More than ten times as many (recent home buyers) said that the stock market encouraged them than said it discouraged them.

After we read such answers, some patterns seem to emerge. The drops in the stock market since 2000 and the failure of the market to recover had just gotten people increasingly fed up with the stock market, and ready to transfer their affections to another market, a market that they increasingly believed was the best investment for them. (page 80)

Cities would do well to begin setting aside properly maintained areas for the mobile homeless, whose numbers are sure to increase.

Wheel Estate

My name is Jim. My wife and I raised 5 kids and when the last one finished college in 2005, we sold our house, put the money in the bank and hit the road as full time RV’rs. We live in our 36 foot 5th Wheel trailer with three slide outs. We have all the conveniences of our old stick house and more. Things like a microwave oven, refrigerator freezer, central heat and air and modern plumbing. We use satellite internet and TV, we have a combination washer/dryer, roomy bathroom facilities, comfortable bed (my wife prefers having her own bed when traveling – she can’t stand hotel beds). We use a cell phone as our only telephone and we have a mail forwarding service. We pay most of our bills on line and with the ubiquitous ATM machine we have access to cash whenever we need it.

We are able to visit friends and family members all over the country and we get to do and see things we never dreamed of prior to taking up this lifestyle. We consider ourselves full time RV’rs and not campers as one is a lifestyle and the other is temporary recreation. As RV’rs we are environmentally friendly as we only have one vehicle and actually use less fuel now than when we both worked and drove cars in a daily commute.

You see, we don’t drive every day, we don’t have too. We find a nice RV park and stay a few weeks and explore the local area around the park. We are fully self contained (which means that during a power outage we still have full electrical power, water and sewer.) We consume less water and power and are therefore much more friendly to the environment than when we lived in our stick house. Full time RV’rs are fun and friendly people. We have a great time together, and it doesn’t take us long to make friends. I can honestly say that in one day’s time I get to know more people in a new RV park than I knew in our old stick house neighborhood.

Currently it is estimated that there are over one million full time RV’rs in the US. Many, like us, are fully retired (some with only Social Security and others with pensions) and others are “workcampers” who make good wages while living in their RVs. They can follow the work and many are raising children in this lifestyle through home-schooling. It’s one thing to read about the Alamo, but when your parents actually take you to all the places you read about, I think it makes history come alive for these kids. I wish I would have been raised this way! There is even a publication and website for “workcampers” that lists hundreds of job openings all over the country.

When people start getting evicted from their property because they had mortgages they couldn’t possibly afford, they will have limited basic living choices. Most will move in with relatives or rent if they can find a landlord willing to take the risk. But what if they did something entirely different? What if they took on an entirely different lifestyle and became full time “workcamper” RV’rs? Realistically you can purchase a nice used RV (there are many nice RVs on the market that are inexpensive) and become full time RV’rs. OK, where are they going to get the money to do that? You can do it for less than getting into a rental (first and last and security deposit and pet fee).

It beats the heck out of living with your relatives (your relatives will like you better if you just visit and use some of their electricity for your RV from time to time than if you just flat out move in with them). And hey, maybe the relatives would be willing to loan or sell their RVs to these folks just so they won’t move in with them.

Your readers and their friends need to know that foreclosure is not the end of the world – in fact it may be a new lease on life, the beginning of a bright new world of adventure for them as full time RV’rs. Here are a couple of web sites where you can obtain more information about the full time RV lifestyle:
rvtravel.com
escapees.com
workamper.com
trailerlife.com

See you on the road. Jim

If I were in a position to manipulate the oil futures market (oh how I wish!), I would engineer the occasional free-fall in order to panic the herd into selling. As the price fell to absurd levels in the ensuing rush to the exits, I would buy futures on the cheap and then let actual demand drive the price back up, thereby reaping vast profits once the price returned to its "market" level.

Yesterday, Abdallah S. Jum'ah, chief executive of Saudi Arabian state-owned Saudi Aramco, the world's largest oil company by production, argued during a speech in Vienna that the world has more than a century's worth of crude left at current production rates. His talk followed similar remarks by a senior Exxon executive this week. Spokesmen for Exxon and Aramco said they aren't coordinating their remarks.

(Exxon's) Mr. Nolan cited a U.S. Geological Survey estimate of more than three trillion barrels of conventional recoverable oil resources, of which one trillion barrels has been produced. Conservative estimates of heavy-oil and shale-oil resources push the total to four trillion barrels, while a 10% increase in recoverability will deliver an extra 800 billion barrels, Mr. Nolan said.

The movement of all that speculative cash isn't the only reason energy commodities are tumbling. But analysts say the behavior of big market speculators has amplified and speeded up the drop.

The Commodity Futures Trading Commission keeps track of whether traders are buying or selling futures, betting that prices will rise or fall. Among speculative investors, the number of bets on rising prices has dropped by more than 50 percent since mid-August, said David Kirsch, an oil analyst at the PFC Energy consulting firm.

At the same time, the number of open contracts on the oil market -- essentially, a gauge of how many investors have an ongoing stake -- remains high. But many of the people buying futures have shifted their timing. Instead of buying futures for the coming month, previously the most common purchase for speculative investors, they're buying futures contracts for three or fourth months from now.

"They're not fleeing," Kirsch said. "They're just switching their positions around."

Friday's entry on the book Bait And Switch (by Barbara Ehrenreich) and the U.S. corporate culture generated several noteworthy responses.

I have been a design engineer for about 15 years, I believe that I am a pretty good engineer. In 2000 I decided to change jobs. Since then, I was laid off and almost laid off. I know a platoon of engineers that have been forced to look for work since 2000 for the sake of corporate profits and shareholder value.

I have been fortunate to work for four fortune 500 companies, in a variety of industries. All of these companies have had one common denominator, the shareholder... There is very little concern for the future of any of these companies, just the results from quarter to quarter to make the shareholders richer.

I know for a fact that the companies in the APAC (Asian Pacific) region and their employees look toward the future. They are willing to invest the time and energy for the future instead of profit for today only. It is only a matter of time before our industrial sector is completely hollowed out and all of our good jobs have been outsourced.

At my current employer (one of the best for their employeers that I have worked for in years) my job is to outsourse design and commercialization to our India division or subcontractors. Last year we had record profits!! This year we are under tight fiscal constraints to meet our "plan". Based on my experience, I would suspect that we will be having a layoff soon, even though we are currently hiring new engineers.

During my years of employment, I have seen about 8 layoffs in all of the companies that I worked for (excluding the current one). Most of them occured while the overall corporation was profitable.

Where is my career going to end...I don't know, but it probably won't be in engineering and not before I have to change jobs a few more times in the next 10 years.

It's been years since I read Nickel and Dimed, but I remember thinking that her whole problem was not salary or working conditions, but the rent she pays. Without that high rent, her budget would have been fine (except for health insurance, which is another issue.)

But, she makes the rent situation far worse than it has to be in two ways. First, she wants to live alone, which a lot of people in low wage jobs would not. Second, because she expects to move on to another area soon, she pays more than she has to. There's a point in the book where she's staying in a motel room to avoid signing a lease on an apartment! If she were really living on her income, she would find a roommate and split the rent and security deposit, and probably a car as well. And she'd stay in one area more than a few months.

I can't get too excited about the working conditions argument either. None of the jobs she described required working horrible hours or anything strenuous enough to do damage. The waitressing and retail jobs are boring and annoying, but not exactly slaving away in the salt mines!

I haven't read her most recent book (and won't, since I was pretty unimpressed by Nickel and Dimed), but I've read reviews that point to a similar problem with her latest experiments -- they are not realistic. In the old book, it was living conditions, and in the new one, her "networking" and resume. If you come into the job market with no friends to give you references and no recent work experience, you are at a huge disadvantage. Even a made up resume with some fake references isn't the same.

You write that she "spent months networking with in an endless string of 'executive' seminars, 'networking' mixers, church 'networking' functions'. Although this does not mean she meets only "losers", it does mean she's dealing with people who have exhausted their personal networks of friends, former coworkers, etc., either because they've been out of the market too long, are changing fields, or weren't that highly regarded in the first place. That would tend to select for people who are going to have a hard time finding a job.

I've seen friends go through this exact situation, especially after the tech bust in 2000. They let their networks fall apart or changed fields and then have no one to use as a reference. Some of them also have a real attitude problem - they expect to get a job as good as the ones they had back during the boom, and are unwilling to compromise. If they just did a few short-term contracting projects to build up their resume and meet new people, they could get back into the market for the high end jobs. But they won't do that, out of pride, and basically unrealistic expectations.

In my industry (software), the resume hardly counts anyway. For one thing, people reading them expect them to have a thick coating of BS. For another, they really don't tell you anything important about the person. Companies want people who educate themselves (and stay current), take responsibility and complete tasks. You can't tell that from a simple list of jobs they've been involved with. They base their decision first on the interview, and then on reference (and other people named by your references), and lastly on the resume.

In several interviews I've been on in my career, the resume sat unread and unmentioned until they had already decided you were a good guy. They did this by asking you to solve problems during the interview. Sometimes, it's just "what's your opinion of this or that product in the industry", other times it is "how would you handle this problem", or even "write this simple program for me right now." Some have little math problems that they ask you to solve, not only to see if you can solve it, but also to see how you handle the pressure, and what approaches you take to the problem. And of course, they want to see if they like you and think they can work with you. A lot of the interview is just chit-chat about your life experiences.

In that kind of interview anyone who is hiding things about their background, or is reserved, or nervous, or doesn't speak English well is at a real disadvantage. Although I haven't read the Ehrenreich book, she could easily raise red flags just by the nature of her experiment. After all, employers are looking for people hiding things and BSing their way through an interview. Their biggest fear is of hiring someone incompetent and untrustworthy, not lack of specific qualifications (they expect you to learn, after all.) And here she is, hiding something huge about herself and covering that with BS. So I wouldn't be surprised if no one hires her.

First off, lemme just say it's damn hard to keep one's soul in contemporary China. Everytime I went back to Shanghai, it felt very different to me. In recent years, increasingly, I felt an overwhelming sense of materialism. Adding to that is tremendous peer pressure and the need to 'keep up with the Jonese.' What others have I have to have it, too. What others do I have to do it better. That's painful. By going with the flow we essentially give up our own choices, ideals, and individuality. Or, in other words, our souls.

But how can you not go with the flow? If the entire society is crazed about making money and buying houses, how do you dare to be different? What about parental expectations? They've had a hard life raising us. What about our children? We can't have them lose out from the start. Life is a race and you simply cannot afford to stop.

Partly that's why I hide in San Francisco. In Shanghai reality is presented in a much harsher, right-in-your-face kind of way than in SF. Here people could care less about what you do with your life. Sometimes I try to picture what I would be doing today if I stayed in China. And all I could think of is a stifling cube in an office building somewhere in Beijing or Shanghai. I don't think I would've had the courage to do anything different. I have a lot of respect for the independent spirits in China today, simply because it's just so much harder there to stay true to oneself.

In IT industry, undergraduate students have to work hard to earn 36,000 RMB per year.

You can buy some good apartment at 7000 RMB/sq. meter or some nice apartment at 10,000 RMB/sq. meter.

I just finished Bait And Switch: The (Futile) Pursuit of the American Dream by Barbara Ehrenreich

New research suggests that 17 percent of jobs that do not require a college degree are currently filled by college graduates, for a total of about seven million under-employed people. According to the Bureau of Labor Statistics, of the 25 fastest growing jobs for 2006, only five required a college degree at all.

Most of this growth in total labor compensation has been accounted for by rising non-wage payments, like health care and pension benefits. Rapidly rising health care costs and pension funding requirements imply that these higher benefit payments are not translating into increased living standards for workers, but are rather just covering the higher costs of health care and pension funding. Growth in total wage and salary income, the primary source of take-home pay for workers, has actually been negative for private-sector workers: -0.6%, versus the 7.2% gain that is the average increase in private wage and salary income at this point in a recovery.

These are ominous signs, suggesting a new march toward greater inequality in the American economy. Worse, the growth in profits combined with a drop in wage and salary incomes suggest that the recovery has a narrow base, with most American consumers only able to increase their purchasing power through debt. Wage growth is not just fair, it is also necessary for a more sustainable recovery.

Standard & Poor's also expects earnings to continue growing at a double-digit pace in the second half of the year. If those forecasts hold, it would make for the longest stretch of double-digit earnings gains since 1950, surpassing a long string of gains in the early 1990s.

In the first quarter of calendar 2006, corporate profits hit a post World War II high of 12.7 percent of the GDP. The administration projects that profits will be 12.2 percent of GDP for the full year.

In only three other years in the post-war period have corporate profits exceeded 12 percent of the GDP: 1950, 1951 and 1965.

In those other three years, however, corporate income taxes averaged 4.2 percent of the GDP — 65 percent higher than the corporate tax payments expected in fiscal 2006.

My wife and I have been fiscally conservative, but politically, environmentally, educationally ... liberal. I see absolutely no conflict. Environmental health, challenging and open minds, Culture, our children's interest in life, etc. are important. Driving a BMW or SUV, living in a McMansion, eating out every night at a chain restaurant, dressing in GAP, Old Navy, etc. do not add anything to the appreciation of what was the variety of the world. We have both recently quit our jobs. We are part of your statistics - older people not working past 60. We ARE NOT living off HEW. (Federal Dept. of Health Education and Welfare, now known as the Department of Health and Human Services--HHS).

Our jobs had become meaningless. (emphasis added) We both worked in computers, one way or another. The nice thing about computer projects/products is that you can just hit the delete key (or type 'rm' for those using manly operating systems) and clean up your work without impacting a single landfill. But that also meant that we saw nothing really tangible for our day's work. No ditch, no framed wall, no ribbon of asphalt, no scrumptious pastries, no finely machined gizmo, no healthy cat, no soaring aria, no published book ... NADA.

In particular, I also had developed a very cynical perspective of business. I saw managers solely interested in themselves and what they could monetarily get out of anything. I helped start a local office of a high-tech research firm. I was focused on the engineering, the customer, the product. A local companion spent more time promoting himself with the distant management and squeezed a number of us out. I had absolutely no monetary benefit from my Herculean efforts. Management was solely interested in self perpetuation and self aggrandizement and its own bank accounts. It knew nothing about the customer or the product, but management knew everything about bonuses.

I am fascinated by MBAs who graduate and go into business. They know how to balance ledgers, how to improve stock performance. But they know nothing about the product since they short circuited that part of training. They did not grow up in the company but were trained on generic principals and then injected themselves into the management level without ever having been on the manufacturing floor. Using the mantra "Wall street expects", they hide their self-interest in rising stock prices so they can exercise their options.

Employees are now just cogs to the dream of a multi-billion dollar globalized empire. Enough is not enough. I have read stories how after the 1928 crash millionaire company owners invested their own money to shore up confidence in the stock market, but after 9/11 CEOs just gave themselves stock options. The name of the game today is simply immediate self gratifying greed. I have witnessed it where ever I worked.

Also, with defined contribution IRAs, one sees how much money one has saved for retirement. Knowing one's lifestyle one can predict how much one needs to live, assuming Social Security is still available. With available life and health limited, no respect at work and adequate finances to underwrite a reduced lifestyle, one changes his tune from Live-to-Work to Live-to-Live.

So, the lack of rewards at work (meaningful work or involvement), just adequate savings, with the massive fiscal imprudence and disparity- driven Administration, forced chaos and manufactured country-wide and global hostilities = Let's just call it quits.

So, we played the game most of our life. We raised four healthy kids. None of them however went to state universities. We spent our lives giving them an education. Now, our jobs were pointless, our companies served only the management, and the budget and politics of the U.S. has become intentionally divisive, derisive, and greedy. Our lives, our marriage and our curiosity is what we have left and want to cherish. These have no place in the Road-Wage-World we have created. These have no place in the hasty shoving of clown people, driving clown cars eating clown food. We recently visited Guatemala and saw patient people actually working with their hands, touching the world around them. Not working with big iron machines or big fast computers.

Maybe the digital and impersonal chaos around us is part of the pre-octogenarian dropout.

One of my favorite scenes in the film The Snows of Kilimanjaro has Gregory Peck (Harry Street) dashing in with the exciting news that his novel has sold

Take our bus ride from Kansas City. It should have been the snooziest cruise in the universe to get to Alex's uncle's farm in Liberty. But no, everyone else on the bus makes it to Iowa except us. Why? Alex.

Graduation, 2006

By David Wonpu (Santa Clara University)

Layla’s graduation was only two days away and I was absolutely unprepared. I’d been busy moving out of my dorm, cranking out final papers at the eleventh hour, and worrying about what I was going to do for her this weekend. So busy I forgot the most important event of this artificially momentous occasion: meeting her family. Just like me, I thought, about five paragraphs away from finishing Ratliff’s arduous twenty-page take-home. Always obsessed with minor details and never failing to forget the big picture. Call me Howard Hughes with $135.27 in my checking account. God, how do I even know the cents?

Blending

By Bethan Eynon (Ohio University)

I didn’t discover that I looked Korean until middle school. I was scrutinizing my ponytail in the bathroom of my house, using a hand mirror to ensure perfection, when I stumbled across my profile. I craned my neck and stared in wonder. All of a sudden, I knew why the kids on the school bus used to call me "china doll." I thought of the silhouetted profile portraits of my mom, dad, and brother that used to hang together on the family room wall. They were taken a few years before I was adopted, when my brother was about seven. I tried to picture a portrait of my profile next to my family’s profiles, but they didn’t match. Years later, I heard a news report about a survey conducted in African countries. Little girls were asked to draw self-portraits, and instead of coloring in dark hair and dark eyes and dark skin, they drew themselves as blonde-haired, blue-eyed, light-skinned girls. Those in charge of the study suggested the girls’ warped self-images were product of American television shows broadcast overseas, pervading other cultures. It made sense that children form images of themselves as reflections of those they see around them. Until middle school, I pictured myself with flowing chestnut hair and ivory skin.

I have a story of my own that shows even those of us who are extremely confident in the water sometimes fall prey to false confidence.

In 1995 I was a student at Basic Underwater Demolition/SEAL school (BUD/S) (Class 209 and 210). I was in first phase attending a class when I heard the dive tower siren. This is usually a very bad thing. Later I was to learn that Instructor K was in a coma apparently from a drowning accident in the dive tower, pretty much brain dead and expected not to make it; he didn't. How does an experienced Navy SEAL drown?

Apparently while the other instructors were busy with the class he was practicing breath holds and blacked out. Safety is of the utmost issue at BUD/S and the instructors are top notch but unfortunately the focus was on the students and not EVERYONE in the water. His brain went without oxygen for over 10 minutes before anyone realized he wasn't accounted for.

He was cremated and his remains scattered over San Diego Bay. Hoo Yah Instructor K.

I can swim underwater 75 yards comfortably. I have had my hands and feet bound in nine feet of water for 45 minutes. I am a PADI diver. This all to say that I am very comfortable in the water but I don't go in the water alone or without supervision and I always keep in visual contact with my partner. No one is immune to accidents. Risk assessments are not just for the workplace. I have a family that I am responsible for. These days I leave my risk taking to my trading.

At the age of 50 or so I found myself climbing a small mountain in damp, slightly misty weather. It is made of large slabs of slate, which had a hint of silpperiness. I had not taken this particular route before. It goes along a sharp ridge, with a drop on one side to a little lake a thousand or so feet down, and a drop of a similar sort into a gully. The top of the ridge is probably 20 yards wide, but its much wider on the approach. The views are magnificent.

In order to reach the summit, you walk along the peak of the ridge, which descends a little as it joins the main bulk of the mountain. At this point there is a step down which is a little tricky, though not I think very dangerous. Don't know, I never saw it.

At any rate, about 400 yards from the peak of the ridge, well before any of this was visible, and at least 20 yards from either edge, I began to feel a little nervous. It was such an unfamiliar experience, since I have climbed all over these mountains since a boy, that I didn't really understand what it was. I carried on. The ridge narrowed. The feeling grew. When I was around 200 yards from the peak, still about 15 yards on either side from the edges, it became very strong. I sat down and thought, this cannot be happening to me. I calmed myself down and carried on. Another hundred yards, and the edges are now at their narrowest, where they carry on for the rest of the distance, and I realised I was actually frightened. Seriously frightened.

I thought, I have people dependent on me. I sat down again, calmed down again, turned around and walked back. Afterwards, when I told a friend about it, I said, God whispered in my ear. And I listened. Not that he was looking out for me one way or the other. It was just an intimation of things that are indifferently powerful and can kill you.

I want to thank you for all of the information you assemble on your site. Your writings make me delve back into my old textbooks and writings in search of more information on personal economics, business, and consumer trends.

I have a small group of friends that gets together to discuss the markets, trends, wealth protection, etc., and we have been battling for about a month now on oil prices. I was wondering if possibly you could expand on our main battle line:

Is the current high price of gas, at the pump, being artificially propped up by oil companies’ futures contracts?

A commodity broker in my group floated this idea as a “what if”. What if some of the oil majors bought contracts months ago betting on higher prices? Could they in effect control or even manipulate their investment by artificially keeping prices high to cover their contracts?

With the amount of money companies allocate to locating new oil fields, new rigs, and new technology, how can the massive profit levels of Exxon, Citgo, et al be explained?

EXPLANATORY NOTES:
Reportable Positions - Clearing members, futures commission merchants, and foreign brokers (collectively called "reporting firms") file daily reports with the Commission. Those reports show the futures and option positions of traders that hold positions above specific reporting levels set by CFTC regulations. (Current Commission reporting levels can also be found at the Commission’s website noted above.) If, at the daily market close, a reporting firm has a trader with a position at or above the Commission’s reporting level in any single futures month or option expiration, it reports that trader’s entire position in all futures and options expiration months in that commodity, regardless of size. The aggregate of all traders’ positions reported to the Commission usually represents 70 to 90 percent of the total open interest in any given market. From time to time, the Commission will raise or lower the reporting levels in specific markets to strike a balance between collecting sufficient information to oversee the markets and minimizing the reporting burden on the futures industry.

Commercial and Non-commercial Traders – When an individual reportable trader is identified to the Commission, the trader is classified either as "commercial" or "non-commercial." All of a trader's reported futures positions in a commodity are classified as commercial if the trader uses futures contracts in that particular commodity for hedging as defined in the Commission's regulations (1.3(z)). A trading entity generally gets classified as a "commercial" by filing a statement with the Commission (on CFTC Form 40) that it is commercially "...engaged in business activities hedged by the use of the futures or option markets." In order to ensure that traders are classified with accuracy and consistency, the Commission staff may exercise judgment in re-classifying a trader if it has additional information about the trader’s use of the markets.

A trader may be classified as a commercial in some commodities and as a non-commercial in other commodities. A single trading entity cannot be classified as both a commercial and non-commercial in the same commodity. Nonetheless, a multi-functional organization that has more than one trading entity may have each trading entity classified separately in a commodity. For example, a financial organization trading in financial futures may have a banking entity whose positions are classified as commercial and have a separate money-management entity whose positions are classified as non-commercial.

Nonreportable Positions - The long and short open interest shown as "Nonreportable Positions" are derived by subtracting total long and short "Reportable Positions" from the total open interest. Accordingly, for "Nonreportable Positions," the number of traders involved and the commercial/non-commercial classification of each trader are unknown.

Generally, Commercials are producers and processors of that commodity, Non-commercials (Large traders) are funds and other large trading interests engaged in speculation rather than hedging. And Non-repotables are usually small funds or the general public.

Attached are charts that hopefully will help to answer how the largest market participants are positioned (what they have been doing with their money). The legend for the charts with indicators that seem to resemble DMI is Large traders=blue, commercial=red.

The Commercial or COT index is based on 3 years of data (yes I do use different time frames) and gives a buy alert when greater than or equal to 80 and a sell alert when less than or equal to 20. Therefore it is inverted. (emphasis added by CHS.)

Commercials that are long the actuals (oil exporters) must sell futures in order to hedge. Processors (refineries), are interested in the paying the cheapest price for raw materials and because they are short the actuals must buy futures in order to hedge the risk of higher prices.

The Large Trader index is read like a stochastic oscillator and is probably more intuitive to interpret.

Do Commercials both hedge and speculate? Yes. Do they protect profits? Yes, this is the purpose of the futures markets. Is there manipulation? Yes, but from the charts I have provided you will probably conclude that in the end prices go where they must as a result of the actions of the heavy operators.

I did not invent the COT data or the index as it is available commercially but I choose to create my own database from the CFTC to create my own indicators and charts.

Without examining balance sheets it would be hard to tell where the money came from. I speculate that inexpensive credit and not having to expense labor (as explained before) may be helping these companies.

If you study the chart that has Commercials and Large Trader combined you will see that in most instances they are equally opposite. There must be a buyer for every seller. Notice the price action when Commercials become relatively heavy net long or short or vice versa for Non-commercial or Large Traders.

I keep track of Open Interest as well and from a historical perspective OI in most futures markets has set new precedents. I asked a friend of mine who has been at this business for 30 years what could be the cause of this and his answer confirmed what had been my suspicion, hedge funds. Apparently there is so much liquidity that hedge funds are flooding that money into the futures markets looking for return (too much money chasing too few goods?). When systems are stretched to and beyond certain limits they become increasingly vulnerable to shocks. At some point things are going to get very interesting.

"If the entire U.S. vehicle fleet were replaced overnight with plug-in hybrid electric vehicles (PHEVs), the nation's oil consumption would decrease by 70% or more, completely eliminating the need for petroleum imports.

The switch would have equally profound implications for protecting the earth's fragile climate, not to mention the elimination of smog. Because most of the energy for cars would come from the elctrical grid instead of from fuel tanks, the environmental impacts would be concentrated in a few thousand power plants instead of in hundreds of millions of vehicles.

PHEVs could also be the salvation of the ailing American auto industry. Instead of continuing to lose market share to foreign companies, U..S. automakers could become competitive again by retooling their factories to produce PHEVs which are significantly more fuel-efficient than the nonplug-in hybrids now sold by Japanese companies.

Most important, PHEVs are not exotic vehicles of distant future. DaimlerChrysler has already introduced a PHEV prototype Sprinter van that has 40% less gasoline consumption than the conventionally powered model.

Click here to learn more about the Sprinter's PHEV technology.

"Each more than 100 years old, Ford and GM are victims of being successful for too long. GM has 476,000 retirees. Ford provides health insurance for 590,000 people at an annual cost of $3.5 billion. Both Ford and GM have health insurance costs of about $1,100 per vehicle. Neither Asian nor European producers are burdened by such costs."

I know some people go crazy about national health care but it is the only way out. I believe corporate America is also starting to like the idea. Then they will not have to pay the cost themselves. Just think -- all of GM and Ford's health care problems will disappear.

Regarding the enormous unfunded liability posed by Medicare and Medicaid, John added:

It comes down to one solution. Nationalize healthcare. Paul Krugman is always saying that using the cost per capita of Canada we could cover everyone in the US for what we currently pay. Why, 20% or more of the current cost is administration and then the profits of insurance companies. Seeing all the paper work flying back and worth from the insurance companies and doctors on my minor insurance company, I can believe this. So, now we have all the people covered and puff, we just wiped out $37 trillion of unfunded Medicare and Medicaid cost as well as covering 46 million (currently uninsured) Americans.

Then you say, what about the quality issue? Well, growing up on an air force base, I dealt with government health care till I was 21. It is satisfactory. Also, I have also lived in Canada and Norway, and the medical coverage was good and people seemed quite happy about it. I also could imagine the U.S. having some other top layer of coverage or something for those doctors that opt out of the system. In Cuba, which is a very poor country but with national health care, life expectancy is practically the same as the US. Embarrassing.

This tragic story reminds me of something I experienced several years ago.

I love to snorkel, and I especially love to snorkel in Hawai'i. Maui is my favorite (though the snorkeling experience is actually probably better on the Big Island).

I planned an excursion for my son that I thought would be a lot of fun. We drove to La Perouse Bay, parked the car, then hiked the King's Trail approximately 1 1/2 miles to a tiny beach surrounded by greenery and guarded by an ancient heiau. Very cool.

But it was a tough trek. The trail was cut through the lava fields, making the footing very obnoxious. We lugged our snorkeling gear, a change of clothes, food and 1/2 gallon of water, each. It was hot. Very hot. When we finally arrived, the surf was roiling, and had "undertow" written all over it.

So, I apologized to my son. "Sorry, sport, I know we're both hot and sweaty, and we're only half-way into even MORE hot and sweaty, but ain't no way we're going into that water". He had no objection whatsoever, so we sat around for a while, enjoyed the view, hunted for weird bugs, drank some more H20, ate a few snacks, then hiked back making conversation the entire way to shorten the trip.

I always think about how grateful I am that we didn't go into the water that day.

Bill N.

Something has to give way. In financial terms alone, Laurence Kotlikoff, a Boston University economist has estimated the unfunded liabilities of Americans associated with healthcare and retirement amount to $80 trillion, over seven times our annual GDP!

It is fairytale fiction of course to think that in the face of a “worker” shortage which appears unsolvable, that any amount of government promises to pay will provide the answer. That is why social security “fixes” that involve accounting changes, or deposits of government “bonds” which in turn pay for future “bonds” are near laughable. A lack of workers can be solved only by producing more of them and that will almost assuredly be done only by extending Americans' retirement age into their late 60s and a scaling back of their benefits. More workers to help the boomers? The Lord, Mrs. Kane, helps those that help themselves, and there will be a lot more of that in the next decade. Either by deferring social security benefits or simply “incentivizing” sixty-somethings to stay on the job because their retirement nest eggs have come up short of expectations – we will begin to solve this new conundrum the old-fashioned way – we will have to work for it.

Too late to have babies, too politically sensitive to import more workers, too daft to recognize that the boomer winter is rapidly approaching and that our assets will not fund our liabilities. Too, too. Too, too. Too, too. What does a government do that is too absorbed in the moment and fails to alert its citizens to the perils ahead? Cut in line, I suppose. It devalues its currency, it reflates/inflates its economy, and because that doesn’t create real wealth, it recites the mythology of a bygone era, of a “shining city on a hill,” so that its citizens believe they’ve never had it so good.

Well, as I acknowledged at the start of this Outlook, some of us never have had it so good, but the demographic season is changing and a rebalancing, more equitable distribution of our rather meager stockpile of nuts lies ahead. Corporate profits, nearing a record percentage of GDP will ultimately be taxed at higher levels in order to assuage a populist ballot-box revolt. And U.S. stocks, the present value of which represents the future value of private sector wealth creation, will stutter, perhaps stagger, as investors understand that much future wealth has been spoken for, if not already digested, by a boomer generation acting as consumers of first and last resort.

But as I argued in a November 10, 2003 article in Fortune, (available at berkshirehathaway.com), our country’s trade practices are weighing down the dollar. The decline in its value has already been substantial, but is nevertheless likely to continue. Without policy changes, currency markets could even become disorderly and generate spillover effects, both political and financial. No one knows whether these problems will materialize. But such a scenario is a far-from-remote possibility that policymakers should be considering now. Their bent, however, is to lean toward not-so-benign neglect: A 318-page Congressional study of the consequences of unremitting trade deficits was published in November 2000 and has been gathering dust ever since. The study was ordered after the deficit hit a then-alarming $263 billion in 1999; by last year it had risen to $618 billion. (note: it has since risen to over $800 billion.)

Perhaps the most important revision to last quarter's GDP numbers was a sharp upward refiguring of workers' income from wages, salaries, and benefits in both the first and second quarters. The BEA now says overall compensation last quarter, originally up 6.8% from a year ago, has grown 8.3%. That increase is double the rate of inflation and close to the booming pace seen in 2000.

"Baumol's disease" is an economic term which describes how service labor costs rise regardless of recession or global forces on production costs. If you think about it, it makes perfect sense. The vast majority of the U.S. economy and workforce is service-related--there are 8 million more government workers (22 million) than there are manufacturing employees (14 million), and 76 million "service workers". Net result: even if the price of TVs and particle-board shelving drop to near zero, the majority of household expenses remain service or debt-related.

I enjoy your weblog & wEssays on a weekly basis. I find them some of the most well though-out, well articulated sources of insight on the Web. With the flattery out of the way, I’d like to know if any of your past writings have addressed what to do with investment capital in advance of the economic pain you and many of us think the world will experience quite soon (as housing prices correct, consumer spending drops, energy prices remain high/increase, bad debt costs hit financial institutions, the dollar weakens, costs of war remain high, etc).

Would appreciate it if you could direct me to any writings you or your favorite sources have created on this topic – or, would love to see it addressed in a future posting on your site.

Many thanks, Adam

On Tariffs and Fair Trade

I am always in awe of your writing skills and evaluation of events that affect this Country. However, I must disagree with your position on number 6. ( The Colossus, Globalization, and More: Wal-Mart, August 31 entry.)

Instead of requiring Wal-Mart to force China to raise wages for their labor workforce, how about forcing Congress to charge tariffs on all imported goods? That would be a level playing field for American workers. This Country needs to bring back its manufacturing sector. We will not survive as a service based economy.

This once great Nation is being sold out to the highest bidder, or the lowest wage labor supplier. This has to change.

The last great manufacturer here in my home State of Maryland, was Black & Decker. About 2 years ago they shut down their plant in Baltimore and moved it to Mexico to compete with the lower labor costs of competing companies/countries. Smith Corona was the last American made typewriter manufacturer, they left about 8 years ago.

And, as I'm sure you know, the US Government was financed by import tariff fees for a long, long time...before income taxes. Although it is a form of "protectionism", it would keep jobs in this Country and raise wages across the board.

P.S. If I may be so bold. Please see this website economyincrisis.org it explains more than I can. When I was in the first Gulf War my Mother sent me a page from one of Kahlil Gibran's works, "Of Wisdom" which I try to live up to. "...Learn the words of the wise, live them, but do not make a show of reciting them. For he who repeats what he does not understand, is no better than an ass loaded with books."

As always, keep up the good work, you always get me, and keep me, thinking.

Respectfully,

Patrick Flaherty

On Healthcare

Did you read Dollar Crisis?

Your comment about raising wages in china from 80 to 120/mo seems to indicate so. i thought it was a decent book. An interesting guy with some econmic thought is David Henderson at lewrockwell.com. He is also at the Hoover Institute as well. He has a skill which is frighteningly effective. He can ask questions without raising an emotional response.

Also a comment about health care numbers, usually used by conservatives regarding the number 46.6 million without health care. Some of these are young people who don't need it. I didn't have it when I worked at fast food and through college. Are illegal aliens included in this number? are people who are illegals, but are assumed to be legal in this number? I guess what I am saying, is that, everything is a gamble. if you want to gamble less, get insurance. My dad said that he didn't have insurance when he was younger, and that everyone paid. Some paid with eggs, but they paid. They didn't have the mentality to not pay or that it was an entitlement. That attitude has to change. My solution? Reduce the dependent child exemption to 2 children max, just like the earned income credit. This would be for starters of course.

Mark D.

On Comparing Wages at Wal-Mart and Costco

The article below has some numbers and directly addresses some of the issues you raise today. Hope this helps.

Sincerely,

Ben Z.

GOOD BUSINESS
Two local companies are proving it pays to do well by workers.

"MARY GRAHAM'S morning shift usually starts at 5:30, but some days she's in the food court by 2 a.m., ponytail tucked in her regulation hairnet, spraying cleaner on the crud in the ovens and scrubbing until they gleam, work she must finish by dawn when the bakers come in.

So why is this woman smiling?

How about $13 an hour, waaay-fat for fast-food work in Washington? Full medical and dental benefits for herself and her five children under the age of 14? A scholarship program, and two weeks' paid vacation? A boss who helped arrange a schedule so she could be home to meet the school bus? "They are very respectful, they've been here before," she says of her managers — most of whom are promoted from within." (Her employer: Costco)

On the cost of Healthcare Insurance

I wouldn't underestimate the costs of health insurance. Someone making $10/hr is getting $20,000 a year if they work full time. I think even cheap health insurance for a single, young, healthy person runs $200 a month, or $2400 a year. So it's a 10% raise even for those employees. (and I think the Medicare average expense is around $3000 a year.) For someone with health problems or a family, you could get up to $1000 a month easily. That's $12,000 a year or a 60% raise!

If Wal-Mart has 1.8 million employees, half full time and not covered, you need 900,000 * $3000 = 2.7 billion dollars a year. I'm not sure what overall impact that would have on prices, but it's not exactly small change.

For another opinion piece about Wal-Mart, try TCS daily. TCS is so shrill and biased that I find them generally not worth reading, but this article did contain a few arguments here and there:

"Costco has sales of $51 billion, 110,000 employees (45% part time, similar to Wal-Mart isn't it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it's been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter? So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff."

Michael Goodfellow

On Wal-Mart, Wages and Nickled and Dimed

As for Wal-Mart. I greatly enjoyed your piece today and thought that your posters presented some pretty interesting view points. Previously I more or less casually subscribed to the Wal-Mart==Bad sort of view but now I see that some things are not quite so clear cut. They never are - you'd think I'd learn by now :-) While I still don't care much for Wal-Mart, and think they exhibit some particularly reprehensible business practices it is interesting to see their behaviour in context with their environment.

Barbara Ehrenreich has a nice article on Wal-Mart up on her site. Have you ever read Nickled and Dimed? Quite an interesting expose of low wage living in America. Here's a quote from the article (a viewpoint to which I subscribe):

"Furthermore, the Wal-Mart business model increasingly betrays what was once the operating principle of American capitalism, as explained by Henry Ford the First: You’ve got to pay your workers enough so that they can buy your product; that’s what keeps the system going. When the American majority can’t buy the very goods they manufacture or sell, that system is cruising for a bruising."

Your correspondent from the U.K.

On Wal-Mart, Healthcare and ERISA

I am pleased to see both sides of the Wal-Mart debate presented in your recent blog posts. I have not shopped there (or Sam's Club) since 2002 and I do not hesitate to express my displeasure with their subsidies (not just health care-- have you seen the tax exemptions they negotiate with cities and counties to build in certain areas?) to others. 2002 was the year I took my teenage sons and bride to be to China, Hong Kong, Thailand, Vietnam, and Malaysia, which was a real eye-opener on how people survive in this global economy.

Stateside, I don't know if you saw what happened in Maryland this year. The state mandated large employers (Wal-Mart being the only one, as a practical matter) to either provide its workers health care, or pay a corresponding tax. This was shot down recently in Federal Court, due to the expansive interpretation given to the federal ERISA laws, requiring multistate uniformity in health and welfare plans. As I recall, ERISA was enacted in the 1970s to avoid people getting cheated out of their pensions. Now, it is used by corporations to avoid progressive state measures enacted when Congress drops the ball.

Paul M.

On Affordable Healthcare Plans

Speaking of healthcare "solutions," of the many that have been proposed over the years, it is my opinion that George W Bush is not too far off the mark with his tout of HSAs. Are you familiar with these?

My wife and I have enrolled in the Blue Cross of California "high deductible" HSA plan. There are two parts: 1- the high deductible ($7,000/yr for a family); and 2- the actual HSA or "Health Savings Account" which is the bank account for funding all medical expenses under the high deductible. (Once you hit the deductible everything's paid at 100%). It is neat. You can use a debit card to pay for your medical services, drugs, dental, ortho, chiro, vision etc. And it is amazing that many people are still not all that familiar with these plans. Or if they are they may be turned off by the daunting high deductible. ("what! nothing's paid until I hit 7k! I'd rather pay $700 more a month in premiums to have my $15 Rx copay...)" Go figure.

If someone is living hand to mouth, then perhaps an HSA is not the ticket. But consider that HSAs are often well under HALF the monthly premium of a middle of the road PPO plan. As a personal example, my wife and I pay $171 per month for an HSA. Prior to this we had a PPO which if we still had would be in the area of $800-$900 per month (easily). So what do you think--wouldn't you rather "save" $700 a month in premiums---and use that kitty to pay any medical bills? The savings is $8,400 a year in premiums and this is no exaggeration.

At any rate, I don't usually get excited about anything in the healthcare field. And I hope I'm not sounding like an HSA commercial but I speak from personal experience. I wonder if any of your readers could chime in pro or con on HSAs from their experience. And I haven't even touched on the tax benefits which is not insignificant.

Are HSAs the answer to our healthcare woes? No, there is no magic bullet. But in this writer's opinion it represents a harkening back to something that once did work---the high deductible "insurance" concept. And the cost is well within most people's budget.

Your SoCal correspondent, Charles R.

On Mortgage Underwriting Risks

I liked your recent piece. I came to the same conclusion a few years ago when I was an analyst for one of the big mortgage banks and spent some time looking at their portfolios and trying to imagine how these people qualified for those loans! I worked in secondary marketing where the loans were pooled and sold to investors as mortgage backed securities as quickly as possible. The lender retained servicing rights but passed along 90% of the risk to some investment house that promptly sold it off somewhere else! It was like a massive game of hot potato and I thought I overheard a few conversations about middle managers fudging the numbers to get loans to pool. BusinessWeek: How Toxic Is Your Mortgage?

D.L.

Per Census Bureau, In the Second Quarter of 2006, there were 125.8 Million Homes in the US. Of these, 16.3 Million were Vacant. That is a whopping 13% of all US Homes were sitting empty. 12.1% in North East, 12.1% in Mid West, 14.9% in South and 11.2% in the West.

The United States is succeeding in its struggle against terrorism. The time has come to declare the war on terror over, so that an even more effective military and diplomatic campaign can begin.

Would we have been better off if Ike could have run a third time in 1960, and won? Hitchens says yes, and maybe he's right.

As a self-employed professional and homeowner, I understand the usefulness of "stated-income" mortgage lending. But I agree that taking the borrower's word for something as fundamental as his ability to repay is a completely inappropriate basis upon which to make a rational lending decision. The secondary mortgage market could be characterized, therefore, as irrational. The question begged, then, is: to what extent?

I don't sense a lot of transparency in the mortgage-backed securities market. Maybe your other readers can shed some light on the extent to which these loan portfolios contain what we used to call in banking "classified" loans; i.e. loans posing actual or potential loss exposure.

Last week, H&R Block, the big tax preparer, alerted Wall Street that its Option One Mortgage unit, which focuses on the subprime market, would have to set aside about $60 million, or 19 cents a share, because borrowers were falling behind on their payments.

Here's what's been happening: Mortgage originators make loans and then sell them to investment banks, which mash them together with other loans and slice them up like sopressata for sale to institutional investors.

Now, with the mortgage market slowing and the secondary market for mortgage-related securities faring modestly worse than in the past, investment banks are scrutinizing the loans that come into their sausage factories more carefully.

The investment banks have been sending mortgages back to the lenders if they find slip-ups, such as inaccurate paperwork or poor performance. The most common trigger is a so-called early payment default, where the mortgage holder has missed the deadline for the first payment.

Lenders complain that the investment banks are taking advantage of a contractual loophole to push the mortgages back. Customers often miss first payments, they say, for reasons that have nothing to do with credit worthiness. Sometimes it's just an indication of an administrative delay.

But that's probably wishful thinking.

If the problems spread beyond customers with poor credit, they'll infect the world of exotic mortgages for supposedly credit-worthy customers first. Along with the companies that offered mortgages to customers who didn't produce much documentation of their income and assets, the more vulnerable will be banks that sold huge numbers of option adjustable-rate mortgages.

Option ARMs give borrowers choices to minimize their mortgage payments, including the ability to make a minimum payment that is lower than the interest due that month. When a customer chooses that option, the mortgage balance goes up. After a certain period, often just a year, the rate can move up sharply.

Skeptics have wondered whether customers understood the full costs of these loans and whether lenders correctly estimated how likely it was they'd be paid back.

In an indication that there was reason to worry, Washington Mutual, one of the country's biggest mortgage lenders and a big option ARM player, slipped in a rather stunning confession in its annual filing with the Securities and Exchange Commission.

In the filing, WaMu confessed it had bungled the underwriting for option ARMs, improperly measuring some of its customer's debt-to-income ratios for 2004 and most of 2005.

Of $43 billion of such loans, WaMu discloses, the unpaid balance for borrowers who were qualified at below the market rates totaled $30 billion.

Option ARMs have been among the most scrutinized exotic mortgage products over the past year. That such an error could creep into WaMu's lending should worry investors not only about the bank's balance sheet but the industry's lending standards as a whole.

Option ARMs didn't go to subprime customers. That's precisely why the coming mortgage problems may not be isolated to customers with poor credit. (emphasis added)