Hang On To Your Shorts

Those of you that fall victim to my occasional econ 101 soap box rants are aware of the preaching I have been doing with regards to the yield on treasuries. I have, for a long time, felt the yields on treasuries were far too low and unsustainable at current levels. This would indicate an opportunity to short said asset and capitalize when the yield (which moves inverse to the price) begins to rise.

Historically, the mechanical implementation of this plan would have been far too cumbersome (and expensive) for a petty investor to implement on their own. Luckily the boys at ProShares created a couple of new ETF's to fill this highly specific niche. Almost every etf and ishare available is built to respond to price changes in a certain index (in this case the Lehman 7-10 year treasury index). Some funds prosper when the index price increases, some prosper when the index price declines. The latter is known as a short play. Some funds use leverage (loans) to add some 'ultra' price movement, which simply means that the fund will move $2 for every $1 the underlying index moves (positive or negative). The fund that I had been tracking and have now purchased is both a short play as well as a leveraged 'ultra' fund. The fund is ticker symbol PST and is appropriately named the ProShares Ultra Short Lehman 7-10 Year Treasury.

Here is some high level reasoning for this play and the timing of it. It seems like everyone these days tracks the Fed's monetary policy and their actions related to the fed funds rate. The fed has pushed the current rate down to 2% which is a historically low level not seen since December 2004. The lowering of this rate increases money supply and is intended to 'heat up' the economy. The downside is that it fuels inflation. I recently compared the historical spread between true (core + non-core) inflation and yields on the 10 year treasury. The current yield on a 10 year treasury is within a few basis points of 4%, current inflation 4.18%. At no point in the last 20 years of our financial markets has inflation out paced the yield on the 10 year. In fact, just a short ten years ago you would have been rewarded with a 4% spread over inflation by purchasing the 10 year note. Now, while a 4% spread may be a bit lofty for an investment that is void of credit risk, the point remains that the current yield on the ten year isn't outpacing inflation and therefore something will have to give. Either inflation will have to settle, or the yield on the 10 year will have to come up. The fed has stated that they are seriously ready to fight inflation....they would most likely do this with an increase to the feds funds rate. That move would knock inflation down and raise yields on the 10 year. Both of which are good for my latest buy.

Now, if Starbucks could find its way to $18 a share I might just about survive this latest market correction without having to pledge any unborn children.....that's a whole other can of worms....

The Last Laugh

I write my post today with a heavy heart. The legendary George Carlin has passed away. For anyone that's ever laughed at an 'off colored' joke, told such a joke, threw a curse word at your favorite football team, or noticed something in society that's funny (yet completely inappropriate), let's honor the true father of the first amendment with a moment of silence.......Good bye George, we'll miss you. Your sinister demeanor, your 'in your face' delivery and your stage antics (all while wearing casual and comfortable clothes) will long outlive your passing.

My Worst Investment Ever. Period.

Some of you may know that I am in the process of selling my car. The particular car is a 2005 two door, sporty Scion TC. These cars are very popular among 'youngsters' as they are cheaper than their more luxurious counterparts, yet offer all the same amenities and features that the more expensive cars do. Not to mention that they look good as well. As part of any sales process it's important to come up with a selling price. I've listed mine at $13,250. This value is based on several sources and should be a fair market value that is obtainable. I was quite encouraged to discover during my research that these cars have held their value so well. Another fine Toyota product (scion is a subsidiary of Toyota). Since I'm a finance guy by trade I thought it would be interesting to evaluate the true cost of this 'investment' over its lifetime.

Original purchase price: $19,470.51
Miles Driven: ~26K
Time of ownership: 34 months

I won't go into detail on this post but I did (of course) build a spreadsheet for this analysis. Bottom line, including taxes, interest expense, insurance, gas, plates and registration, depreciation expense, and maintenance this rig has cost me a whopping $17,356 over it's three year life span. Oh, and did I mention that there's still $9,595 left to pay on the note that I obtained when I financed it? Assuming I paid it off today, in cash, the total tab for this hot rod would run $26,951. At most it's worth $13,250, thus a loss of roughly 100%.

Couple of things to consider....I converted the cost number that I came up with into cost per mile driven. It comes to roughly $0.67/mile. Thus, even my meager 4 mile round trip commute to and from the office costs me a cup of tea and a fresh baked raisin cookie at Mugs.

Secondly, a large portion (37%) of the cost figure presented above is solely attributed to depreciation (mind you, that this is on a car that was voted one of the least depreciating cars in 2007 by Auto trend). Thus, as consumers, wouldn't it make sense for us to focus more heavily on that component when we're making our purchases? Looks like we just dealt another blow to Detroit.

Lastly, I use to own an entire fleet of vehicles at one point in my life; several small Toyota pick-ups and an old International Harvester Scout Rally II (all at the same time). That was at a time in my life when my average annual income was around $12,000. All of them were insured, all of them ran. The cost of all of those, including the gas for the scout, wouldn't have come within a bumpers width of the cost of the 'off the lot' little gray sports car that I'm trying to sell today.

Anyone have a scout for sale?

Notable Quotables....

Robert Reich, author of Supercapitalism, some thought provoking quotes from his latest book on the transformation of business, democracy, and everyday life......

- "to confuse greed with opportunity is to confound desire with availability."
- "the boundary between enlightened self interest and broad empathy is blurry."
- "lonely forbearance can be the last refuge of a virtuous fool."

Tertvetuloa To The Mystery Voyage - Estonia to Helsinki

While there may be many routes to take when traveling from Estonia’s capital city of Tallinn to Finland’s capital of Helsinki there is only one that I recommend….the late afternoon slow ferry booze cruise aboard Eckeroline cruise ships. Here’s how my trip played out, wave by wave…..

4:20pm – An unsuspecting young American boards a 3 hour ferry to nearby Finland. Should be an uneventful, relaxing end to a wondrous trip that was. The ferry itself is divided into 7 decks. The bottom two decks house cargo and cars. The third deck houses the reception area, ticketing booths, and duty free market. The fourth deck is home to the entertainment; a coffee shop and buffet take up half the deck and the other half is dominated by the lounge area and a make shift disco. The fifth, sixth and seventh decks are for sleeping. Cabins and rooms line the dimly lit and outdated hallways.

4:25pm – I planned to spend my ride in the lounge. Taking down a couple of Finnish beers and taking in some of the entertainment on the ship that I forewent on my initial (early morning) voyage to Estonia two days earlier. The lounge is more of a ‘den’ than a lounge. It’s about 4 tables wide and 20 meters or so deep. In the far corner there is a make shift stage holding a dated karaoke machine and a well worn Les Paul Gibson guitar (a serious sword for some rockabilly’s). Upon my entrance my attention shifted to the den of long drink fueled Finnish cougars eager to pounce their pray. The place was lined with them, each drunker than the next. There was a lone table in the center section of the barri that I thought looked inviting. Little did I know this is the sacrificial hot seat of the cruise.

4:30pm – Karaoke is announced. The Eurovision hopefuls waddle their way through the maze of oversized European purses as they approach the stage to grab a song book and make their selections. It’s now become apparent that this dingy (float or sink) is headed for a Gilligan’s island style voyage and the freshly shaven American at the center table is at the epicenter of the brewing storm.

4:50pm – “Pohjanmaan Kautta” (bottoms up!!) yells Kari; a middle aged machine shop owner traveling with his family, extended family, and friends from Karjala. The first Lapin Kulta (beer) of the voyage fills my bowels. The Finnish table mates who have joined me as though we were next of kin spring to action as it’s go time for Kari to unleash the Finnish ballad he choose from the karaoke list. Perfectisimo! Eat your heart out Lawrence Welk.

5:00pm – Kari and his travel companions return to my table. Jazzed up from the perfect solo performance seconds earlier it’s now time to engage in Finland’s favorite past time….historical recapping of the war (any of them really). At mention of this topic I immediately go into blank stare mode. The cougars are inching ever closer and I’m going to need my wits about me to fend them off….can’t waste brain power on Kari and the war that was.
5:05pm – Ship pushes out to sea. We are finally moving. God bless. I lean down to grab some euros that fell from my pocket and the first thing that greets me under the table is the overly pungent scent of rotting flesh and stale socks. It appears that the week old blisters from the third degree smoke sauna floor burn on my feet have hit a tipping point. I can feel the squishiness in my shoes as I’m essentially walking in a puddle of blood and blister juice that is continually secreting from my feet in an effort to drain the puss and infection collected from the (less than 4 star) Estonian hotel room that I was walking on bare foot for two nights. Should be a pleasant experience to share with my aisle mates on the10.5 hour flight from Frankfurt to Denver.

5:10pm – “America may be the land of possibility, but in Russia everything is possible”. Kari has moved on to Russian jokes now and his travel mates love every minute of it. It shouldn’t be long now and we’ll be off the topic of Finnish occupation and independence fighting. I’ll zone out for a bit more I think. The boat is now full steam ahead. Estonia is becoming a fleeting memory as the wake leaves it behind.

5:20pm – My attention shifts to what’s perhaps the most disturbing music video I have ever seen. It’s playing on the karaoke screen that faces the audience (just in case the audience feels like joining in). The video is of a 350lb. plus man in a gray t-shirt and sea foam colored sweat pants rolling around on his living room floor in a pile of filth, consuming everything in his reach; potato chips, beers, and cheetos…..confusion ensues as I try to decipher if this is some sort of twisted Sex Pistols cover or an Eastern block tribute to ‘free living’ and consumption…..either way there’s no turning back now the ship has set sail.

5:30pm – Thankfully the singing is over. The bloodshed from my feet continue, but the bloodshed from my ears can now subside for a brief. I decide to check back into the conversation with Kari and his pals….”In Russia they don’t even have washing machines, they smell like shit….we were never going to lose that winter war to those shit smellers”….the group explodes in laughter again….Kari’s 6 long drinks in since we boarded….elapsed time 1.5 hours.

5:45pm – Next on the program Steve Webb. Who the fuck is Steve Webb you ask? Good question….best I could tell he’s a dried up lounge singer from Liverpool trying to pass his time as a regular on the 3.5 hour eckoline tour from Tallinn. He’s kind of a cross between an early Mick Jagger (smaller mouth) and a 50’s style Buddy Holly (if you can picture that). His accent is heavy, his hair is dyed a jet black, and bright red converse chuck’s dawn his feet. Don’t kid yourself though Steve’s got a serious guitar and you know he’s just doing this gig until he can scrape together a few bucks, get the bus fixed, post bail for his long time bassist and hit the open road to tour the land……

6:00pm – My Finnish table mates have up and left and the heat intensifies from the cougar consortium that surrounds me…don’t make eye contact I remind myself….don’t make eye contact. Steve continues his assault on the steel strings. Clapton, Stones, Jimi Hendrix, and Stevie Ray blast from the single amp on stage.


6:10pm – The small group of Finnish dudes to the south of my vector seem to be taking quite the interest in Steve. “Freebird” shouts out the husky chap to Steve’s left…..are you kidding me I think to myself. Steve Webb isn’t some bullshit sellout. Fuck all if he plays that crap.

6:12pm – “Freebird” fills the air as Steve wails on his six strings. We get our first male on male ass slap of the trip. The perpetrator; a 6’2” curly haired bearded fellow, his victim; a 5’6” bald shaven pin stripped shirt wearing lad who’s outfit screams ‘I need attention’…..well, he got it. Combined BAC of the two; a point higher than my college cumulative GPA (I wasn’t that bad of a student).

6:40pm – At this point I’m on the downhill side of a 6 pack that seems to magically keep refilling the glass in front of me…the financier of this hoax is a well jeweled hoity-toity women 15 years my senior sitting to my immediate right. While I’ve acknowledged her generosity I’m hesitant to make more than a simple cheers motion in her direction for fear of attack. She’d be a VERY attractive women if it weren’t for her lop sided augmentation that seems to be straining the yellow cashmere she wears. On second thought, as the waves intensify, having a friend on board with built in floatation devices might not be the worst idea. Perhaps I should introduce myself….

7:00pm – I’ve made my way to ‘sunshines’ table to properly thank her and her friends for the cocktails. I learn that the group is on the first half of a journey from their home in St. Petersburg to Helsinki. It’s a girl’s only affair to celebrate their friend’s recent divorce. Congratulations I guess….

7:05pm – Time for another round. Cuba libres pass around the table like down cards in a hold em game. These ladies mean business. With the latest round of libations it’s time to snap a few pictures. 5 Russian women and one American lad can be arranged into 198 different combinations for the purpose of Polaroid. I think we took at least 200 pictures just in case we missed something during the arithmetic. I feel so used….

7:15pm – A group of grandma’s make their way through the lounge from the disco. Each one has a cocktail (vodka tonic) and in each glass is a blinking light up ice cube. In tow each has a metal dollie loaded with 8-10 cases of duty free ‘kossu’ (vodka). Each case has 10 bottles, each bottle is a liter. What’s amazing here is not the shear quantity of white lightning these broads bought; it’s the stamina that is required to move such cargo. Even with the mechanical advantages afforded by the dollies each one of them must have been schlepping 1.5X their respective weight. Borat is always looking for a woman that’s ‘good with the plow’……. maybe he should book a ticket on Eckeroline.

7:20pm – Elvis’ “blue suede shoes” blasts from the stage. It’s time to hit the dance floor. A little twisting and some shouting and the resting heart rate jumps to 120bpm. Luckily I can no longer feel the pain from the infection in my feet.

7:35pm – People begin dropping like flies. For many of the passengers they are on a day trip that began at 8:00am and has been going strong ever since. I observe Kari being escorted to his room by his wife. She looks ‘happy’ with his choices. I guess that’s one facial expression that knows no language barriers.

7:45pm – A gentleman in a flannel cut off advances on the lone table of unclaimed cougars left in the lounge. His lead in is an exaggerated air guitar solo of the Pearl Jam song Steve is strumming from the stage. I think he would have had resounding success if it wasn’t for the horrendous breath (a result of a dozen empty long drinks and a mountain of shelled peanuts that laid on his table) and the fact his fly was unzipped….Shoot, I hate that when that happens….his pursuit quickly retreats (insert war analogy for Finnish appeal).

8:05pm – A ‘Talking Heads’ cover launches the patrons into action. It’s twisting and shaking abound as this cruise ship is headed into port. The long narrow seaway into Helsinki is now being navigated by our captain, who god willing, is more sober than his passengers in the hull.

8:10pm – Did I mention that Steve has a handmade (homemade) guitar strap that spells out S-T-E-V-E in giant red puffy paint letters?....yeah, he does.

8:15pm – It’s time for Steve to regain control of this riot. “Imagine” by the Beatles ought to do the trick…ah yes, serenity. Welcome to Helsinki, we’ve arrived.

Beetle Kill Fun Facts

Today's spotlight on CSU luncheon focused on the much heated topic of the Rocky Mountain Pine Beetle. These little devils are causing quite a mess in our lodge pole pine population. Here are some not so fun facts related to the epidemic.....

- There are currently 1.5mm acres of infested trees in Colorado. This pales in comparison to the 30mm acres of infected and dead trees in British Columbia.

- 2007 there were roughly 5.2mm trees killed by the disease.

- The cost to clean up the remains (dead trees) is $500-$1000/acre. That's a $750,000,000 opportunity (using the $500/acre number) for Colorado forestry business.

- Preventative measures can be sought after and applied for $10-$15/tree.

-The dead tree timber, despite its blue color tone from the residual beetle fungus, has no structural change and is perfectly suitable for use if culled within 2 years of death.

Send Jim Alderden Out To Pasture

For a long time our counties sheriff, gun slinger Jim Alderden, has been able to convince our citizens that his rough rider BB gun policies are not only effective in the management of the wild west but are conducive to the propagation of a progressive society we hope to build along the front range. So convincing in fact that in November of 2005 'we' actually voted in an amendment that allowed this asshole a run at a third term (with that same amendment we got to keep Rennels on board for another term which is the ONLY positive out of that decision....see, I'm not so partisan after all am I).

Let's reflect on Jimmy's latest crowning achievement.....bicycle law enforcement. Apparently riding two abreast is not only a social no-no on the ole 10 speed, but now is punishable by fine, imprisonment, or decapitation. I thought in our evolution we would have delegated enforcement of this type of criminal mischief to the likes of junior high hall monitors and for hire PI's with bad tans and uncomfortably short shorts. It turns out that it actually falls under the umbrella of our sheriff's office (and is subsequently funded by our tax dollars).

When Jim was running for his latest appointment his platform was 'expansion of the jail and alternative sentencing program'. I wondered at the time where they would find more inmates to fill these requested beds. I guess I know now.

Citizens of Larimer County (and visitors from abroad) you've been warned! Our gun-slinging, straight shooting, sheriff is ready and armed to enforce bicycle laws on our open roads. If you're even thinking of wearing spandex, helmets, and neon clothing and hitting the open roads of Larimer county it's our sheriff's (and his Barney's) advice to not let sundown catch you in this town. Think I'm joking....Bull's Eye.

What's the nexus here....well, I'll put this into a context Jim can understand. When horses get old and decrepit, unable to do work and out of touch with the times, they're sent out to pasture to live out their dying days. Eventually they pass and they either get hauled to the edge of the property with a front end loader or shipped off to the 'factory' and turned into dog food and glue. Get the jist.....