Thursday, May 28, 2009

Just plain racism

Today Fox Forum asks readers if they agree with the charge of "reverse racism" for BO's Supreme Court nominee Sonia Sotomayor's statement: “I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life.”

Is that reverse racism? My answer?


There is no such thing as "Reverse racism". Sotomayor's statement is just plain racist. Terms like "Reverse racism" or "Reverse discrimination" are nonsense. It makes no difference who is racist against whom, or who discriminates against whom. It is wrong whenever and wherever it occurs.

Beyond that, her statement demonstrates that Sotomayor is not a judge who will apply the law as it is written. Race and gender make no difference before the law. To be just, the law must apply regardless of the race or gender of the person being judged and of the judge. Equality before the law precludes Sotomayor's notion that the law should be applied differently in different cases based on race or gender.

While Sotomayor has a compelling life story, that has nothing to do with being a Supreme Court Justice. The "richness of her experiences" is not relevant to the law. The fact that Sotomayor thinks that those experiences matter indicates that she does not intend to base her decisions on the Constitution, the Law of the Land, but rather on her own opinions and ideology.

That reason, even more than her blatant racism, should disqualify Sotomayor from being confirmed to the Supreme Court.

Tuesday, May 26, 2009

Making Policy

BO's nominee for Supreme Court, Judge Sonia Sotomayor, who has said that appeals courts "make policy", was one of three Federal Appeals Court Judges to take the position that the Second Amendment does not limit state or city governments from banning guns.

Last year the Supreme Court handed down the landmark ruling in DC vs Heller, holding that the Second Amendment right to bear arms applies to individual citizens in their private lives. Any other interpretation would seem absurd. In fact, California's liberal Ninth Circuit Court ruled that the Second Amendment applies to states, in an opinion supported by far-left judges appointed by Carter and Clinton. This is so obvious that even most liberals get it.

But not Sotomayor.

Last January she issued an opinion in Maloney v. Cuomo saying that the Second Amendment does not apply to states. Now Sotomayor believes that the "right" to an abortion, made up out of thin air, prevents the states from banning abortion. But the second item in the Bill of Rights, explicitly stating that "the right to keep and bear arms shall not be infringed" does not apply to the states.

This is a judge who uses the power of the courts to make policy. She said so herself. Instead of applying the law as written, she makes it up to fit her leftist ideology.

Watch out BO. As Barbara Boxer said, the NRA gets the votes.

Wednesday, May 20, 2009

Joining the NRA

“It is a shame,” said Senator Barbara Boxer, Democrat of California. “But you have to come to a realization around here that at this point in time, the N.R.A. gets the votes,” she said referring to the National Rifle Association.

With an endorsement like that, I think that I will have to join the NRA.

Environmental fraud kills

Dichlorodiphenyltrichloroethane, better known as DDT, is the most lifesaving man made chemical in the history of the world.

In World War II it was used to kill mosquitoes and other disease-spreading insects which were killing soldiers, often at a higher rate than enemy weaponry.

After the war, DDT was used to control the spread of malaria, a disease now considered synonymous with Third World nations, but which once kills thousands of people a year in America. Over the next decade, malaria was nearly wiped out worldwide. The death toll dropped by millions.

In 1962, Rachel Carson published a book filled with horrific claims of death and destruction caused by DDT. "Silent Spring" became a bestseller and launched the modern environmental movement. The Environmental Defense Fund was established for the express purpose of banning DDT. Fear that DDT was poisoning wildlife, destroying the environment, and harming humans was widespread, and anyone questioning that claim was branded a heretic.

In 1972, the EPA banned the production and use of DDT and used its influence to prevent other countries from producing the chemical.

Malaria death rates in Africa, which had been greatly reduced, returned to their previous levels. More than a million people died in each of the next thirty years because of the DDT ban, 90% of them in Africa, most less than five years of age. Environmental dogmatists lost no sleep over the rampant death.

In 2006, thirty four years after DDT was banned, scientists concluded that the hysterical claims of "Silent Spring" were false. Dr. Anarfi Asamoa-Baah, WHO assistant director-general for HIV/AIDS, TB and malaria proclaimed that "DDT presents no health risk when used properly."

Environmental groups such as The Sierra Club, Greenpeace, and the Environmental Defense Fund, who for decades opposed the use of DDT, are now backpedaling. Greenpeace spokesman Rick Hind told the New York Times, "If there's nothing else and it's going to save lives, we're all for it. Nobody's dogmatic about it."

But what about the millions of people who died in the meantime, while the environmental wackos refused to budge on the ban? Don't hold your breath waiting for an apology.

Meanwhile, the usual suspects are spreading hysteria about their new bogeyman: global warming. Or "Climate Change" as they call it now that data shows that global warming is not happening.

Just as their fraudulent science killed millions with the DDT ban, draconian measures based on the phony global warming crisis will kill far more people than they want to admit.

Yesterday BO ordered car makers to increase the average fuel efficiency of their fleets to 35 miles per gallon.

If such a reduction could be accomplished safely and economically, the free market would make it happen. However, the laws of physics don't cease to apply simply because of a Presidential edict. Making cars more fuel efficient requires that they be smaller and lighter, which makes them more dangerous in collisions. Physicist Dr. Leonard Evans wrote in his book "Traffic Safety and the President of Science Serving Society" that "The conclusion is that CAFE has caused, and is causing, increased deaths.... CAFE kills, and higher CAFE standards will kill even more."

According to a 2003 NHTSA study, when a vehicle is reduced by 100 pounds the estimated fatality rate increases as much as 5.63 percent for light cars weighing less than 2,950 pounds, 4.70 percent for heavier cars weighing over 2,950 pounds and 3.06 percent for light trucks. Between model years 1996 and 1999, these rates translated into additional traffic fatalities of 13,608 for light cars, 10,884 for heavier cars and 14,705 for light trucks.

That is 38,000 Americans dead due to CAFE Standards. These numbers will certainly increase as a result of BO's pronouncement in the name of stopping Global Warming.

In addition, BO is preparing a massive new tax called "Cap and Trade", also to reduce carbon emissions. The cost of this tax will be hidden from most taxpayers, but it will severely punish anyone who drives, uses motorized transport, uses electricity or natural gas, or purchases products of any kind. Each year people die in America because they can't afford to heat or cool their homes. Those numbers will dramatically increase due to Cap and Trade.

Remember when the fear mongering intensifies that these same people predicted dire results from DDT and stood by as millions died as a result of their fraud.

Tuesday, May 19, 2009

Pete and Repeat

Pete and Repeat are twins who spent forty years working for the same boss in the same button factory.

No, its not a joke.

Each brother has a wife and 2.4 kids. They both earned the same amount each year and saved away part of it. One year ago they each had $1 million in a 401(k) invested 70% in stocks, 30% in bonds. At that point, after 64 years of doing everything the same, Pete retired and Repeat did not.

Conventional economic wisdom says that when you retire, you should establish a withdrawal rate and maintain that rate, adjusted for inflation, for the duration of your retirement. There has been some debate about how much can be safely withdrawn, without depleting your savings before you die.

Peter Lynch suggested a seven percent withdrawal rate from a 100% stock portfolio. Many studies show that Lynch's advice is very dangerous. A withdrawal rate that high is very likely to deplete your savings too fast. If the market declines for several years, a 7% withdrawal rate turns into a much higher rate, which can eat up principal to the point where you can never recover. Dollar cost averaging, which in the accumulation phase works in your favor by causing a fixed dollar amount to buy more shares when prices are down, works against you in distribution by causing you to sell more shares when prices are down, exactly the opposite of what you would like to do. Applying Lynch's formula to historical stock market results shows than in 41% of the cases, the investor would go broke within 25 years. Lynch was great at running mutual funds. Seems he's not so good as a financial advisor.

Today most research suggests an initial withdrawal rate between four and five percent.

When Pete retired one year ago, he decided to use a 4.5% withdrawal rate from his savings, giving him an income of $45,000. Not lavish, but enough to live comfortably. Over the past year, his retirement account has declined due to the drop in the stock market and the withdrawal of $45,000. Today Pete has $645,000. Following the standard procedure, he will adjust his income for inflation. This year he will take $46,575, or 7.22% of his nest egg.

Repeat kept working for one more year. His 401(k) also took a major hit. Instead of taking money out, Repeat added $5,000 more. He now has $685,000, or $40,000 more than his brother. Repeat retires, and using the standard 4.5% formula, he computes his safe withdrawal rate as $30,825.

Now take a look at the situation. Repeat has more money than Pete, but conventional methods of financial planning tell Pete to take about 50% more income than Repeat. Pete followed the cautious advice of the Trinity Study, but is now worse off than the reckless and discredited 7% withdrawal rate of Peter Lynch.

I'm going to suggest that they both have the entirely wrong way of looking at the problem. Conventional financial wisdom is way off the mark. It forces you to plan for a worst-case scenario, and if we have learned anything in the past year, it is that the worst case is far worse than we thought. The simplistic, one-size-fits-all approach may sell books and help brokers sign up clients, but putting your finances on autopilot is never a good plan. It is very important to consider events as they happen and adjust your plan accordingly.

When you retire, you must plan based on what you know at the time. But five years from now there is no reason to stick with a plan based only on what you knew five years ago. The failure to respond to market movements works against you both ways: it can cause you to go broke when the market drops, and it prevents you from benefiting from increases in the market. Pete, faced with a loss of a third of his investment assets, needs to reduce his withdrawals to avoid going broke. When the market recovers, Repeat will be stuck with his low income even if he could afford to increase it.

Every investment plan has risks. It is possible to mitigate some of the risks, diversify the risk, or trade one risk for another, but you can't eliminate risk altogether. The conventional method exposes the investor to the risk of going broke, leaving him with no means of support for his last years of life. Even the safest possible retirement plan, building a TIPS ladder, carries the risk of missing better opportunities.

A few years back I invented a method to deal with these issues.

My proposal trades the risk of going broke prematurely for the risk of a declining purchasing power, but also eliminates opportunity risk. In other words, you may have less income this year than you did last year, but it is guaranteed that you won't run out of money before the time you planned to.

There are several important decisions to make. First, you have to select the date when you will run out of money. The idea is to pick the closest date that you are comfortably certain you will never reach. Your 100th birthday might be reasonable. Another school of thought is to plan until your 90th birthday and just assume that if you last that long, your finances are someone else's problem.

The key concept is that we are going to divide up the money into a parcel for every month from now until the date you picked. If that date is 35 years from now, there will be 420 parcels. Each month you only touch the parcel for that month. The performance of the investments determines the actual value of that parcel, but regardless of what the stock market does, you have one parcel for every month. Short of a total worldwide economic collapse reducing the value of all investments to zero, you are guaranteed to have some income every month. Given average market returns you can expect to do better than the conventional method. In the case of somewhat below average results, you'll do about the same. If there is a prolonged market downturn, your income will be less than those using the conventional method, but when they go broke, you won't. And if the market excels, so do you.

Using Modern Portfolio Theory, we can design an asset allocation which maximizes return at a given level of risk, and over the long term it should be possible to outpace inflation. Therefore, the parcels should not all start out equal. The earlier parcels should have more, and the later parcels start out with less, because they are expected to grow over time. I'm not going into the math here, but if you want to see it, ask me. Essentially it comes down to this: each month you take a percentage of the total value of your portfolio as income, and the percentage increases over time in a predetermined way.

Another decision you must make involves the tradeoff between initial income and expected income growth. If you start with too much income early on, it is very likely that over time your purchasing power will decline as the income fails to keep up with inflation. With careful consideration it is possible to find a reasonable balance between current income and inflation hedge. Typically you can start with an income a bit higher than the conventional method allows with a high probability of maintaining purchasing power.

I found that it works well to use the monthly withdrawal to help keep the portfolio balanced by taking the money from the fund which is most above its target allocation. This helps to further counteract the reverse dollar cost averaging I discussed earlier. Because you are selling a certain percentage of the assets, you don't sell more shares when prices are down, and by selling the fund which is most above the target allocation, you naturally sell high. Funds which are underperforming relative to the rest of the portfolio will not be sold as often, giving them time to recover.

If Pete and Repeat had used this method, their results would be much more sensible. Instead of the large and inexplicable gap in their incomes, with problems looming in Pete's future, both would have similar incomes proportional to their portfolio value, and they would have the security of knowing exactly how long that income would last.

Monday, May 04, 2009

Meet Al Franken

The man who is handing BO a veto-proof Senate.