Kaulapi World

Not to add to the ton of news stories and blog posts out there about the flu outbreak in Mexico, I thought I’d mention a few observations from my end.  I’ve been keeping an eye on the news reports as things come out, its looking like there’s more and more cases and suspected cases coming to light.  The recent news in the Wapo is that there are a few suspected cases in the DC metro area, kind of makes you feel icky thinking about it.  So far I haven’t seen any hospital masks on the people riding the train into work, I think tomorrow might be a different story.

The sad thing is that whats most likely is that if the government decides to start taking precautionary measures it’ll probably be backward looking, in that it will be only after the city is overrun with new confirmed cases of the flu.  I’m wondering at what point will the decision-makers think that there needs to be a shift in focus and policy.  There has been some talk about this whole thing being overblown out of proportion, given that the seasonal influenza comes through every year and sickens a large number of people and kills a bunch all over the world.  I dunno if I’m really into that analysis, after having a few bad bouts of the flu over the years, I don’t want to get anything like it, not this time, not ever.

At work I remember reading a memo announcement a while back about continuity of operations plans, essentially, setting up people with the ability to telecommute or telework instead of physically coming into work.  It sounded excessive at the time I read the memo, but lately I’ve come to appreciate the extra preparations that could and should be made just in case.  I’ve been working with an episodic telework arrangement to work around my class schedule, its been a real plus to be able to work on things remotely, it saves the hassles of commuting back and forth from class to home to work and back.  I remember going to an external training session sponsored by my workplace that had a speaker focusing on the vulnerabilities of modern society to any kind of health care epidemic.

Ides of March, just got through some of my taxes for 2008.  In many ways its been a sign of getting older in that filing has gotten more complicated as opposed to years past.  It seems as the income slowly creeps upward there are additional forms to fill out, calculations to double check, and accepting the fact that some deductions and credits simply don’t apply anymore.  In a strange way I actually enjoy the number crunching part of it, Hana jokes that maybe I should’ve considered accounting instead of law.  The other part of the madness this time around is the nagging issue of the market uncertainty the world has been seeing, and the begging question of how to plan for savings and retirement account contributions with all the market volatility.

Personal finance and overall economic stability has been a major distraction for much of the last 6 months now.  In every angle of analysis I come to the conclusion that we’re in decent shape, and could weather a storm or two, should something happen.  However there is that uncertainty of not being fully prepared for the possible sudden downturn, or major event that turns everything upside down, like a black swan event or something.  I’ve read a bit about personal risk tolerances when it comes to finances, and I’m relatively risk adverse in many aspects.  This could be reflected why I’ve decided to work on my law degree part-time, while working full time, why I purposefully minimized the amount of student loan debt I took on over the past four years, and the fact that I’ve made every effort to live well below my means, even paying off interest and principal while still in school.  Still I worry that even with all the preparations, it might not be enough to survive sometime that comes along and blindsides us.

One conclusion that I’ve come to is that there is really no such thing as a safe asset class, given this uncertain environment, and the unprecedented steps that the government is doing, you can’t pump in Trillions of dollars one way or another without having some kind of unintended consequences, any of which could be disaster to the overall market confidence.  I hear people talking about this environment as being the time to buy, with many blue chip stocks at historic lows, and housing prices plummeting, mortgage rates also very low, especially for those with good credit.  The thing is that all of this stuff is really a form of legalized gambling, and that there is always a form of risk here and there, it all depends on how much you can first of all afford, and can stomach.  There’s also this concept that paper price asset reflects an actual value of a stock, regardless of the production power it may have in the form of the company’s profitability, or fiscal health.  Who cares how much the stock price is relative to the price you purchased it if it doesn’t produce any income as dividends?  After all the only way you can profit from a surge in a stock price is to sell it, and then get whacked with the capital gains taxes. By this rationale, real estate at any price in general is not an investment at all, its just a form of shelter.  I think that the sooner people start to recognize these things, maybe it’ll mark the beginning of the the long road to recovery and stabilization.

Meanwhile in the other March Madness, Wisconsin got in at a low end, 12-seed in the Eastern Division, up against a surging Florida State, hopefully it won’t be a mirror of the bowl game this past football season.  If Bucky can pull off the upset, then they’ll probably have to face a tough road, likely facing Xavier and then Pitt.  Who knows, typically Wisconsin does better when no one is expecting them to go anywhere.  The final four bid from a few years back was an example of that.  I’ve filled out a bracket or two, just for fun, been pretty distracted this year so I can’t say that I know much about the strength of picks.

Keeping an eye on the markets today, as I have been a lot lately, and noted that the DOW checked in just about 50% of the peak we saw this past summer 2008.  That’s a pretty significant statistic, 50% down now if your portfolio tracked the major stock indexes.  Before I shutdown my workstation for the day I took a look at a few of my account balances and cringed the thought of what the latest -3% drop might do for some of my long term accounts already in a sea of red for the year.  I’m sure that I’m not alone in this boat, a lot of people I talk to are talking about painful losses, others just don’t bother to check in since they know that its bad bad bad.

All this got me thinking about a possible breaking point for 401k contributions, and the start of what might just be an overall downward trend, if things were to continue going this way.  In breaking point I mean that at some point I could see a significant number of 401k participants might just fold their cards down and refuse to play.  It goes to the statutory structure of 401k deferred tax retirement plans.  You pay a portion of your paycheck tax free into a retirement account that you can’t touch without penalty, until you are of retirement age.  To sweeten the pot, your employer matches a certain percentage (1%, 5%, 10%, 15%, etc.) as part of a benefit package.  Depending on the setup, you can then invest this money into regular securities on the market, or certain designated index funds proscribed by your employer.  The additional benefit is that any gains you make on your account are tax deferred until retirement, at which every withdrawal from your account is subject to income tax.

Logically, there are several benefits to participating in a 401k program, but most powerful are the tax deferred incentive for contributions, and the tax-deferred status for gains.  However both of these benefits are tied to a single assumption that has been challenged in the recent market trends – an aggregate positive rate of return over time.  Everything is fine when the market is appreciating at an exponential rate in boom time, but in prolonged recessions marked by triple digit losses in almost all sectors on consecutive days, weeks, at some point the incentives for contributing to a 401k, will be canceled out by compounding losses in the stock market.

I’m getting a sense that what might be coming up, could be a breaking point for 401k contributions to zero, or at the very least, to the minimum employer match.  Depending on each company’s set up, and fund allocation, we’re most likely looking at a 10%-15% drop on the year so far across the board, given the drops in the major indexes.  With a SWAG estimate of 20%-25% tax rate, you can see that if the mounting losses continue, at some point in the near future they’ll meet or cancel out any tax benefit from a 401k contribution.  If and when this happens, I could see a shift in behavior for those who are able to scraped by to meet the max ($15,500 for 2008, $16,500 for 2009) for the past few years, even despite all the economic turmoil in the markets, to one of cash savings and liquidity.  In other words, things are so bad that even the most aggressive 401k contributors would conform to 401k deposits of 5% or lower.

One would think that a change in investment strategy of this magnitude would surely have a significant affect the overall market, which would indicate an accelerating or a market sell off.  From a very basic sense, I think this makes a lot of sense.  I’ve been looking at what has been happening lately with the markets, and have been feeling more and more discouraged, thinking “whats the point?”  Why save the money for later when it can just depreciate by double digits in a single day?  I’d be better off putting that money into cash, and then eventually into US treasuries or some kind of short term CD.  This might lose against inflation, but at least it wouldn’t go down in value.  Then again, maybe the best strategy for this market in the short term is to simply not play.

Lame disclaimer: I own some publicly traded stocks, bonds, and other securities in the market, some in regular investment accounts, others in tax deferred accounts and others in retirement accounts none of which are doing particularly well so for in 2008 or 2009.  Therefore, none of this commentary is intended to, or should be taken as investment advice in any shape or form, express or implied.  These are all just random thoughts and observations that a novice could do in these interesting financial times.

Sticking with almost an annual tradition for me, MLK day has been a day of personal reflection generally, kind of a like a new year of sorts.  For the most of the past several years it has come at the start of a new spring semester, still in the new calendar year, it seems fitting to take a look back and forward.  Looking back I still reflect on the significance of MLK Jr. in general to me in terms of a historical figure and human rights activist.  This year around there are constant reminders of the historic inauguration of the first black president one day after the holiday that has been designated to honor the MLK.

The talking heads have been at it all day making comparisons between MLK and Obama 24/7.  I still think that many of the comparisons are being disregarded, while others are being played up too much.  Unsurprisingly they are so obsessed by the racial backgrounds of both men, careful to mention every other word that we are witnessing history in the making as the first black president takes the oath of office.   Looking forward I’d like to see more realistic take on what BO can and cannot do for the nation and the world. I think it does the American people a disservice to draw simplistic comparisons between historical figures and current leaders, it sets up an expectation gap which inevitably leads people astray and down the wrong path.

The thing is that as inspirational and unifying as the memory of MLK was, I don’t think it would’ve been a good idea for him to be elected president, or being in charge of any political office.  I think his role in history was to get people thinking about what was possible in American society, what could be, if we broke out of the box and started judging each other by the content of our character instead of the color of our skin.  The similarities between Obama and MLK are really two fold, first is the color of his skin, and the style of his oratory, which is very preacher-like.  Neither of which by themselves qualify him for being the president.

I say like any other elected official, Obama should be given the opportunity to really change the country and take charge, but when he screws up he should be scrutinized and judged and resisted just as much as Bush.  The real danger of making premature comparisons to historic figures is that it stifles legitimate discussion about policies and overall dissent, as dead men can’t respond, and instead are given the benefit of history to tell their stories.  Obama should not be compared to MLK, FDR, or Lincoln, and other dead leaders, all this amounts to is noise and static to difficult road ahead.

Looking back to the last four years, I have to say that I am not in the same mind set that I had visioned, I was thinking that this time of year in 2009, I would be finishing up law school, getting ready for the next step, optimistic about the change of the guard from 8 years of Republican rule.  I remember being hopeful for how much more knowledge about the system and the world I would have gathered, and again, positioning myself and my family for the next step, whatever that might be.  This time around I feel a lot more uncertainty than ever before about the future of the nation and the world in general.  I am seeing and reading a lot of signs that cause reason for worry in the near and distant future.

Gotta love capitalism, especially gray and black markets.  Of course I’m referring to the underground market that has sprung up, mostly online for tickets to witness history in the making, the for the inauguration Barack Obama.  Craigslist is pretty busy with people with all kinds of tickets for sale, scalpers lucky enough to get their hands on some tickets will make a decent amount of change.  The prices themselves range from $100, $250 for seats along the ticketed mall viewing area, $500 for the standing area, and as much as $3500 for seated tickets.  That’s a hefty chunk of change for being a witness to history.

But what are the tickets really worth?  On the demand side there are ample numbers of potential buyers that price being part of this event as very high, in the hundreds and thousands of dollars.  Also driving the demand side is the emotional stakes that are attached to this event, I notice often that discussion goes from being a “witness” to history as to “being a part” of history.  For the faithful, saying that they were in the crowd on a cold January morning is in itself a priceless experience for which no price is too high.  On the supply side, there are a limited, finite number of tickets in various levels of grading, that is closer to the steps of the capitol.  Also these tickets are not for sale, they are in available only through the congressional offices, which each member having the full discretion to allocate them in the way that he or she sees fit.  All of these factors have all the makings of an interesting economic case study of price discrimination.

The disconnect between the relative value of the good is easily exploited by potential buyers coming from out of town that have never seen the capitol, the national mall, or the distances that are involved.  This also goes to the disconnect that people place on the value of the tickets themselves, to a certain extent, the value is more to the allure of them being a hard to come by commodity, and a symbol of the ticket holder’s savvy or connection to some high political office.  Maybe its that ultimately like any other material good, there is a certain amount of value associated with social status symbols.  That is people want to feel that they are special or elite through what they have.  Another disconnect are those that have never attended an inauguration in person either, so they don’t have any experience to gauge an appropriate price.  I really hope that in trying to get tickets, people would just calm down and save their money, especially in these tough economic times.

I went to the 2005 inauguration, and remember how far away the seats were from the actual podium, I ended up watching the whole thing on the jumbotron.  Of course I wasn’t too thrilled at the time about the results of the election, but I was more or less interested in just going for the sake of going.  This time around I’m happier about the overall results, I’m not as sold yet on the bigger picture and long term direction that the new administration is proposing.  But its still a big event, and I’m still intrigued that I’ll be in town to witness the event.  As for me, I think I’ll stick to some taking some pictures of the crowd, and collecting some commemorative metro tickets instead.  Maybe buy a T-shirt.

After a busy but tough 2008, the new year is already in full swing.  This year brings a lot of things to look forward to, a new assignment at work, a new division chief,  new semester of law school, and of course the ever present buzz around the district these days, a new administration taking on white house.

One of the good things about my work is that it allows for some flexibility on job assignments, so that if one assignment doesn’t work out for the better, either because of the subject matter, the workload, or the personalities on the team, it’s really just temporary.  Not uncommon in staff management at my agency, I’ve been going through the grueling transition period between assignments, which means that I have multiple sets of bosses and work styles to adjust to.  In the 5 years I’ve been at the agency I’ve never experienced a clean transition from one job to the next.  It really puts you at a tough spot, you want to get some closure on the old assignment, but you want to get off to a good start on the new one.  I’ve also noticed that I prefer to do short-term and periodic projects as opposed to being bogged down on one long-term project, even if it means that I have to multi-task.

My courses this semester started last week and are looking pretty good so far, and they are shaping up to be a good final set to close out at least the classroom portion of my legal education.  I have Professional Responsibility and Practice, which is basically a course on the rules of professional conduct and ethics that all lawyers are supposed to be versed in before entering practice.  My Bar prep course for the semester is Sales & Leases, basically a continuation on commercial transactions law and contracts law, looking into the application of the Uniform Commercial Code (UCC).  On the elective front I’ve got Debtor and Creditor Rights, a course that I think is pretty contemporaneous to the meltdown on wall street and the consumer credit markets.  My last elective course is White Collar & Business Crime, something that I think might come in handy again, given the times we are living in.

The entire DC metro is in an inauguration frenzy mode, it seems like daily we get new announcements or updates on the developing security plans, road closures, metro service outages.  I’ve gotten a kick at the uptick on the Obama merchandising and lyrical symbolism and imagry around town.  The street vendors that usually sell bottled water and FBI shirts are all decked out in Obama gear, the metro fare cards now have his smiling face printed on the card stock.  And there are the obvious corporate bandwagoners like IKEA and Pepsi. There is talk around town about who has gotten tickets to the ceremony and the balls, and whether the tickets are to THE ball that Obama and Biden are making an actual appearance at.  All in all I hope that most of the 2M+ estimated people coming to the district for the inauguration are coming with an open mind, its going to be a logistical mess out here with the crowds.

Meanwhile for the policy wonks and politicos, there is the talk about how the new administration will be replacing the old, what changes will be made, and I mean real structural change to the federal bureaucracy, not the campaign slogan, which so far is appearing more and more to me to be just that, a catchy phrase to run an election on, nothing more.  I happen to be in that category of people skeptically optimistic, but really waiting to see how if he can effective transition his administration from one that ran an effective campaign to one that can run the federal government.

One indication that this might not be the case is the decision to open this office of the president-elect, supposedly to assist with the transition period between the election and the inauguration, and to respond to the historically unprecedented challenges the nation is facing.  The fact is that the president-elect does not have any of the executive powers until he is sworn in on Jan 20, it really is dishonest to putting himself out to the American people as if he can do anything in the interim.  Presidents are human beings, they are not super humans that we make them out to be, they rely heavily on their cabinet and staff in the executive branch agencies to get their job done, that is, run the federal government.  As of November 5, 2008 when the office of the president-elect was established, there were no cabinet members confirmed by the senate, and therefore no means to do anything at all but plan for the transition.  Maybe there’s a reason why the Constitution doesn’t provide for an office of the president-elect?

The other point to consider is more of a tactical, and that is that really one of the risks of establishing the first office of the president-elect is that you automatically open yourself up to criticisms with how you and your staff conducts themselves in the interim period, perhaps even before you’ve established your system of spin doctors and public relations.  I think the whole mess with Ill. Gov and the Treasury Secretary nominee not paying taxes might not have been as prominent had the office of the president-elect been pumped up.  Almost like a damned if you do, damned if you don’t, it may have been a better idea to keep a low profile, do things behind the scenes and then take the White House by storm on Jan 20.

Turkey day come and gone, and its back to studying. I keep telling my self that this will be my last holiday season spent buried in the books, but it doesn’t really help much on the stress relief factor. This year we invested in a brine bag and some seasonings for the turkey, I think it made a big difference than in our past attempts. I also did some honing up on my carving methods and was able to clean up the turkey pretty well. Practice makes perfect I suppose.

Who knows, another middle eastern war in 2009? I’m still trying to figure out how we’re going to pay for all of this. And find the fresh troops. And prepare for the eventual blowback.

The fall season is progressing along, been busy at work and at school. For the most part I’m enjoying my classes, my unincorporated business organizations course is giving me more perspectives on the operations of small businesses and partnerships. Definitely opens your eyes to what kind of responsibilities, legal and financial headaches, really, owning your own business has. In my Remedies class we’re covering the bottom line of a lot of cases that we flew over in con law, property, and contracts, mostly going to the most central question of all, that is after all is said and done, after the plaintiff wins his case, how does the court proscribe the appropriate remedy to make the plaintiff whole again? And more tricky, when, if at all does the Defendant need additional punishment for the wrong?

Been keeping a wary eye on the market, it’s getting pretty depressing watching it rocket up and down. Since the brutal crashes from a few weeks ago, the market has seen drastic ups and downs, close to 9% swings, heavy volatility all around. It’s become a sick ritual getting up at 4am, getting ready for work, only to see the London stock exchange futures way down, and the Asian markets wrapping up another down day of trading. Been spending a lot of time it seems, sitting in my cubicle at work and getting distracted by the DOW and S&P way down in the red, highly caffeinated talking heads talking about investment strategies, screaming at times, for calm in the markets. Meanwhile a lot of small investors are quickly taking their life savings out of the market, apparently deciding its too dangerous to play at all.

Then a few days later, a crazy rally, usually as a result of some optimistically spun economic report, or announcement from the government that there will be another bailout. It’s really hard to tell what is up and what is down, what and who to believe really.

Whatever gains I had preserved about a year ago due to some luckily placed re-allocations in my stock holdings are quickly dwindling, percentage-wise. For the time being I’m glad that I’m gainfully employed, and not involved in any variable rate debt or consumer debt. Due to this insane housing market we’ve been seeing for the past few years, I held off on saddling down a mortgage, a decision that I’ve come to appreciate again and again. There is a matter of some student loans, but I was able to lock about half of it at a very low interest rate through consolidation about a year ago. I have been keeping a wary eye on our finances, planning out different scenarios and what we would do. For now there doesn’t really seem like there’s anything we can do. Just sit and suffer.

In the meantime I’ve been keeping an unofficial log of spare change I’ve been coming across walking around the city. I’ve been tracking it down loosely on my paper calendar at work. It’s pretty surprising how much change people leave lying around. So far in the past month I’ve found at least a few pennies a day, with the occasional dime or quarter. I’ve also found a $5 bill, and a metrocard with $20 on it. I guess when times are tough, you try to do what you can.

More turmoil in the markets, it’s becoming like a bad dream, the US market takes a hit, and then at 9:00pm the Asian markets take a hit, and then the European markets take a hit in time for the US again. Something like 21% drop in the DOW over the last 10 days, despite the talk of this not being a crash, it’s looking pretty ugly.

All of this has been a big distraction from the election, especially since it seems like neither leading candidates are offering anything by means of a realistic solution. I suspect that neither of their campaigns anticipated any of this to blow up in their faces, especially not right before November. I still maintain that some understanding of finances and economics should be a quality that we look for in a presidential candidate. Whoever wins will have his work cut out for him, that’s for sure.

Been a few crazy weeks in the financial world and the markets what not. Discussing the bailout has been a nervously recurring conversation topic around the office ever since the news first broke that the America is well, headed towards bankruptcy? Yet somehow we continue to think that borrowing or printing another $850 Billion dollars to bail out the troubled financial corporations on wall street is the best solution. Depending on who you talk to, it seems like the conventional wisdom is that the bailout or “rescue” bill although it sucks, is a necessary evil. The scary thing is that nobody in support of the bailout has any clue on how this is all going to play out, let alone where we are headed. I can’t help but wonder if people had the benefit of additional information and stopped to digest the recent turn of events and really question them that maybe they wouldn’t be too quick to capitulate to what might be a historic change in the structure of our constitutional republic. That is, whatever is left of it.

And now with the bailout signed into law, the American taxpayers and middle-class are left holding the bag.