bony Angelina Jolie, who somehow still has a shapely ass and huge rack) utters 'kill one, save a thousand' only minutes before driving her car into a fully loaded passenger train. There's no remorse, or even an acknowledgement of responsibility, when said passenger train plunges into a canyon as a result, killing everyone aboard (except our heroes, natch.) Like the laws of physics, the morality of the characters shifts to meet any situation.

The "training" our hero undergoes is almost as ridiculous as the action scenes. Apparently, all it takes for an underfed computer geek to become a deadly unarmed fighter is to be tied to a chair and beaten unconscious daily. And you too can learn to curve bullets as long as Morgan Freeman stands behind you whispering insightful banalities like "trust your instincts."

But for all this movie's flaws, and I haven't even mentioned the peanut-butter rat bombs yet, there's still an element of fun. The scene where he smashes his best friend in the face with an ergonomic keyboard, resulting in slo-mo splatter of bloody keys and teeth, made me lol. Ditto for the scene where he flips sideways over a limousine in order to assassinate his target through the sunroof.

If all you're looking for is a trite bit of mindless escapism, and a naked-from-behind view of Angelina Jolie, you could do worse than Wanted. But if you're hoping for a good movie, this one will leave you...(sorry)...wanting.

Wednesday, July 02, 2008

Democracy in Action!

You'll be comforted to know that your government decided this past week that regulating handguns is unconstitutional, but regulating trans fats is perfectly ok. Never mind that we have a choice about how many trans fats we put into our bodies, and we have no choice at all who gets killed by the next crazy workplace shooter. Dangers that we cannot protect ourselves from (like guns at the office or at school) are ignored by the government, while dangers we can easily regulate ourselves are legislated out of existence.

The reason this happens, of course, is because of lobbying dollars and public opinion. We're all so lazy, and lacking in self-discipline, that we're happy to put the onus on McDonald's for our national obesity. On the other hand, a politician who takes on the machine of the NRA is signing a death warrant for his career.

Wouldn't it be nice if we had politicians that stood on principle instead of engaging in convenient hypocrisy? If you think government should control the people, call yourself a socialist and vote appropriately. If you think people should control the government, call yourself a libertarian and stay consistent. But all this middle-of-the-road case-by-case unprincipled bullshit shifts power from the voters into the hands of lobbyists and special interest groups.

If your decisions aren't guided by principle, what are they guided by? If you think it's ok for government to control certain parts of your life, but not others, where do you draw the line? Do you make an honest, intellectual evaluation of every issue? Or, as a politician, do you simply follow the money and the polls? The answer is evident.

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy...

This quote, often misappopriated, has the ring of truth. However, I'd make a slight distinction as it applies to America. Voters have been stripped of, or willfully relinquished, nearly all of their power. Now instead it is wealthy interest groups and lobbying organizations that vote themselves largesse from the public treasury. They promise money and power in exchange for beneficial legislation. And thus, we march inevitably down the path of loose fiscal policy, shortsightedly squabbling over money we do not possess but refuse to stop spending.

The collapse of great civilizations often comes suddenly, immediately following the peak of greatness. Those unfortunate citizens fail to recognize the possibility of collapse before the reality is upon them. The last resources of these doomed societies are rarely invested toward the future, in an attempt to stave off destruction - they are instead squandered by leaders for short-term gain.

And so America stumbles on, expanding government with useless regulations and bloated entitlement programs. Only an out-of-control society on the verge of collapse could stray so far from the principles it espouses.

But we're the exception, right?