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Dumped That Silver

The other day I broadcasted a small trade that I made - a buy of March Silver at $14.66.

I just let it out, a mere three days later, for $15.49.

If one piggybacked me with the smallest trade possible, which would be one e-mini contract, he'd have bought 1,000 ounces and turned a $830 profit (less $4-$5 in roundtrip commissions). Perhaps I'll buy it back today if it comes in 35-50 cents and oil stays strong (currently up $1.95 to 95.925 - essentially at its all-time high).

This is about as clean and quick as a winning trade can be. I was never down in the position and only had to hold it for 2-3 days. Therefore, IT REALLY ISN'T AN INDICATIVE ILLUSTRATION OF MY BUSINESS.

Nonetheless I wanted to follow up my prior post.

Obviously I should have bought a LOT of silver last week.

The small trades are almost always winners - it's the big bets that cause problems.

The Worst Job Today - Mortgage Broker

It was close, as I thought about declaring it to be a "real estate broker".

Not many brain cells are needed to realize that mortgage brokers have a perfect storm brewing.

For the next 5 years or so, they will be doing smaller loans and much fewer of them. They work on a pure percentage commission - 2% of the loan is a number I hear as standard payment. For example, if a mortgage broker sells a $300,000 loan to a homebuyer, he'll pocket a gross $6,000 off that deal. Needless to say, 2% of a smaller aggregate number means they'll be earning far less then they have been during the real estate bubble.

Now here's the salt on the wound. Not only are mortgage brokers dealing with shrinking loan flow, they are also dealing with cutthroat competition - from each other - 2% commissions are no longer "standard". A mortgage broker was telling me the other day that there are some brokers who will now do $1,000,000 loans for a mere .25% commission, i.e. $2,500 instead of a historical commission of $20,000. These guys are starving and the inexorable vice of competition is squeezing away their profit margins. There's even a book out titled - Guerilla Marketing for Mortgage Brokers - How to Steal Customers From Your Competition. Every clown became a mortgage (or real estate) broker in the past five years and it will take some time before the industry consolidates away that excess.

There's also a reactionary movement afoot to eliminate the third party broker altogether. Back in the 1990s, banks decided to outsource the mortgage origination business and now they are reining it back in. It's a cute little blame game they've got going on. These days banks are blaming the brokers for not properly vetting the finances of borrowers. Bank of America, Citigroup, HSBC, et al now wish to regain control over the whole loan process and more effectively manage their legal liability.

I heard the other day that Rhode Island just increased the bond it requires of mortgage brokers who operate in the state from $10,000 to $20,000 - no doubt this is some obtuse effort to crack down on "subprime" and "predatory" lending. Politicians haven't a clue what's going on and are really just grasping at straws. There's that tired expression - when someone's a hammer, every problem looks like a nail. Well, the political hammer is invariably more regulation. Again it begs the simple question - If the mortgage industry is already regulated and the government couldn't prevent the fraud and loose lending leading up to this point, what in the realm of evidence makes them think they can change anything by more regulation?

I am not sure whether mortgage brokers have to deposit these bonds in cash or if they can finance the bond. Regardless, it's still an increase in operating costs that comes when the powder is running dry. Imagine if you are licensed in four states that all raise their bond in this fashion. Where are you going to coming up with 40k to meet this obligation?

Summing it up, mortgage brokers are besieged by evaporating revenue, brutal competition, and rising operating costs. Furthermore, the big banks and econo-illiterate politicians have them in their sights.

I wouldn't lend a mortgage broker $10 today - their financial prospects are that dim.

I Called It - Dr. Mankiw Eyes Washington

My pal, Harvard economist Greg Mankiw wrote an article for Sunday's New York Times. It's on healthcare; it is readable and potentially edifying (depending on your current knowledge base). I was pleasantly shocked to say the least. I was also surprised that the Times was publishing such a balanced, fact-riddled article that must be deemed somewhat antagonistic toward the socialist drive for nationalized healthcare. (Make no mistake, the Times and its ilk actually want "HillaryCare" shelved as a campaign issue. They've been clearly shaping their agitprop toward that end - link)

However, here's one thing that I wasn't shocked to see appended to the article.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and is advising Mitt Romney, the former governor of Massachusetts, in the campaign for the Republican presidential nomination.

I can't remember if I heard this already or if I read about Greg's new "adviser" role on his blog or not. I just don't pay too much attention to this weenie anymore. (A simple google shows that Greg divulged his dalliance with Romney back in June and again in September - at least on his blog. See, I told you I pay the Lilliputian professor no mind!)

BUT, go back to a January post of mine on Dr. Mankiw. Here's how I concluded a virtual altercation that he dared get into with me.

Of course my idea won’t raise tax revenue but that’s kind of the whole point. I just can’t find the law stating new revenue must be found before old revenue is eliminated. But since I am not angling for a policy job maybe it’s all beyond my ken.

I added emphasis to the critical phrase. Long ago, it was obvious to me that the dissembling, vacillating invertebrate was hellbent on working for the next president. Though he worked for George Bush already, I figured by the way he was so clearly walking the middle of the road (on his blog) that he was more likely to land with Hillary, Obama, or another Democratic hopeful.

Regardless, the lesson is, Greg Mankiw's principles are for sale.

I always figured Mitt Romney for a smart guy. Perhaps it was he who ordered Mankiw to expunge the colorful comment section from his blog???

Now, if Romney starts in with this carbon tax of Mankiw's...I am going to Marginalize the pants off him. Let's hope it doesn't come to that.

If only I could predict the actions of security prices with the same aptitude that I can predict the actions of assorted Morons...

Devil's Advocate - Boy C-Nut, you must really be in love with yourself. Predicting that a former Presidential adviser had designs on getting back into the fold...that was really hard to predict!

First of all, did you see anyone else make this prediction? Or tie Greg's inconstant embrace of capitalism to his personal ambition?

I didn't read it anywhere else.

Even smart people like Don Luskin waxed perplexed at Mankiw's irregularities. No doubt it was this confusion that had Don charitably describing Greg as "our friend in most matters" (link) - whereas all along I knew what the professor was up to.

Greg was at once extending olive branches from his right hand (Romney, et al) and from his left (Al Gore, Hillary,...)

My whole theory on Greg's venality was unintentionally confessed by the professor himself on his blog; there, Greg defiantly tries to distance himself from Romney - lest anyone mistake the advisor relationship as a principled stand. Personally, I think Romney is the one who should be making disavowals!



So, Mr. Devil's Advocate, not only have I been able to nail Mankiw on facts and logic, I had him all along pegged on motive as well.

Has A Tree Ever Fallen On A Golfer?

I got up at 5am this morning, did my exercises, cooked breakfast, showered, put on five layers of clothes and drove the 8 miles or so down to my new home golf course for an early tee time.

The forecast for today was a low temperature of 37 and a high of 43 degrees, 40-50 mph winds, and a 100% chance of rain. The periphery of tropical storm Noel was due to hit the Boston area.

Only it's not going to hit until at least noon.

And hold off it did, so far anyway. This morning temperatures were between 45 and 50 degrees, the wind was only blowing around 15-20mph, and there wasn't a drop of rain yet.

Teeing off at 7:30 on an empty golf course - I would be done in mere 2 hours. In fact, I once played 18 holes in 45 minutes but that is a tale for another day.

So at 7am, I was sitting in the parking lot, reading a Forbes magazine, when my playing partner pulled up. Yesterday I had told him "Saturday will be a test of golf manhood" and by showing up he passed section one of the exam. We were driving the cart up to the clubhouse and I giggled that I hadn't had a round rained out all year. It's been truly amazing; we beat the rain last week and were going to sneak another wonderful round on a wide open course.

Then the bad news came. The golf attendant was on the phone with her boss. They weren't going to let us play. We pleaded, reassured them we would be done in two hours but it was to no avail. They said we could go out and walk nine but weren't allowed to take a cart.

What?

The boss/owner said, "With the forecasted 45-50 mph winds, I am afraid a tree will fall on them...No carts. They can walk nine if they want."

Now we are pissed. It's okay to go out and walk the course and brave falling trees but for some reason we are more at risk riding in a cart?

What, do falling trees aim for riding golfers?

How do you respond to such asinine reasoning?

And how the hell is a tree going to fall on me considering that I play every second shot from the middle of the fairway?

Two years ago, I would've gone ape sh*t over this but alas, I am slowing getting inured to this Massachusetts bovine excrement. The course is quasi-municipal. The manager/owner doesn't care about revenue or common sense. Like every other bureaucratic, socialist clown up here he's worried about fantastic anomalies - falling trees and the like. Again, I submit to y'all that "legal liability" is hardly ever a legitimate excuse to cover one's ass - rather it's almost always a weak attempt to cover an empty skull.

Remember, this is the state that in parts has banned tag at recess, banned fluffernutter sandwiches, banned stressful honor rolls, cancelled football games for fear of mosquitoes, won't sell alcohol to 40 year-olds with out-of-state driver's licenses at Celtics games, and has authored innumerable more absurdities.

On the way out of the parking lot my buddy exclaimed that they should at least have given us a pass or comp for our next round. Now THAT was funny. This is Boston. This is essentially a municipal course whose only competition for golfers is one other municipal course (South Shore CC). There are really no privately owned (open to the public) courses in this area; hence a competitive, free, market for golfers doesn't exist. Customer service is a laughable concept where there's no consumer choice.

For sure, if we didn't show up and the course was playable - they'd have zinged my credit card for two greens fees. So in that vein, yes, they really should have comped our next round.



This reminds me of that Seinfeld episode where George, after having been charged for a lately cancelled doctor's appointment, got pissed at the doctor because she subsquently cancelled on him at the last minute of his next visit.

George triumphantly declared that he had a policy requiring 24 hours notice to be cancelled on.

Can someone tell me what episode that was from? I am going nuts trying to remember.

By the way, how many of you jokers can get up at 5am on Saturday with a mere four hours of sleep?

My mind and body are such finely tuned machines that they never need to rest!

(cross-posted on Marginalizing Hackers)

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Bought A Little Silver

People are always asking me how I trade - how do I decide what to buy and sell.

Here's my answer:

How do you know how which football teams to bet on?

Obviously, you watch all the games, have been doing so for years, and may have even had some firsthand experience playing the sport yourself.

I have been watching the markets all day, everyday, for 12 years. I pretty much trade by feel, by the seat of my pants. Nevertheless, people are constantly asking me for coherent trade advice (though no one EVER takes it). Today I am just going to walk y'all through one little trade that I just made to provide a little window into my thinking.

This afternoon, I bought some silver - March delivery at a price of 14.66. As I type this it's up a bit from there, 20 cents higher.

I bought it primarily because gold is running past the $800 per ounce hurdle.

That's it. Nothing more complicated than that. If gold can set a multi-year high, it's not inconceivable that silver jumps 50 cents to make it's own "record-high" headline. These commodities generally move together. I bought a small amount in part because I already own a chunk of CDE, a silver mining concern and some NEM which is an unhedged gold and silver miner.

The long term chart of silver is pretty crazy. What it means...I have no idea.



The last couple of years silver has been a much better trading vehicle than gold - which seemingly just drifts up. A couple of weeks ago I dumped my long-held gold position around $765. I dumped it for no good reason. Alright, I guess a "margin call" is as good a reason as any to liquidate.

So this silver trade allows me to somewhat ride this strong gold market without actually repurchasing the yellow metal.

This is one of the nuances that most people don't understand. There are usually numerous ways to place a particular bet. For example, one might be buying solar panel stocks as a proxy bet on higher oil. You could also short the Euro if you think gold is going to drop but are reluctant to sell your bullion. Also, these days bonds and stocks are moving oppositely intraday. I have been playing them off each other almost everyday - shorting bonds as a proxy for buying stocks and vice versa. The possibilities and examples are endless (and evolving).

One just has to watch the game to get a feel for these relationships. This is why I encourage all unsatisfied sports gamblers to open a futures account (Interactive Brokers) and watch oil and gold, stocks and bonds, wheat and coffee through all their upticks and downticks. It won't be more than a few months before they start to feel comfortable and literate with commodities and futures - stuff that probably sounds highly esoteric at the moment.

Now what would make me bail on this little silver trade?

As yet, I don't really know. I am not one of these chartists who draws astrologically-inspired lines on a graph and comes up with a price trigger to dump the trade.

If gold makes a sharp intraday move down and silver hangs tough, perhaps I will get out quickly, count my blessings, and look for a lower re-entry point.

If gold keeps climbing and silver just sits here, perhaps I will buy some more.

If my account takes a beating elsewhere, I may have to adjudge my silver and gold exposure sufficient (via NEM and CDE) and unwind this last marginal purchase. Likewise if I make some dough on other trades I'll probably increase my risk appetite for this one.

My overriding trading philosophy, for better or worse, is always to trade small when I am losing, and really ramp it up when I have the wind at my back. And I doubt that is any different than how y'all bet on football and card games.

I'll update y'all on this trade when something changes.

Should I Take the Risk?

Look what just popped up on my screen.

I swear I never had any problems with my computer until I paid $120 or so for NAV two years ago. My computer got slower. My CPU started racing all the time. New software became sometimes tricky to install. In fact, right now I am having a dreadful time trying to upgrade my Flash Player. I haven't been able to watch YouTube for weeks since they apparently changed their streaming format.

I might very well be done with Norton and its scare-mongering. I do back everything up or save it to my Google account these days - so what do I need the protection for?

Hmmm...

It's one of these things that everyone buys but no one knows whether or not it is needed or worth it.

73,738 viruses?

MY ASS!!!

Only Buy A Foreclosure

This past week I arrived at the conclusion that the first house I buy will in all likelihood be a foreclosure.

I have been frustrated these past 6-8 months or so watching NOTHING happen with the homes I am interested in buying. Sellers are stubbornly hanging tight and if they do drop the list prices, it's been in laughingly small increments like $10,000-$15,000.

I actually took some time off (2 months) from scanning the homes I have on my radar and got very upset yesterday when I re-checked them and saw them all still available, languishing at the same ridiculously high prices. I mean, I am seeing homes listed for sale for $1,000,000 that are barely worth 800k - and that's today with full employment and mortgage rates still in the low-mid 6% range. It's a joke.

Then it hit me that due to the types of affluent towns (with good schools!) that I am targeting, most, if not all, of the sellers are empty-nesters. They are people whose kids have moved out and are close to, if not retired themselves. Conceivably they already have a house on Cape Cod or in Florida in which they want to spend their dotage in. The problem is, these people ARE NOT distressed sellers. They likely have a negligible mortgage, if any at all.

Let me ask y'all a question - If you owned a stock for many years, made a lot of money in it, and you decided to sell it, how aggressive would you be?

They are all half-assed sellers who've made money by holding onto their homes. The concept of hitting a bid and getting out is simply incomprehensible. Sadly for the lot of them, they are just going to hemorrhage money for years by clinging to the 2005-level (psychological) values of their homes.

As I have told people in describing my failed attempts at buying a house this summer - I was always bidding 2008 housing prices while the sellers wanted 2005 prices.

Now I do have a connection that is apprising me of nearby foreclosure transactions. They are SUBSTANTIALLY lower than the normal sales through Coldwell Banker and they're of course way lower than the list prices of stubborn empty-nesters. Theoretically foreclosures, because of their urgency, sell below "fair value". I will concede that, but who the heck wants to pay fair value? And let's not forget that fair value is a dynamic variable. Those clowns who thought they got a "deal" in 2005, no matter who they are, are likely now very aware with how fleeting fair value can be. A savvy buyer understands that unforeseen risks abound ($150 oil, 10% mortgage rates, etc.) and therefore will only pay less than value for stuff. Remember, as a trader I used to buy on the bid - if not lower. Only amateurs (retail customers) paid the offer (asking price). Fair value is what someone is willing to pay TODAY; it's hardly a penny more.

Now for the good news. My distressed landlord confessed to me that he is thinking about foreclosing on the house I rent from him. The house has its flaws, shoddy construction chief among them, but in a foreclosure I bet I could buy it for 475k - a number that is very close to the 416k that I am effectively paying via $2,500 in monthly rent. If I bought the house I would gain the un-attached garage which is a fully furnished office (for me!) that also has plenty of space for a guest bedroom. I got extremely excited thinking about scoring this house for a pittance.

Of course it is still a pipe dream several big steps from actualization. Nonetheless, with over 2 million estimated foreclosures on the horizon, these are the types of opportunities that will soon be available to me - a first time buyer, sitting on a small pile of cash.



Actually I just saw an updated estimate of foreclosures at the 3 million house number.

I am partial to the highest estimates. As the housing market continues to deteriorate, and outstanding debt becomes so much larger than current market value, homeowners are increasingly just going to hand the keys over to the bank and walk away. Many will laugh (as my landlord is); some will hurl all the blame outward, likely at the mortgage lender/bank; and some will probably blame President Bush. Regardless, once the foreclosure ball gets rolling, it will become socially acceptable to quit on one's debt.

For a sub-population that has no homeowner equity and no cash, foreclosure isn't really a big deal.

One can't lose anything when they have nothing to begin with.

Another Old Coot Marginalizing Himself

Forbes editor Rich Karlgaard had an interesting post the other day on his blog. He was at a hotel and sent out his pants for dry cleaning. Turns out, they sent him someone else's clean breeches. The dilemma was, he liked them much better than his own and thought about wearing them. You can go read the whole thread here if you want. My post today is about some Old Coot cluelessly admitting more stuff than he should in that comment thread. Here's his first comment:

Several items along this line.

I almost never buy my own clothes. Shirts, especially, simply show up hanging in my closet. Leather jackets. Blue jeans too. Even shoes. My wife shops.

I do get to go with her when good suits are involved, of course. But casual stuff...who cares? Knock yourself out, Baby.

There are three grown women in my household...In addition to my wife, our daughters who are 36 years old and 34 years old are unmarried, have their own homes in San Francisco and Chicago but visit their mother quite a lot. Especially when I am out of the country. The one in San Francisco seems to like our washer and dryer more than her own...free soap? I don't know.

Sometimes shirts, etc. that I find hanging in my closet really do not fit me at all. Way too big or entirely too small. I do not ask any questions about such matters. All sorts of possibilities come to mind...none of them worth talking about.

Accuse a grown woman of...what... exactly? There's three of them. I don't even have a 50-50 chance of guessing right.

They would each just look at me like I might have been saying something...but they have no idea what it could be.

When I take my shirts to the laundry (20 at once) from time to time I discover that an orphan has found its way into my lot. Hard to catch this with the white shirts...but the colored shirts...I can pretty much pick out the newcomers. If the shirt fits...shoot, wear it!

When we played football we threw our incredibly sweaty and foul tee-shirts (worn under the shoulder pads) into a canvas bin on wheels and walked to the showers...We simply took a clean one from the stack the next day on the way into the locker room.

So what? Some of you are squeemish about any of this? What were we saying last week about the "Wussification of America"?

For crying out loud!



Did you get what this Old Coot just said?

He said that in his household, consisting of his wife and two daughters, random men's shirts make frequent appearances.

Bear in mind, that as a financial blog, almost everyone who reads Digital Rules is a dude.

This guy has no clue how bad that admission makes him look. Do you think a bunch of married women get together at tea parties and glibly divulge, "You know, I find random bras and panties lying around the house...it's no big deal."

I THINK NOT! (at least outside France)

This situation reminds me of a frequent parley among the Neanderthals down in the trading pits of the Philadelphia Stock Exchange. Some guy would come in donning a hideous new shirt:

OtherTrader - [laughing] Yo, where the *blank* did you get that ugly shirt?

UglyShirtWearer - Out of YOUR closet this morning, *sshole!

If you don't get the comeback, I'll translate - It means he diddled your woman/wife and grabbed the shirt out of your closet on his way out.

Down in the pit, every joke was your-mother, your-wife, your-sister, etc. Just like 4th grade!

But the rule most of us young coots understood, is that you certainly don't go into a roomful of men, paint yourself as a cuckold and set yourself up for such well-deserved ball breaking.

Though I have a slight antagonistic relationship with this fossil, out of the kindness of my heart I swallowed all jokes this time. I have had some pretty acerbic exchanges with him; nonetheless the Old Coot is likable in an avuncular sort of way.

But then he opened the door some more. Here's a subsequent comment he posted:

My girls are drop-dead beautiful and bright. Really. Just like their mother, they simply own just about any man they get around.

The older one brings home these heavy hitter Silicon Valley engineer types and the occasional professional athlete. She now tells people she is 27 (instead of 36)...She's simply having too much fun.

The younger one in Chicago manages clinical studies inside one of the major Pharmaceutical houses...and there is a guy that we do know about now...she never let us meet any of her young men before (although her girlfriends always whispered to my wife that she had them scattered around the country...) so this might be serious. Good.

My own little woman is known to everyone as the Big Boss...I myself took a Vow of Poverty after the divorce (when that first one) dropped me to zero a very long time ago.

The Big Boss owns everything...literally. Including the pants she lets me wear.

Fries,

When I was dating girls in my own ill-spent youth I did notice that the easiest ones had the most-likely-to-take-a-human-life (again) fathers. When my daughters hit 16 I looked in the mirror and realized I was exactly that same way too (West Virginia breeding).

"Boy, let me explain to you how easy it is to turn a bull calf into a steer...if you got a razor blade and can count to two..."

Maybe that has been the problem all along. Thanks.



So, after blithely notifying the entire world that random dudes' clothes show up at his house, he goes on to elaborate lest anyone not fully understand.

One of his daughters simply has "too much fun" and the other has men "scattered around the country". Then, to boot, he compares himself to the fathers of all the "easiest" girls he's dated throughout his youth.

Talk about self-mutilation!

For the record, my daughter will certainly not be allowed to have any such "fun".

And if she does, I will be neither deluding myself about how flattering it is, nor blogging about it on the World Wide Web.

Furthermore, if I do devolve into an incontinent Old Coot myself, I am quite sure my kids will muzzle me.

As Will Durant has said - Silence is trebly golden after the age of sixty...

Indeed.

Marginalizing Ben Bernanke

I am aware of the financial news scuttlebutt but twelve years of experience has conditioned me not to pay too much attention to it.

The other day, while idly watching my son at the park, I grabbed the only reading material I could find in my car - the April 2007 Futures magazine. (I DID NOT buy it. My buddy in Manhattan made me steal something from his contemptible roommate. This is just the type of service that I provide for my friends.)

Page 22 excerpts from Steven K. Beckner's Market Watch column:

Bernanke told the House Budget Committee there had been "no material change" in the Fed's economic forecast in the wake of the market slide and said he saw no "liquidity crunch" in the world or any breakdown in the workings of financial markets. He said he still expects moderate, if not improving, growth as the housing market stabilizes.

...Upside inflation risks, the Fed chief said, are the Fed's predominant concern.

Just to remind y'all the Dow dropped 416 points on Feb 27th, 2007. The media clowns attributed most of it to "subprime woes" but Wall Street roundly declared them "contained". Such was the backdrop to Bernanke's Congressional testimony two weeks later.

Let's fast forward to what we do know FOR A FACT today.

• Subprime mortgage problems have not been "contained"; they are actually proving contagious.
• August's market meltdown proves that the financial markets are prone to crunches of "liquidity". A liquidity crisis is not a singular landmine to avoid - it's an endless minefield. Or one can better think of it as a permanent gun pointed at the head of our financial system.
• Six months after his testimony, the "moderate growth" from a "stabilizing housing market" has not materialized. If fact we have been riding lower growth and a worsening housing market. What a sage!
• And back in April, with oil trading $64, soybeans trading $7.60, wheat trading $5.00, and gold trading $700 Bernanke was most concerned about "upside inflation risks". Yet today, on the eve of another Bernanke rate cut, gold is pushing $800, wheat is almost 70% higher, soybeans over $10, and oil is trading at $93 per barrel - I guess aside from the higher commodity prices, upside inflation risks can be brushed aside.

Remember when Bernanke dropped rates 50 basis points last month with the fierce intimation that it was "one and done"?

The guy is provably a walking monthly-contradiction of whatever he said last. Perhaps when oil is $100 a barrel he'll go back to worrying about "upside inflation risks"? In that case, you'll know to brace yourself for another "liquidity crunch"!

As I have said before, the hardest part about trading the financial markets is NOT UNDERESTIMATING the stupidity of all parties. For example, the Fed Chairman may well be a vacillating dolt, doing long term harm to our economy for short term feel-good, stock and bond upticks. Nevertheless, fund managers and sheepish investors (who should be farsighted) may go hog wild and bid up securities again after the inevitable rate cut tomorrow. I seemingly spend all my mental energy trying to figure out who the biggest Morons are, and how to bet against them.

It ain't so easy.

Do A Credit Check On Your Landlord

I happened to run into a young lady who was the previous tenant of my current landlord. She told me that the guy essentially wouldn't return her security deposit.

After three full months of pleading, she received back $600 of the $2,000 she put up when signing the lease. He said she clogged the septic system and it cost $1,400 to repair.

Question: How can it be determined whether the septic failed because it was a sh*tty, poorly installed system or through some negligence of the tenants flushing?

Answer - It doesn't matter. You are at the mercy of the landlord and whatever he says (makes up).

Now before I even signed my lease with this guy I knew he was in financial straits. He was trying to sell this particular house we rented for over $1 million but I knew from researching the area that it wasn't worth a nickel over 700k. Furthermore, he candidly told me that he owed $1.2 million in mortgage debt on the property AND that he owed $1.8 million on his abode. I Zillow-stalked him a bit - meaning I researched the size and value of his other house and learned that it also was worth much less than its debt load. And it suffices to say that every other bit of info I discovered about this guy literally screamed that he was tapped out and broke. So I knew what I was getting into from the get-go.

The guy wanted "first, last, and security" upfront - $7,500 ($2,500 in monthly rent). We signed the lease and Fedexed it to him with our check on July 3rd. On July 5th, the guy literally called me four separate times asking where the check was. I said, "Hey buddy, settle down. Yesterday was a holiday. If it's not there later today, it will be there tomorrow or the next day. We aren't moving in for a month. What's the big deal?"

Don't think for a moment this guy deposited the money in an escrow account as the more professional landlords would do. He obviously needed it to pay his personal bills forthwith.

Renting from this guy was making me more nervous by the second and we had a month yet before we moved in. Once we did, he effectively only had $5,000 of our money that we could lose. Since we would not be paying rent again for our "last" month, he would effectively only have $2,500 to hold over our heads. My wife remains very concerned about this clown we rented from - especially after I just relayed her the conversation I had with the previous tenant. I had to remind my wife that our monetary risk was a mere $2,500 and that I lose that kind of money in split-seconds trading. Everything one ever does has financial risks. The trick is to stay on top of their probabilities and magnitudes.

It also goes without saying that the landlord always takes on more risk than the renter who could just stop paying rent at any moment. In most states it will take many months for a landlord to get an eviction notice executed on a non-paying tenant. I could very well decide not to pay my penultimate month's rent - as well as the "last" month's - and leave the landlord with effectively no security deposit to withhold. I'll cross that bridge when I come to it.

Outside of the security deposit, tenants still bear other risks while renting from a bankrupt landlord. For one thing, he'll skimp on maintenance. I already noted that I have a fire hazard of a chimney that my landlord won't deal with. There's also the general issue of having a business relationship with anyone who is losing their shirt. They'll be understandably ornery. I once worked for a guy who was losing millions in his own trading accounts. The bastard took it out on me and that effectively ended our partnership. I don't know that most people have ever seen acquaintances, friends, or colleagues lose their entire livelihood via bankruptcy but I can assure them, it's nothing you want to be a party to. It doesn't matter whether the outcome is bad luck, tragic, or even due justice. I guess just as waiters and bartenders tend to over tip, as a trader well-accustomed to losing money, even when some people that I loathe have gone broke I feel for them.

My landlord is a phenomenally nice guy. He does just about everything he can for us but financial realities are tough to overcome with a smile. I'd be really surprised if our rental/business/personal relationship didn't deteriorate rapidly over the next few months. I've just seen this movie too many times.

Even if I lose some money, some hair, and some sleep by renting from an over-leveraged landlord, the hassle will be well worth it for the attributes of our abode and the tens of thousands of dollars I am saving by staying short the housing market for another year. That calculation was made back in July during my "credit check".

My initial assessment hasn't changed a lick. Put your helmet on. Real estate nationally is going to start looking like Florida in the not too distant future, i.e. 40% retracements from its high price point.

Nonetheless, if you are going to rent from a novice landlord, you might want to spend the $20 and run a credit check on them before you sign anything...

Red Sox as Religion - Take Two

The priest at our church decided to incorporate the Red Sox into his homily today. Ugh!

I just can't get away from this nonsense.

He had all the kids (it's a children's mass) come up to sit on the altar for the sermon. A good 80% of them were dressed in Red Sox gear. This would have NEVER happened down at our church in Charlotte. There everyone wore their Sunday best. They also sung ALL the verses of the songs, they came EARLY, stayed until THE END of the mass, etc.

Pathetically, in the short time I've been at my new church, the parishioners were never more animated, more awake, than I saw them today listening to the priest yammer about what apparently REALLY MATTERED: David Ortiz, Jacoby Ellsbury, and the Sox's 3-0 lead in the World Series.

Five minutes into this absurdity, a woman in front got up and walked out, muttering all sorts of unintelligibilities as she marched down the aisle past me.

I was quite sure she was, as I was, stupefied, disgusted, and defiantly protesting the Red Sox talk but it remains unproven if that was in fact the case.

On the other hand, she could have been a possessed Yankees fan...

Today's mass really was a symbolic clash, a religious face-off if you will and the victor spoke volumes about the times (and place) I live in.

The Retard-able New York Times

In the tortured logic of the New York Times, all the ills of the world are profoundly interrelated. Today they ran an article tying the California wildfires to the pain, suffering, and exploitation of illegal immigrants. I was particularly struck by these two consecutive paragraphs.

The authorities have not given any causes[of the fires] linked to immigration.

Two men, one in San Diego County and the other in Los Angeles, who were arrested on arson charges, accused of setting small fires this week, are believed to be deportable, a federal immigration official said.

Do you see the stark naked contradiction? The first sentence/paragraph is completely refuted by the second. Deportable arsonists? Are you kidding me? That sounds like an "authority", a "cause", and a "link" at once!

Of course, as usual, the Times conflates "immigration" with what the rest of the real world calls "illegal immigration". And the other spicy morsel for me was the euphemistic characterization of "deportable". I hadn't read that whitewash before. I guess mass murderers can be now called "detainable"; and fat people can be euphemized as "diet-able".

I am posting the entire article below. You needn't read the whole thing to see the point I will make next:

October 27, 2007
Glare of Fires Pulls Migrants From Shadows
By RANDAL C. ARCHIBOLD and WILL CARLESS
SAN DIEGO, Oct. 26 — Out of the burning brush, from behind canyon rocks, several immigrants bolted toward a group of firefighters, chased not by the border police but by the onrush of flames from one of the biggest wildfires this week.

Their appearance startled the firefighters, who let them into their vehicles. But with the discovery of four charred bodies in an area of heavy illegal immigration, concern is growing that others may not have survived.

“Their hands were burned, and they were clearly tired and grateful,” Capt. Mike Parkes of the State Department of Forestry and Fire Protection reported on what his firefighting team saw.

Immigrants from south of the border, many illegal, provide the backbone of menial labor in San Diego, picking fruit, cleaning hotel rooms, sweeping walks and mowing lawns.

The wildfires, one of the biggest disasters to strike the county, exposed their often-invisible existence in ways that were sometimes deadly.

The four bodies were found in a burned area in southeastern San Diego County, a region known for intense illegal immigration. It is near Tecate, where a chain securing an evacuated border crossing was cut and people were seen flowing into the United States until the Border Patrol arrived, said Michael J. Fisher, the chief patrol agent in San Diego.

As firefighting continued on Friday, makeshift camps for immigrants in the northern part of the county stood largely abandoned. Some immigrants were said to be hiding in even more remote terrain. Others sought help from churches.

“I was pretty scared. We had to leave in the middle of the night, and we went to the church,” said Juan Santiago, a immigrant worker in the Rancho Peñasquitos neighborhood, just south of the hard-hit Rancho Bernardo area.

Terri Trujillo, who helps the immigrants, checked on those in the canyons, urging them to leave, too, when she left her house in Rancho Peñasquitos ahead of the fires.

Ms. Trujillo and others who help the immigrants said they saw several out in the fields as the fires approached and ash fell on them. She said many were afraid to lose their jobs.

“There were Mercedeses and Jaguars pulling out, people evacuating, and the migrants were still working,” said Enrique Morones, who takes food and blankets to the immigrants’ camps. “It’s outrageous.”

Some of the illegal workers who sought help from the authorities were arrested and deported. Opponents of illegal immigration, including civilian border watch groups, seized on news that immigrants had been detained at the Qualcomm Stadium evacuation center as evidence of trouble that illegal immigrants cause.

The Border Patrol also arrested scores of illegal immigrants made visible by the fires. Agent Fisher of the Border Patrol said 100 had been arrested since the fires started Sunday.

He said that the agency never abandoned enforcing the border and that agents helped with removals and rescues. Fire blocked some access points to border areas, but Agent Fisher said, “We were very conscious in making sure our border security mission was met.”

Some people have speculated, including on the Web, that immigrants might have set some of the fires, as has occurred with campfires lighted in fields.

The authorities have not given any causes linked to immigration.

Two men, one in San Diego County and the other in Los Angeles, who were arrested on arson charges, accused of setting small fires this week, are believed to be deportable, a federal immigration official said.

The San Diego police detained people suspected of stealing at Qualcomm Stadium. Six were handed over to the immigration authorities when it became apparent that they might be in the United States illegally.

The Border Patrol said the six, and at the group’s request, an American juvenile with them, were returned to Mexico.

The American Civil Liberties Union said it had received reports that people had been denied help at shelters because they lacked proper identification. Officials have been checking identification to prevent people not affected by the fires from taking advantage of the free food, clothes and other services.

The concerns of the rights group drew a rebuke from Representative Brian P. Bilbray, a Republican who represents areas along the border.

“People are dying because we can’t control our border,” Mr. Bilbray said. “That’s what they should be screaming about. Anyone who knows the land and the illegal activity in that rugged terrain knows there was no way we would avoid deaths in this.”

Wayne A. Cornelius, a political scientist at the University of California, San Diego, who studies border questions, said that if the past was a guide there would be more friction over the fires and their effects on illegal immigrants.

“San Diego likes its illegal migrants as invisible as possible,” Mr. Cornelius said. “So whenever something happens that calls attention to their presence, it is fodder for the local anti-immigration forces.”

In one sign of cooperation, a Mexican firefighting team from Baja California helped American firefighters with a major blaze along the border early in the week.

For the immigrants, the fires may have dried up some work. But some speculate on strong work prospects like cleanups. By early afternoon near a heavily damaged neighborhood in the Rancho Bernardo area, four men stood on a corner, waiting for work offers.

“It is a shame what happened,” said a man who gave just his first name, Miguelito. “But we think there will be jobs to clean or build.”

Dan Frosch contributed reporting from Denver, and Carolyn Marshall from San Francisco.



They say that newspapers are written on a 4th grade reading level - whatever that means. But if I recall accurately, elementary schools taught us that paragraphs should consist of a topic sentence followed by a few supporting sentences. Grammarians and logicians have decreed long ago this as the best format for expressing a coherent idea.

Note the Times' paragraphs don't meet this standard. Their paragraphs are mostly one sentence long (I count at least ten examples above)- egregiously devoid of supporting sentences.

This article is nothing but a barrage of disjointed innuendo. It's anecdotal, laughably sourced, and as I pointed out above it's even self-contradicting.

I don't slice and dice the NYT that often anymore so if you'd like some more read this oldie but goodie from two years ago. (link)

Here's another good one (link).

CNBC's Morning Blog - RIP

(click the pic to enlarge)

Their last post was December 4th, 2006!

Here's what I wrote about their blog two years ago:

I have Marginalized CNBC in past blogs. They are the typical big, stodgy socialist media outlet. They are trying to show their progressivism by running blogs (Squawk Blog and The Morning Blog). All day they promote their blog web addresses, but there is basically nothing on their blogs. The CNBC hosts actually tout "new pics" of themselves on the blog, as if looking at their mugs all day isn’t enough. Do they really think anyone is interested this?

Also, you need a MSN Passport ID to post messages on their blogs. Since no one has one, there is nobody posting comments. I got a MSN ID just so I could criticize them. I figured that I needed an outlet after listening to their crap for 10 years, all day long. But they won’t publish my comments anymore. You can google “CaptiousNut” (click here) to see some of my hardly incendiary comments that some pissant at CNBC has decided to censor. So to sum it up, there is little blog content, a barrier to posting comments, and censorship of criticism. Somebody tell CNBC that “THAT IS NOT A BLOG”.

It won't be long before they obliterate that blog from cyberspace. It's never seen as a good thing to leave glaring evidence of your failures around - a concept that Greg Mankiw is keenly aware of.

ESPECIALLY, when the failure illuminates Big Media's fumbling embrace of New Media.

These are the signals that make Rupert Murdoch and his fledgling business channel teem with optimism.

Trade Suggestion

Usually, when the really good, "no-lose" trades come up, my position is already so big that I can't add to it. That is the case now. Along these lines, I knew a veteran trader who always put his "5th buy" in his Keogh. Despite paying Merrill Lynch a sodomizing .09 per share in commissions, his retirement account grew by leaps and bounds.

I have been bearish on, and short, the 30-Year Treasury for a couple months now. I am down a good four points. If I was flush, I would hit it with a baseball bat today. Here's my reasoning:

The stock and bond markets have exploded since the August "credit crunch". As I have blogged on before, market participants are all betting on more rate cuts from the political animal (Bernanke) that runs the Federal Reserve. There's no doubt in my mind that another 50 basis point cut is baked into both stocks and bonds.



Here's the wrinkle: oil just shot up to $92 per barrel today and the dollar is at a new multi-decade low. These are the only developments that MIGHT prevent those inflating idiots from dropping rates to "save" an unsalvageable housing market.

Ergo, markets shouldn't have a 100% likelihood of a cut priced in. Oil could very easily be $100 next week and this dollar weakness could cause an international run on our currency. As much as these politicians would like to artificially prop up asset prices, Bush's poll numbers, and their perceived re-election chances, they may in fact be forced to stand down and do something they've never endeavored before. They may have to sit back and do NOTHING. What a notion!

That's why I see shorting the long bond as very good bet TODAY.

For my mind it sets up as an ideal trade.

• My best trades in the past 12 months have been shorting sharp upticks in the long bond. My first whack came when the clowns bid it up after the '06 election victory of the socialists. The second time was this past March when it popped to just about these same levels for seemingly "no reason". A good trader sticks with what's worked.
• I believe the long bond is tired and at the end of a multi-decade uptrend. It's been ignoring ubiquitous inflation since 1998. In the old days, all it cared about was inflation. $90 oil and $10 soybeans should at least take a bite out of bond euphoria. So without even talking about the built-in tax increases and ticking entitlement bombs I see plenty of fundamental weakness to comfort me on the short side of bonds.
• And as I mentioned above, there has been, what I perceive as a ridiculous, non-sensical move in bond prices. There's nothing more salivating than an insane uptick in a downtrending security. This not only gives an ideal entry point, it usually provides a rapid profit.

Summing it up, I am confident then that I have timing, fundamentals, and a good entry point all on my side. The risk/reward proposition seldom looks more actionable.

One can short the futures with very little money down. It's a 113 dollar number with minimum increments of $100,000. In other words, if you short one contract at 113 and buy it back at say 109, you would make $4,000, that would be one grand per point. To put it perhaps more simply, shorting one future's contract would be like shorting 1,000 shares of a 113 stock.

BUT, to short 1,000 shares of a 113 dollar stock one would need at least 50% of it as margin, i.e. $56,500. Whereas, shorting a long bond future only requires something like $2,000 worth of margin. (I would recommend you have $5,000-$6,000 as your mental "loss" provision).

So shorting the long bond is a cheaper, less risky way for the small investor to play the commodity bull market.

I will revisit this trade suggestion, hopefully very shortly and at lower prices.

Evolving Monomania

As most of my highly self-educated blog readers know, I grew up in Massachusetts. Stereotypically, all I cared about my first 18 years on this planet was sports. Back then, I would most probably have donated my right testicle for the present day sports euphoria of Boston.

The New England Patriots have hardly lost a game in the past 5 years. Tom Brady is probably the best quarterback of all-time. Currently they are 7-0 and poised to challenge if not break a few NFL scoring records.



The Boston College football team, fresh off a crazy win last night at Virgina Tech, is ranked second in the country - a plateau even saintly Doug Flutie couldn't take them to.



The Celtics just made two blockbuster trades for Kevin Garnett and Ray Allen. I am not so sold on the deal, nonetheless oddsmakers and hibernating fans are abuzz with their prospects this year.



And, of course, the Red Sox are in the World Series again - currently up two games to none. Nobody in town is even slightly worried that they won't win their second World Series of the last four years. Oh, how times have changed. Welcome to Winnersville!

If I was twelve-years old again, I'd feel like I was in heaven. Alas, I am not - I am 33, have two small children, and feel very much earth-bound.

Now all I think about is making money and taking care of my family. I'd like to be able to buy my dream house (at my dream price). I want a vacation home. I want to join a country club. I want a maid to do my dishes. I'd like enough financial "flexibility" to give my wife the option to quit her job. I'd also like the ability to give my kids the best education possible - whether that is me homeschooling them or shipping them off to some expensive school.

But this is the very definition of monomania. When you are passionately obsessed with one thing, nothing else matters.

One day, my family will be grown up (or I will strike gold in the markets) and my priorities will transmute into something completely different. It could very well be my grandkids, my religion, or a totally new career.

One day I could have a $1 billion in the bank and be miserable. I could be smitten by a family tragedy or personal health problems. Or maybe all I will want at that point is for my kids to be more ambitious or happier?

Our minds will never EVER be at ease. They'll always be pining for the greener grass and the superfluities that we DON'T have.

This is what I try to remind myself when I am glum. It helps. You should try it. Be grateful for what you have because things could always be much worse.



Fast forward a few years...

Saint Peter - So, Mr. C-Nut, it seems you spent your entire life worrying about Larry Bird, your handicap, mocking Morons on your blog, and how much money you could make. Where did you get the idea THAT was the grand purpose of your life? I hope you packed for a warm climate...

CaptiousNut - Oh sh*t!

Nearby Clown - Steve Carell

I was just told by my sitter that Steve Carell lives nearby at the Blackrock golf course community in Hingham, MA. It's weird to think that a celebrity would want to live in such a commuting/family-centric sort of town. I am sure that it is just one of his many abodes. In fact, it looks like Marshfield claims him as one of their own as well.

Anyway, I love The Office and count it among of my favorite shows but this season's novelty, i.e. the new 60 minute format, I feel, is pushing it. Thirty minutes is kind of short but I just don't know that any comedy can pull off a full hour. Forty-five minutes would be probably be ideal.



The other problem I have is that the show is too much about Michael Scott (Carell). There are plenty of other great characters that get scant attention - particularly that dipsh*t Andy. But this is invariably what happens when the lead character plays a productive role in the show. Just as Denis Leary makes his entire show insufferably about him, I feel Steve Carell is overly enamored of himself as well.

These guys really want that Emmy...

Marginalizing Cheapskates

I was once drinking and bullsh*tting down at my old golf course in Philadelphia with the guys and I suggested that we create "All" foursomes.

We could have an All-Talking foursome which would be JoJo, Frankie, and two other talk-the-balls-off-a-pool-table blabbermouths.

We could form an All-Cheating foursome of Bruno, Fat Johnny, and two other guys widely known to have flexible relationships with the rules of golf.

We quickly formed an All-Slow Play foursome of the four most brutally slow players.

And so on and so on.

Then I suggested we conjure up the All-Cheap Foursome. To which, after a moment's contemplation, one of the guys quipped, "Never mind a foursome - we have enough for an All-Cheap league!"

Indeed it was true.

Every family and every social group has its cheap members. You know, the ones who buy the worst Christmas presents. The ones who nurse their beer when it looks like it might be their turn to buy a round. They've got the short arms and often the deep pockets. They've never had to ring your doorbell with their elbows!

So how does one manage them? Do you just buy them drinks and bear the disproportionate expense? Do you call them out and try to guilt them into pulling their own weight? No doubt innumerable relationships have been ruptured by one party's resolute cheapness.

What if, in a given friendship, one person makes substantially more money than the others? Are they morally obligated to ante up a little more of the restaurant tabs and whatnot?

Which particular groups are the cheapest?

Well, I liken this bigotry query to the one I posed in an earlier post about who were the worst drivers. For nearly every group/ethnicity/creed, you can find someone who thinks they are the cheapest (or worst drivers).

Of course in terms of ethnicities, Jews might bear the most stereotypy for penny-pinching but from my own experience, I can tell of extremely cheap genes apparent in certain Asians, Irish, Italians, Hispanics and blacks that I know. There are cheap old people and miserly young'uns. Women can be just as cheap as men - or is it vice versa? Rich people can be just as cheap as poor people. There simply is no winner in the cheap contest.

Let's throw out some examples.

Patrick Ewing, retired NBA baller was known to be notoriously cheap. He would regularly go out to restaurants in Manhattan and when the bill came would assert that he had forgotten his wallet. He was making $18 million per year his last few years in the league!

Michael Milken, the disgraced junk bond king of 1980s used to take NJ Transit to work rather than pay up for Amtrak. He also wore cheap suits and a bad toupee despite making several hundred million dollars.

My sister was recently invited over to her cheap friend's house for fajitas. He asked her to bring tomatoes. Turns out, he asked everyone attending to bring one of the ingredients. Someone had to bring the tortillas. Someone else had to tote the chicken, etc. It's a wonder they didn't all bump into each other in the supermarket beforehand!

There is a big shot trader on the Philly Stock Exchange nicknamed "Cheese". Cheese won't so much as buy himself lunch despite the millions jingling in his pockets. I used to watch him everyday not order lunch when everyone else was doing so. Then, around 1:00 pm or so he would procure the second half of some clerk's sandwich or the extra slices of pizza from a broker. The guy drives clunkers and once, took a trip to New Orleans with some other traders. Get this, the guy decided to room at the YMCA for something like $13 a night! Oh, and you should have seen him scramble to get his ticket in for a juicy one lot trade. He really needed that quarter ($25)!

There is one guy, a friend of a friend, on the periphery of my wife's high school social net. He's another one of these guys that has been out at a restaurant and insisted he "forgot" his wallet. The more egregious story with this guy happened one drunken night out in the Hamptons. Remember what alcohol does, it removes inhibitions. A bunch of people including this particular miser crashed at my wife's family's house in Southampton. The next day, while vacuuming we discovered a few kaiser rolls under a bed. It turns out, the cheapskate came back late at night and assessed that there wasn't much food left so he stashed away the remaining rolls under his bed LIKE A STARVING PRISONER. We would never of unlocked this mystery if we didn't find out that in the wee hours he was assuring one of the guys not to worry about eating because "We've got some bread". This was an odd episode to say the least. All other experience has shown this guy to be as tight as they come. How did he get way? Who knows. But supposedly his dad is demented similarly despite being a high level executive for News Corporation.

I worked for a guy, another multi-millionaire, who I listened to spend 20 minutes on the phone arguing with a customer (on his side business) over who would have to pay a $9 FedEx bill. This was a dozen years ago and the customer was across the country. The cost of the phone call had to be near half the disputed amount all by itself. I couldn't believe this boss of mine fussed so much over a pittance while he had a trading firm that flung around hundreds of thousands of dollars on a daily basis. It was surreal. Declare your bigotry and guess his ethnicity!



Now on to tipping.

The best tippers are, well, people who work for tips themselves: other bartenders and waiters. I used to sell food and beer at a golf course and this one guy, JoJo the bartender, was an absolutely insane tipper. It was two bucks for every little thing from coffee right down to if you told him the score of the Eagles game. I am not kidding. This guy would tip at toll booths and at McDonald's.

The worst tippers are blacks, Europeans, and younger people in general. All sorts of explanations abound but who really cares. This is an empirical blog, wholly insensitive to apologetic idealists. (By the way, I don't buy the 'the tip is included in Europe' so-they-don't-know-any-better excuse.) Blacks simply do not tip. Go google it - a ton of stuff comes up. When blacks come into a restaurant, waiters vie for other tables - including black waitstaff.

Also, I was a bit shocked when I was in South Beach a couple of years ago to see a $.41 tip included on my breakfast from Johnny Rockets. Miami has apparently taken it upon itself to automatically include tips on a everything - thank the Euros who've taken over the city. (Or is it the rappers' fault?)

I was always a good tipper. I guess it made me feel like a "big shot" and of course I worked for tips myself so I was sensitive to the practice. In fact I had to really work at NOT TIPPING piss poor service. I have found the profoundly rude Boston restaurants and bars to be really helpful in teaching me to tone down my gratuities.

At the conclusion of a wedding I attended in Vineland, New Jersey, I did what I always do. I sauntered over to the bar and left a tip - usually $20. The bartenders, all six of them, thanked me profusely. So I asked how they did for tips that night and they said they got "nothing at all". I couldn't believe it, there were 350 guests from all over the globe ordering pina coladas and glasses of white zinfandel (Hah! Old people drink that stuff). I wouldn't be surprised if any of those bar servers called out "sick" for the next wedding at that synagogue.

I know a girl who's worked at a wedding/catering hall for years. She also claims that blacks tip the worst. She said they can be nice as pie; they'll hug you and kiss you; but they won't leave a nickel. She also told me that cops and firefighters are the best tippers in her experience.

Bad tipping doesn't necessarily imply cheapness but they are kissing cousins.

There are so many ways cheapness can manifest itself. For sure you have older relatives that would go into cardiac arrest if you rolled the car windows down when they had the air conditioning on. As I have mentioned before, older folk are extremely cheap with food, technology, and energy. They should however get a bit of a pass because they grew up in a poorer generation and are mostly on fixed incomes. Well-traveled, wealthy, younger penny-pinchers who should know better get no pass at all.

I would surmise that most people are irrationally cheap about something. Me, I hate when cab drivers rip me off for $3-$5. I can't tell you how many times I have gotten into fights with cab drivers and jumped out without paying. I also hate to pay for haircuts. My head is essentially shaved and I can't pay someone $25 to spend the 4 minutes it takes to cut my luscious hair. So what if I have to walk the back alleys for a week or two after my self-administered cut? I also loathe spending money on housekeeping, yard work, snow shoveling, and childcare. I would rather do it myself than pay what I feel are ridiculous market wages.

There are many places that attract cheapos. Parks, bookstores and libraries immediately come to mind. I know a guy who used to manage a Waldenbooks. He told me that people would come in every day, take a newspaper, sit down with it, and do the crossword. Then they would put the paper back in the stack for sale. Now I would never pay a nickel for a newspaper myself, as they are vile worthless slabs of propaganda, but I'd never deface a 50 cent paper in a store without buying it.

I remember sitting in an economics class in college and getting blown away by a remark made by the esteemed Wharton professor (Robert Inman). The class was talking about tipping and the prof derided, "I just think of tipping as 'income redistribution'." It may not sound that bad by itself, but it was in a wider context of why would anyone tip a waitress in a diner while traveling. In other words, if one is eating in a restaurant that they'll likely never return to, it is irrational to leave any tip at all. I couldn't believe it. I was 19 and I fully understood the entire concept of tipping but this nerd teacher (Harvard PhD) and assorted other student nerds hadn't a clue about it.

I would have forgotten about this little incident if I hadn't more recently read a post of that Total Loser Greg Mankiw's a short while back. Here's what he said about tipping:



No, really, it's up to you

Economists do not have a good theory of tipping. Normally, we assume that consumers pay as little as they have to when buying the products they want. Yet, when buying meals, haircuts, and taxi services, most consumers voluntarily pay more than they are legally required. Why does this happen? Why is it more true for some services than for others? Why do tipping customs vary from country to country? I have no idea.

The rock band Radiohead is putting this phenomenon to the test: You can buy the download of their latest album for whatever price you choose. You can pay as little a penny or, they hope, much more. The whole price you pay is, in essence, a tip (but paid before the service is rendered).

Since we economists don't understand tipping, we can't really say whether this new scheme will work. But if it does, during my next ec 10 class, I will put a hat next to the lectern.

Oftentimes, a frank admission of ignorance demonstrates genuine wisdom - but not here. Mankiw, like the other Harvard-educated professor whose lectures I had to bear, doesn't understand why consumers ever tip. In his convoluted mind, the lumpen consumers are simply "not rational" (nor are voters). This is just his gutless, elegant way of asserting his intellectual supremacy. It's the professorial way of calling everyone else stupid.

I really wish he had left the comments in place. If he had, you'd be able to read several comments from incipient little socialists (students) echoing, less tactfully, the sentiments of these scumbag professors.

I failed somewhat in this post to stay on topic. My screed on the generic cheapskate devolved into a screed on bad tippers. I guess tipping is where cheapness most manifests itself. But in no way are customers the only penny pinchers in town.

I knew the now-deceased bar owner of Chaucers in Philadelphia pretty well and he was one cheap bastard. He regulated the amount of soap his bartenders used to wash glasses. He demanded a head on draught beer to shave his keg costs that 2%. He even put weird tape contraptions on the waitstaff's pens because he was convinced that they often rolled off the bar and into the trashcan. Meanwhile this filthy rich tightwad was always telling me about his million dollar semiconductor bets.

I also got a bagel recently from Bruegger's. It was early and for some reason the manager ended up serving me. He was very slow and quite stingy with the cream cheese. I very politely asked him for "extra"; without breaking any speed limits, he niggardly dabbed a bit more. I asked again for some more and he looked up at me above his nerdy accounting glasses and declaimed that he already put "extra" on it. I said, "I will pay you whatever you want for the bagel but if you don't put more cheese on it I won't take it!".

Man, you'd think I asked him for a pound of flesh...

Cheapness must of course be a gene but like everything else, I suspect it can also be an environmentally wrought disposition.