Thursday, April 20, 2006

Financial planning

I have been interested in investments and finances for a long time. I have read enough and studied enough to manage my own investments more effectively than a professional financial planner could do, and much less expensively. I have written my own portfolio optimization program and designed an improved system for portfolio distribution. I am well versed in the theory and mathematics of asset allocation, Modern Portfolio Theory, Efficient Market Hypothesis, and various equity pricing models. But occasionally something comes along which revolutionizes the way that I look at finances. When it does, I will pass it along to you, the handful of readers of this blog.

The revolution is a new way of doing lifetime financial planning: consumption smoothing. Larry Kotlikoff, professor of Economics at Boston University, used this concept to create the most comprehensive financial planning tool available today, Economic Security Planner. At $200 it is not cheap, but compared to the ongoing cost of hiring a financial planner and paying his loads, commissions, and fees for the rest of your life, it is a bargain. And the value of the advice from ESP is likely to be far greater than from a member of the financial industry sales force.

The principles behind consumption smoothing are not new. They have been studied by economists for decades. But until now, the computing power and software required to apply the theory to an individual family's financial situation did not exist. Considerations such as the impact of taxes, social security, and uncertain future investment returns make the problem very computationally intensive. Conventional financial planners use one-size-fits-all rules of thumb which typically do more to pad the planner's pocketbook with larger commissions than to serve the needs of the customer. Being off by even a few percent can cost thousands of dollars over your lifetime.

The concept is simple: to create a plan which avoids sudden large changes in standard of living. These changes could take many forms: reaching retirement age without enough in savings to maintain your previous standard of living, or reaching retirement with way more money than you need, encountering large expenses like college costs without enough money saved, or the death of a spouse. ESP helps an individual create a lifetime financial plan including things like:
  • How much should I save?
  • How much should I put in my 401k?
  • How much can I spend this year without putting my future in jeopardy?
  • How much life insurance should I have?
  • What asset allocation should I use?
  • Will I be able to pay for my kid's college?
  • When can I afford to retire?
  • What should I do now to minimize the impact of taxes over my lifetime?
  • What are my priorities for saving?
  • Will my family be secure if I die?

Without something like ESP, you are left to guess at the answers to these questions, and being off by even a small amount can result in big financial disruptions in the future. ESP is the most comprehensive tool available to individuals to help them make these important decisions.

For a full discussion of consumption smoothing and ESP, read this paper by Kotlikoff.

(I do not profit in any way from the sale of this product. All disclaimers apply.)

Tuesday, April 18, 2006

Global warming

There is terrible news for environmentalists today.

Global warming has apparently stopped.

The official temperature records stored at the University of East Anglia shows that the average global temperature has not increased in the past 8 years. Global warming stopped in 1998. From 1970 until 1998, the average global temperature increased by almost 2 degrees Fahrenheit. However, in the past 8 years, the temperature has dropped a fraction of a degree.

The really horrible news for environmentalists is that in those same eight years, human production of “greenhouse gases” such as carbon dioxide was at its highest levels ever. Our factories, power plants, and SUVs continued to pump more carbon dioxide into the atmosphere than ever before, and yet the "human caused" warming trend reversed.

Even before this latest example, there was plenty of evidence that there is no correlation between human activity and the temperature cycles of the earth. A previous warming cycle occurred from 1918 until 1940, well before the major increase of "greenhouse gas" emissions, and the following cooling cycle lasting from 1940 and 1965 coincided precisely with the period of greatest increase in emissions worldwide. Environmentalists love to make wild claims such as "This is the hottest year since 1500!" And what made 1500 so hot? Was it the Hummers and the coal-burning power plants? Was it caused by Republicans not signing on to the Kyoto Treaty? Perhaps Christopher Columbus was to blame, because we know that it is always a European American, and he is the closest thing there was to a European American at the time.

You would think that environmentalists would be overjoyed to discover that humans are not causing global warming, that the earth has natural temperature cycles, and that we are not on the brink of a worldwide cataclysm caused by American industry. But they are not. In fact, they are more hysterical than ever. They point to their computer models which say that by the year 2030 the global temperature will have increased by 6 degrees. Or 2 degrees. Or 1 degree. It depends which model you look at, how you set all of the very sensitive parameters, and who you ask. They won't tell you that in 1990 those same models were saying that by 2005 the global temperature would have climbed by three degrees. Nor will they tell you that in 1970 those same models said that by 1990 the global temperature would have dropped by six degrees, sending the earth into an ice age. That's right, thirty-five years ago the environmentalist panic was over global cooling caused by American industry. The only thing which has stayed the same is the identity of the villain.

So why are environmentalists so sad to hear that we are not all about to die as a result of global warming? It is because their power comes from the imminent threat of crisis. Looming disaster is their excuse to enact their real agenda, which is greater government control over industry. The environment is just an excuse to accomplish a liberal coup, seizing more power for the government and putting more of the economy under their control. If the earth is not about to be destroyed by evil corporations burning fossil fuels and building gas-guzzling SUVs, the impetus for more government regulation and greater socialization is gone. And worse yet, the opportunity to use fear mongering to increase their fundraising is dangerously threatened. If their global warming pseudo-science is debunked, how will they be able to write hysterical fund-raising letters convincing concerned people to send in $50 or face certain demise from melting polar caps?

The real crisis here has nothing to do with carbon dioxide, shrinking ozone layer, melting polar ice, or global warming. The crisis which has the left in a tizzy is the shrinking and melting away of their power and influence as people recognize them as the frauds they are.

Monday, April 17, 2006

Happy Tax Day

It's Tax Day, so I want you to stop and ask yourself one question:

Are you getting your money's worth?

Wednesday, April 12, 2006

Socialist Space Exploration

Forty years ago today, the first man orbited the earth in a primitive, Russian space capsule.

Twenty five years ago today, the first Space Shuttle lifted off from Florida and went into orbit.

Back in those days, if you asked where our space program would be in 2006, the answer would have been mind-blowing. By 2006, we were told, we would have cities in orbit, permanently manned bases on the moon, human exploration of Mars, and at least the beginnings of a manned interstellar program. Space travel, we were promised, would be as routine as flying from New York to London.

Our space program has failed to deliver on that early promise. It seems that the height of our achievement was the Apollo program more than thirty years ago. We could not send a man back to the moon today if we wanted to. The Space Shuttle program has never been as successful as we hoped. It was originally touted as being capable of flying ten to fifteen missions a year, but five missions in a year is the most it has ever achieved. The plans for the International Space Station are getting more modest each year, as the program slides further behind schedule and over budget.

So what is the cause of this lack of innovation or progress?

We have turned space exploration into another ineffective government program, blocking our greatest engine of innovation, the free market private sector, from reaching its full potential in advancing the technology of space flight. The same principle is true in space flight as anywhere else: the best and brightest people don't work for the government. If they did, the private sector would hire them away. NASA is crippled by the fact that it is government run, and thus not propelled by the market forces which fuel private enterprise. Instead, it is limited by the short-sighted nature of public funding and the whim of Congress. The private sector should, in theory, be far better than the government at developing new technology to achieve our goals in space. But there is not a single American company which provides a commercial satellite launch capability. Several companies have tried, but none have succeeded. It is not that the technical challenge is beyond the ability of American industry. We built rockets which could carry a satellite to orbit decades ago. The reason that there is no private sector business flying in space is that it is not economically feasible. To break into the business, a company would have to compete with NASA, a taxpayer subsidized entity. NASA can offer their satellite launching service at a lower price because they are funded by the government, and there is no way that a private company can compete with that. By maintaining a government-run space program, we not only have a sub-par space program, but we also block out private companies which could do a lot more if they could break into the industry.

So let's get back to the vision we had forty years ago, get the government out of the way, and unleash America's unstoppable creativity and the power of free market enterprise to reach our Space Age dreams.

Thursday, April 06, 2006

Welfare crisis

In March, 2006 the number of New York City residents on the welfare rolls fell to the lowest level since December of 1964.

Today there are about 402,000 New York City residents on welfare, down nearly two thirds from the high point during Clinton's administration.

Is this good news or bad news? That depends entirely on your perspective.

If you are a liberal who measures compassion based on the number of people dependant on government assistance, this is a crisis of epic proportions. In fact, it is a threat to that which matters most to you in this world: your chances to gain power in the next election.

If you are a conservative who measures compassion based on the number of people who no longer need government assistance, it is very good news.

But how are her document forging skills

Katie Couric will have big shoes to fill as she takes over the CBS anchor job.

She certainly has years of experience reading a teleprompter, so that should not be an issue.

And she has well established liberal credentials, which is a basic qualification for the job.

However, there is no reason to think that she is up to the critical task of forging documents to create news stories damaging to conservatives. Without this skill, CBS News will just not be the same.

Wednesday, April 05, 2006

A challenge

So the fact that we have not found the chemical weapons which we know that Saddam had is proof that they don't exist?

Here is a challenge:

Give me five years and a $10 million budget to hide one hundred 50-gallon barrels anywhere in the state of Texas. During those five years, you can observe from England or Canada.

At the end of the five years, you will have three years to find the barrels. During that time, I will have a few thousand people shooting at you as you search.

Oh, I forgot to mention that I have the option of hiding the barrels in Oklahoma or New Mexico, but you can't look for them there.

If you don't find the barrels in three years, we can conclude that they don't exist, right?

Monday, April 03, 2006

Seen on


White House seeking new director for Federal Emergency Management Agency.

Must desire to be held responsible for the ignorant behavior of every individual during the next hurricane, flood, tornado, terrorist attack, fire, cartoon snubbing Islam, or Cubs loss in the World Series. Job includes being held accountable for the failure of local emergency responders to do their job. Signing bonus is a 100% cotton t-shirt with the phrase "Designated Fall Guy" embroidered on the front in large script lettering.

Please hurry. Hurricane season begins in just two months.


Every year in America, thousands of people die while they wait for an organ donation which never comes. At the same time, hundreds of thousands of people die with perfectly good organs which could save lives, but are not used.

China has a solution to this problem. There are more than enough organs available in China, and many people go to China to buy organs which they can't get in other places. China gets these organs by killing people accused of political or religous crimes and taking their organs.

Other countries mandate that organs be harvested from anyone who dies with useable organs.

In America, we don't do things that way. We believe in freedom and individual rights, not tyranny or total government control. A person's organs belong to that person, and can not be taken away against that person's will. But there is something we can do to eliminate the shortage of organs.

Allow individuals to leave their organs to their estate.

The estate could then sell the organs at a price determined by the free market. This would encourage people to allow their organs to be used, because it would benefit their own family in addition to benefiting the organ recipient.

Some might object to this based on the idea that it would make organs unaffordable. The reality is that it would not. Organs are already sold at market price, only now the company who harvests the organs pockets the money generated. What claim does that company have on the value of the organ? They should be compensated for the cost of harvesting the organ, but the organ itsself belongs to the donor. The price for organs is determined by supply and demand. If the supply increases, the price will decrease.

Other people might have ethical problems with the idea of a person selling his organs to benefit his estate. The company which currently sells the organs doesn't have an ethical problem with that. They profit handsomely from it. But your organs belong to you. They are your property. The definition of ownership includes the right to sell your property. If you own your organs, there is no ethical problem with selling them after you die. There is a much greater ethical problem with burying the organs in the ground and letting someone who needed those organs die.

This is a win-win proposition. It allows an individual to help their own family and help someone in need of a new organ at the same time.