Thursday, January 26, 2012

PayPal remembers, even if you don't want to...

Here is a common question on the Internet:
"How do I delete old shipping addresses from PayPal?"

Answer: You can't. You can spend hours trying to figure out how.

Then call PayPal, and once you get through to a human being, THEY can delete old addresses, but you can't. Seriously.

You can add addresses. You can't delete them. And every stale address that stays there has a chance to be used by mistake when something gets shipped. Everyone that you have ever sent anything to is listed right there, perhaps to your present dismay or embarrassment.

It gets better, at least, it gets more intense. If you link PayPal with its parent company eBay, all those people and addresses from your past show up as eBay shipping addresses too.

And no, there is no delete button that you can depend on.


Tuesday, January 24, 2012

This might not be a good sign...

The Baltic Dry Index reflects the demand for shipping. Someone just put a hole in it.

Saturday, January 21, 2012

Inflation? Deflation? Both?

Every great power succumbs to the temptation to debase its currency. The rulers of Rome, China, Persia, Great Britain, Germany, and the US have each, in their time, seen fit to print money at a rate that outstrips the growth of their economy. So has every country whose politicians control its treasury, from Argentina to Zimbabwe in this century alone.

The inevitable result is a loss in the purchasing power of the money of the realm. Inflation.

Every consumer, individual or corporate, would like to have more money at his disposal than he currently possesses. There are three ways to do this besides earning it: beg, borrow or steal. Setting aside begging and stealing, we can focus on borrowing. A wise man once observed that "every loan is paid, usually by the borrower and the rest of the time by the lender." (If that wise man had been cynical he would have added "or the taxpayers of future generations").

When money is loaned into existence, everyone feels richer. The lender expects to get repaid with interest, and counts his loan as an asset. The borrower has the use of more money than before, and spends the money to satisfy his needs.

But when loans can not be repaid, that sense of wealth is replaced by something approaching despair. And the money supply (by many definitions) can be seen has having shrunk. Remaining money rises in purchasing power. Deflation.

Let's look at how this translates to real life in 2012. In the US, home prices have tripled from the mid 1990s to 2007, then dropped to merely double their 1996 levels. The function of housing did not triple in value, just the price.

The US Dollar held its value as measured by the USD index, so in terms of one paper currency vs another, nothing much has happened. But if you had sold your house in 1996 and taken the cash and buried it, you would have lost 2/3 of your purchasing power 11 years later. Inflation. Had you been smart enough to sell your house in 2007 and buried the cash, you would have gained 50% in housing-related purchasing power. Deflation.
Real economists will protest, if they get this far, that I have grossly oversimplified how money works. I agree. The point I am striving to make is that things we borrow money to acquire rise in price if money is easy to borrow, and drop in price if money is hard to borrow. The value (utility) of those things does not change, just the price. From the perspective of money, a dollar is worth more after deflation than after inflation.

What about things that we do NOT beg, borrow or steal to acquire? If you need a loan to put food on your table, you are in trouble (and you are probably not reading this, nor do you need me to tell you that you are in trouble). Things we buy with cash rise in price when currency is debased. "What this country needs is a good 5 cent cigar" is a familiar phrase first heard in the 1870s. Cigars are consumables, and their intrinsic value doesn't change much. But their price does.

What does all this mean in 2012? Deflation AND Inflation.
  • Expect a continued drop in the price of things that people borrow money to buy, because credit has had its bubble and is collapsing
  • Expect a continued rise in the price of things that people pay for with cash, because the value of cash has been debased for decades and is still being debased

Thursday, January 19, 2012

Abundance vs Scarcity

Lots of changes these days in the Halfwise household: my wife and I have relocated, she has retired from paid employment, I am cutting back my hours, and we will bring her mother under our roof.

When we examine the trade-off of time for money, we likely come to different conclusions at different stages of our lives. When I was starting out, it was "give me all the work you can." I had lots of time, not much money, and maximizing income was what work was all about.

Since then, life has taken interesting twists and turns, some of which were lucrative and some of which were damned expensive. I have lived lean, I have lived fat. Fat feels more comfortable.

As of a few days ago we have relocated to live on an island, with arcane rules for recycling (milk cartons can go in to a compost bin with dirty kleenex and coffee grounds, but glass jars must be spotless before they go into their recycling stream). I can see how someone living here all their lives would come to believe that scarcity requires rules, imposed by an outside authority. The west coast of North America seems to spawn zealots, more than willing to impose views that nature must be protected from mankind.

To a degree, this viewpoint has merits. People can be cruel, greedy and thoughtless. Free markets do not immediately punish these behaviours (but in the fullness of time what goes around comes around).

Today is the morning after a US decision to kick the can of Keystone Pipeline approval down the road. Opponents of the development, apparently unburdened by reference to any maps of existing pipelines, predicted dire consequences of adding a pipeline to the US landscape. "No big deal" implied Canadian politicians, and turned their attention to an alternative, the Gateway Pipeline that would take oil to the west coast for export.

There is no scarcity of oil. There is a scarcity of common-sense acceptance that oil leads to wealth that is essential to society, to education, health care, highways and arts programs.

There is no scarcity of technology, that makes the transportation of oil by pipeline a manageable risk. There is a scarcity of perspective that enables the general public to recognize that risk accompanies everything we do, including choosing to delay activities that create wealth.

There is an abundance of opinion, including this trivial blog posting. But there seems to be an abundance of entitlement amongst people who are both ill-informed and unelected, that their precious opinions must be respected, not just endured.

Social progress requires the freedom to express strong opinions on all sides of issues. From the resulting debate emerges an alternative that likely would not even have been considered otherwise. This is how we advance.

Pipeline opponents, you don't need Halfwise to tell you be strong in seeking safeguards. But while you are "safeguarding" the rest of us, keep the perspective of our abundantly active society. You are part of it and benefiting every day.

Friday, January 13, 2012

Gaming the system for personal gain but international pain

I am a free market kind of guy, but games that threaten the global financial system worry the heck out of me. I am not suggesting more regulation; I am publishing this to highlight some risks that are baked right into the Euro-cookie.

Everyone knows that Greece is in trouble financially. In many ways, the Greeks no longer rule their own country; a troika unelected by any Greek is in charge. The International Monetary Fund, the European Commission and the European Central Bank now hold the purse strings for the birthplace of democracy. Greece is not alone, of course, it just happens to be in the news. Italy's situation is similar.

Any rational investor would want to protect his capital during difficult times. You know, maybe buy some insurance (a credit default swap, or CDS). Naturally, every insurance policy has its fine print. Credit default swaps only pay off under certain forms of financial failure. You are insured only for certain hazards.

Here is where the cookie starts to crumble. According to the Institute for Individual Investors, there is a total of approximately €355 billion in outstanding Greek debt, with €100-140 billion held by the ECB, IMF, and EU (the Troika). This includes the €35-40 billion purchased by the ECB during 2011. The remaining €200 billion plus is held by banks, pension funds, and, increasingly, hedge funds. It all comes to a head in the next few weeks.

Those private holders are expected to take a €100 billion and change loss; the Troika’s holdings would be unaffected by the plans to resolve the debt crisis. That alone should raise eyebrows, but let's look more closely.

If certain Greek debt was expected to take a 50% write-down, it would be priced at 50% of face value. Instead, it is selling at a bit over 30% of face value. What gives? Let's quote directly from the IFII's free subscription Tycoon Report for January 13th:

...magnanimous private holders are expected to voluntarily take a 50% haircut. The plan under consideration is that for each €100 of debt tendered, €15 in cash would be received and €35 in long dated (as much as 30 or 40 years), low-interest Greek debt.

Now if this plan was anywhere close to a reality, Greek debt would be trading near that 50% of face value mark, but it is not. It is trading around 32% of face value.

Additionally, if this voluntary plan goes into effect, it would not be a “credit event”. It is a non-event according to the determiner of such things (the International Swaps and Derivatives Association), because it is “voluntary” and not everyone is affected; remember the Troika would be exempt. That is important, because it would not trigger the insurance contracts on the bonds, known as credit default swaps (CDS). Without the insurance to make up the 50% of value that goes poof, losses will be very real.

However, if not enough private holders volunteer, then the deal falls apart and Greece will default for real. The CDS holders will be made whole because a default is a “credit event” and will affect everyone.

So hedge funds have been accumulating Greek debt with the specific intention of not volunteering their holdings. They are also buying CDS, which cost 8% of face value.

In other words, funds are paying €32 for Greek bonds that have a face value of €100, and paying €8 for insurance, resulting in a total cost of €40. When they withhold their bonds from the voluntary swap, Greece will be unable to roll its debt and will default. Then the CDS will trigger and they will receive €100 on an average investment of little more than €40. A tidy 150% profit before the end of March!
I bolded the part that is the most dangerous part of the game. The report goes on to say:
A Greek default will have huge ripple effects. It doesn’t even matter if Greece is forced to leave the Euro or it is allowed to stay -- a run on Italian and Spanish sovereign debt is sure to follow.

The big money manipulation of the markets is going to cause a serious monetary and economic dislocation that could move Europe rapidly from mild recession to full on depression. The US stock market and economy are not on an insulated island; there will be a deleterious effect on both when the tsunami effect hits these shores.
So let's sum this up in layman's language.
  1. Greece owes money it won't pay back, to banks and countries that should never have lent it in the first place.
  2. Those banks and countries have replaced Greece's leadership to try to make sure they get their money back.
  3. Some private parties are buying the parts of the debt that are not controlled by the troika of replacement leaders.
  4. The private parties will try to arrange things to maximize their profit on the questionable debt.
  5. The way they are going about this threatens the global financial system.
Got gold? Cash? This could turn out badly.

Tuesday, January 10, 2012

Using the Kindle with Calibre e-Books

I travel a lot on business (>150,000 air miles last year, without ever checking a bag) and a Kindle is a great way to carry reading material without getting weighed down. My newspaper subscription, for instance, is on the Kindle, and other than some funky formatting issues, I prefer it to the tree-and-ink version.

The free books available electronically are another great feature. And a free software called Calibre works as an essential middle-man between the source of the book and the Kindle. Go to Calibre and download the version that works on your computer or portable device.

Now you can work with anything published in standard epub format.

Say you want one of the hundreds of excellent books and articles from the Ludwig von Mises Institute. Go to their site and track down what you want to read. Let's say it is Leonard Read's classic article I, Pencil, which is free of charge.

Click on it and download it into wherever your downloads go. Open Calibre, and click on the Add Books button. Browse to your Downloads folder, highlight the I, Pencil file and click the Open button. Calibre brings the article and its cover illustration into the Calibre Library on your computer. Then plug in your Kindle and click on the Send to Device button. Keep an eye on the little wheel at the bottom right of your takes a bit of time to squeeze the book through the wire.

Done. Now you can read the article for free. Plus you can use Calibre to manage the books on your device.

Monday, January 09, 2012


Coffee is an interesting beverage to brew. There are only a handful of variables:
  • What kind of beans are we using?
  • How coarsely are the beans ground?
  • How consistent is the particle size of the ground beans?
  • How pure is the water?
  • What temperature is the water?
  • Are we using a filter?
  • If so, what kind? Paper or metal?
  • How fast does the water flow through the beans into the pot?

Okay, maybe there are more variables than you might imagine.

Technivorm is a Dutch company specializing in coffee makers that (a) heat water to the right temperature (195 - 200F) and (b) have adjustments to restrict the flow of water through the filter. Most drip coffee makers fail at both of these.

We have one. It makes better coffee than our old drip maker. Better flavour, better to drink.