Good sailing

The current bull market is rising all boats and specially mine. I lost money in my investment in BIG (20%) and Babylon (30%) but made up in others. All in all, all right. Now I am looking for something more risky like a leveraged shorting of oil, but there is no such instrument in Israel.

Fear makes the market undervalue multinational dividend paying stocks

I suspect that the share price of many multinational's profitable dividend paying corporations is deeply undervalued, which is due to a wrong estimate of their riskiness. People who emphasizes the riskiness of thing are dominated by fear of the future, of the unknown, of the intrinsic dangerousness of living. They are mostly wrong. If a "riskless" bond such as US Federal Bank bond pays 4.5% and a “risky” stock like Coca Cola pays 10%, the fear premium we pay for the bond is 5.5% per year. Fear, an emotion, causes us to give up half of potential income, we are living a half life for lack of daring, for miscalculating the risk inherent in life.

In fact, bonds are linked to the relative value of the currency, which in case of the American dollar, is being devalued about 2 – 3 % per year. In case of bonds, the Bank holds it without payment, while my bank takes 0.5% for keeping. All in all, bonds pay about 1 – 2%. The stock fluctuates with the currency, and pays 10% which is normally unlinked to the currency basis. Therefore, it can be assumed that good dividend paying stock is deeply undervalued and sooner or later it will double its worth.

I think one of the conclusions of Kahanmann was that people tends to judge differently the risk of losing something they already have, and the risk of earning something they never had. The gene for adventure should balance the ecuation, and I have it.

I took the pic yesterday. It shows an Arab plumbing contractor following my design on the site. Most of the Secret Engineer's time is spent in hard productive work. Productive only in the Marxist sense, because money, income, it produces mightly little.

My infancy among the Alans

My homeland in the Galuth is Jaszbereny, the capital of the Jaszsag. Jaszsag is the land of the Jasz people, in the Tisza river flood plain in Southern Hungary. One of the lies of the Communist dictatorship in Hungary was the inexistence of national minorities in Hungary. Of course I knew that I was Jewish, but I never actually realized what that was except that we had been designated for extermination by the Nazis. Of course I was aware that Schwab people were living in Hungary and they have been resettled in faraway rural areas. Of course I have met cigany people, even if officially they didnt exist. I had never heard of the Csango, old ethnic Magyar enclaves in Moldavia. Now, sixty years after the war, ethnic groups are flourishing in Hungary and I realize I was born in a non-ethnic Magyar area, among friendly Hungarian Ossetians. Stalin was an ethnic Ossetian and Lenin's expert in nationalities. There had never been antisemitism among the Jasz people, as far as I know.

At the time of the Mongol-Tatar invasion the Kipchaks (in Hungarian - the Kuns), headed by Khan Kotian were fighting Mongol forces, being assisted, apparently, by their long-time allies - the Alans. The Kipchak were defeated and they fled to Hungary. They were joined by several thousand Alans. They were welcomed by the Hungarian sovereign Bela IV. All this took place circa 1237. Excavations of Alanic burial grounds, carried out on Jaszsag have shown, that the Hungarian Jaszy were North Caucasian Alans. Hungarian Alans spoke Ossetic -Alanian up until the time of the Turkish occupation of Hungary, lasting from the 13-th till the 15-th century. The preserved linguistic materials appertaining to the Jaszy are freely understood by the modern speakers of Ossetic. At the present time the number of the Alans' descendants in the Hungarian Province of Jaszsag is estimated at over 105 000 people. They are still based largely in Jaszsag, and live primarily in the city of Jaszbereny, and also in a score of major villages and a number of other small settlements in the province. In spite of their having lost the Ossetic language, the Hungarian Alans have preserved their national consciousness and show great interest for life of their kinsmen in the Caucasus. There exists a Jaszy Museum in Jaszbereny.

The boy in photo is me in Jaszbereny. The building is the Jaszbereny Municipal Library which I suspect is the former Synagogue of my parents and ancestors. When visiting the town, apparently no one had ever heard of a synagogue till someone told me that it is the central library or the former central library. All Jewish presence in Jaszbereny has been erased in one generation, as if the Bible had it right from the very beginning.

My first arbitrage operation

I used to spend my summer vacations during the university working as beach lifeguard. Pay was good and loved beach life. After spending summers in Monte Hermoso beach near Bahia Blanca, and some time in Mar del Plata, I decided to spend my last summer as student in the elite sea resort of those times, Punta del Este in Uruguay. Water in the Atlantic was cold, colder in Punta del Este than in Bahia Blanca, and Playa Brava was dangerous. No one ever drawned in my watch in my strech of beach. In Argentina the exchange rate was artificially high (I think it was before the infamous Krieger Vasena period, when the Argentinian peso was suddenly devalued to half of its former rate. Later it was discovered that Krieger Vasena, the Minister of Economy, had bought Argentinian industrial companies and agricultural land with little down payment, then after the devaluation, he paid it off with worthless pesos) while Uruguay had free foreign exchange market. I bought dollars with the official rate for foreign travel, took the night transbordador to Colonia in Uruguay, from there the bus to Montevideo and sold my dollars for Argentinian pesos. I made some profit after expenses. After spending the day sightseeing in Montevideo, visiting my friend Ivan Ascher, I returned with the night boat to Buenos Aires. And so again. To add pleasure to business, I developed a relationship with a small town girl from Uruguay, an uneducated girl with blond hair and blue eyes. Uruguay was then a very rich pastoral country and maintained a tremendous social security framework, allowing people to retire with State pensions after few years of work. Later I got a job in Playa Brava, in Punta del Este, and was tempted to became a gigolo, fed with sandwiches by bored wives of Argentinian doctors and businessmen. Men worked during the week days in Buenos Aires while the wives and children spent the whole summer in Punta del Este. I was 20 years old, king of the beach and terribly despective towards those "old" ladies of about thirty something. The pic shows the Isla de los Lobos, a small island 2 or 3 km in front of Playa Brava. Once we swam toward the island with a boat escorting us but the water was very cold and didnt make it.

Microcap Trading

My conviction that profits await me in the microcap trading is getting reinforcement. As computer programs take over the stock exchange trading and fund management, unexploited opportunities can be found only in the corners not swept by the machines, that is, microcap shares. Synthetic funds trade in only the most liquid markets, thus they avoid other costs associated with alternative investments, including greater due diligence, transparency and "style drift", which refers to a manager's tendency to move away from his original stated investment strategy. Illiquid markets, where the trader's skill reigns supreme and the machines are powerless, is a difficult place, but where profits hide.

Gary says: Short oil!

Gary from the Between the Hedges Blog has an impressive analysis of the current situation. On oil he says:

I continue to believe oil made a major top last year during the period of historic euphoria surrounding the commodity with prices above $70/bbl. and calls for $100/bbl. oil commonplace. Falling demand growth for oil in emerging market economies, an explosion in alternatives, rising spare production capacity, increasing global refining capacity, the complete debunking of the hugely flawed "peak oil" theory, a firmer U.S. dollar, less demand for gas guzzling vehicles, accelerating non-OPEC production, a reversal of the "contango" in the futures market, a smaller risk premium and essentially full global storage should provide the catalysts for oil to fall to $35 per barrel to $40 per barrel this year. I fully expect oil to test $20 per barrel to $25 per barrel within the next three years.

It means that if I buy Kesem Neft Put I may make a nice profit. It is tempting. But what if there is war in Iran? That man Ahmednijan is suicidal and unpredictable. These days oil is going up.

Exploiting the Lumpen is Good Business

Bloomberg brings an article about the other side of the subprime mortgage crisis in America. The crisis that was about to cause a worldwide recession is fizzling out. Now I am starting to realize what the whole thing was about: it is about the eternal business of selling on credit to poor people, a business segment typically dominated in Argentina by Jewish and Turco small businessmen. Poor people knows that they are buying things at higher price than middle class people, and that they are paying usurious rates of interest, but they have no choice. The business derived from this segment is the second hand furniture and automobile business, and the reselling of repossessed houses. Here the resale of repossessed houses was becoming problematic, because of an expected slowing down of the market. In case of the cuentenik the bad loans were calculated in, and no cuentenik ever went bankrupt. It was a difficult business, not for gentlemen. It appears that some smart American financiers are realizing that exploiting poor people is, after all, one the best businesses around, and it will be around for ever, so instead of liquidating the business, they are buying in. Tomorrow someone will say that the panic was artificial and caused with the purpose of buying in cheaply into the business.

Subprime lending is neither an all-out blessing nor an unalloyed curse. While too much of it can cause a raft of troubles, that doesn't mean none of it should be done. The pertinent questions are how best to go about it, and wherein lies the optimum price (interest rate). Lots of smart people are wrestling with those subjects right now. While some bail out of the subprime market, others are buying in -- for example, the hedge fund Farallon Capital Management LLC in San Francisco, which has just advanced the subprime mortgage company Accredited Home Lenders Holding Co. a $200 million loan, and another hedge fund, Citadel Investment Group LLC, which bought 4.5 percent of Accredited.

Indecent Profit with Spacecom

Space-Communication Ltd (Spacecom), the AMOS satellites operator, is a public company traded at the Tel Aviv Stock Exchange (TASE), equally controlled by IAI (Israel Aircraft Industries), Eurocom, GSSC and H. Mer group. Acting on a tip on an internet board, yesterday I bought Warrant 9 and today it jumped 10%. After the event I looked up the company.

The success of the company in marketing the services of the AMOS-1 satellite, at its two main coverage areas in Europe and the Middle East, quickly made available capacity on the satellite scarce, and became the main drive to initiate the AMOS-2 satellite program. AMOS-2, based on Spacecom’s specifications and built by IAI, was launched on December 27th 2003, from the Baikonur Cosmodrome, on board of a Soyuz rocket. The company has completed its initial public offering in the first quarter of 2005, and announced the initiation of its AMOS-3 program, targeting the launch of its third communication satellite by the end of 2007. With the 2 co-located satellites at 4°W, and the AMOS-2 additional coverage of the US east coast, the Amos-system provides powerful beams, wide coverage areas, and high quality service to its customers. At launch, more than 70% of AMOS-2 capacity has already been sold to existing and new customers. AMOS-System is the choice of Israel’s DBS TV platform YES, as well as a selected solution for major broadcasters in Europe for providing their regional programming. These include, among others, HBO for all of it’s European cable services and Nickelodeon of Viacom. AMOS System creates a "Hot Spot" at its location, and a rich neighborhood for thousands of cable head-ends and millions of DTH viewers.

I shall sell the warrant but follow the share.

Flynn Effect Reversing

An important study in Denmark shows IQ measurements of young recruits decreasing by 3 points in a decade. No one knows why in the past it was increasing and no one knows why the trend is reversing in Scandinavia (presumable it will extend to the rest of the world).

Something bad is happening.

The speed of recall, the ability to organize a method to find a solution to the question/problem, and the ability to perform basic language and math skills quickly are what is measured. IQs measured above 160 are not rare, but fall at a couple of Standard Deviations off of the established norm on the Bell Curve. Folks who possess such IQs are often unstable as they are not able to get the information in their heads to work for them in social and vocational situations. Hence "Geeks" and the tendency for Bi-Polar types and many folks diagnosed with other mood and cognitive disorders to possess higher than average IQs. Pic=Flynn.

Chlorine Gas Bomb

Chlorine comes in strong steel containers, and it is difficult to make it explode. The valve will be first destroyed and the liquid will vaporize and the gas flow out dispersing in the wind. A violent explosion is the worst way of using liquid chlorine as a weapon, I wonder why the Iraqis are doing it. Maybe they love the noise and the fire effect.

Three chlorine gas attacks in Iraq are reported to have killed eight people and left hundreds injured, including six US troops. There were at least three such attacks in Iraq in February. The BBC's Hugh Sykes, in Baghdad, describes the use of the gas as an unsettling and possibly ominous development that could greatly increase fear and anxiety. 'Vomiting' The heaviest casualties were in a suicide attack on Friday evening at the entrance to a housing estate south of Falluja in which six people were reported to have been killed. The injured included at least 27 children. Officials say that in both attacks the assailants drove dumper trucks containing the bombs at their targets. One of the trucks is reported to have contained a 200 gallon (900 litre) tank of chlorine and explosives. The third attack was at a checkpoint near Ramadi."Approximately 350 Iraqi civilians and six coalition force members were treated for chlorine gas exposure," Lt Roger Hollenbeck of the US-led forces based near Ramadi said, AFP news agency reported. He said that victims were treated locally "for symptoms ranging from minor skin and lung irritation to vomiting".

Our correspondent says that chlorine is easy to obtain as it is widely used as a cleaner and a water purifier. After an explosion outside a restaurant near Baghdad last month, as well as the six people killed, dozens of others were left coughing and choking and needing medical treatment. In February the United States military reported finding a bomb factory near Falluja, where chlorine car bombs were being constructed.

It seems that the chlorine is added to increase anxiety and panic. Minor skin and lung irritation means that it is used as a psychological weapon. The pic from WWI shows a real gas attack.

Dont Save Water !

The mania of saving water has gone out of control in Israel. Every niagara tank has a half-full handle, which lets out only half to a quarter of the water to wash down the piss or excrement. But the water siphon has a large difference in levels and such a weak stream is unable to carry the material, which lingers and accummulates in the siphon and the pipes. The WC was designed for a certain flow, and if we use less than that, it does not work properly. The saving is about 10 liter of water, costing (at Water Company prices) 0.06 shekel. The production cost of water is about 0.02 shekel at water desalination factory. Water, today, can be manufactured from sea water , which is an infinite resource. If the Water Commission is unable to authorize the establishment of those factories to produce enough water, they have to go home and let other more capable to do their job. If the problem is electricity, the Electric Corporation should increase its generation capacity, say solar or wind or atomic generation.

The saving mania has gone to such extremes in Israel that in the bijouterie precious metal coating workshop design I was asked by the Ministry to calculate the water evaporating from the tanks (its surface is about 1 sqare meter) and avoid its loss. I would have to invest about 50,000 dollars to save and recicle about 1 cubic meter per year. Production cost of 1 cu m water = 0.55 dollar. It is crazy, it is demential, it is irrational. But say something against water saving, and you are an anti-green anti-Earth ecocriminal. They are so fanatic about greenness that they are actively searching for ecocriminals, so no one dares to object to the green religion. I should be the last to talk, since my living is conditional of the official approval of my designs, but I have a lifelong record of self-defeating behaviour.

The Coming World Crash or the Coming Dollar Inflation

Dennis Mangan, a blogger I admire (except for his obsession with Mexican immigrants to California) points to a telephone interview given by Jim Rogers, George Soros's partner in the famous Quantum hedge fund. His arguments are very serious and have convinced me. Yet only three days ago I agreed with Brad De Long that stocks should be priced much higher. It is so confusing. Rogers says:

"You can't believe how bad it's going to get before it gets any better. It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops. It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia. "Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said. "When markets turn from bubble to reality, a lot of people get burned."

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess. Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets. When the last bubble burst in Japan stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus. This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

On the other hand, Japan's long recession as well as the Crash of 1927 were caused by restrictive monetary policies, which is a lesson that have been learned, I hope. So the current insolvency and illiquidity can be solved by inflation, and in fact the American dollar is depreciating quite fast (4 - 6% a year, I presume). Maybe Bernanke can avoid a crash by printing dollar papers. If so, the stock exchange would yet be the best refuge of value.

Gary (Hedge Fund Blog) writes:
-Former Fed Chairman Greenspan said he expects the fallout from subprime mortgage defaults to spread if home prices decline, however he sees no signs of that at this time. He also said that a 10% gain in home prices would cure the entire subprime problem. Finally, he said he sees no negative effects on consumer spending from subprime problems.
- Bear Stearns(BSC), the biggest US underwriter of mortgage bonds, said first-quarter profit rose 8% as higher revenue from trading derivatives and debt of troubled companies overcame a slowing market for home loans.
- General Electric’s(GE) commercial-finance division agreed to buy PHH Corp.(PHH) for $1.8 billion and then sell the company’s mortgage unit to Blackstone Group LP.
- Stocks will weather a surge in US subprime loan defaults because earnings growth and a robust labor market are enough to sustain the world’s largest economy, according to Credit Suisse Group.
Gary's conclusion:

Currently, subprime mortgages are investors' chief concern. Now look at the chart of the word "subprime." Maybe this time will be different, but if the word "subpime" were a stock, I would begin shorting it very soon. The CBOE total put/call is currently 1.75. It hit 1.88 earlier today, which is a very elevated level. To put that in perspective, it only exceeded this level once during the entire 2000-2003 market meltdown, which was one of the worst in U.S. history. I sense, once again, that investors have priced in the worst-case scenario rather than the most likely scenerio for U.S. stocks. This has been a hallmark characteristic of the current “negativity bubble.” I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less concern over the I-Banking sector and short-covering

. He is right, too. With an inflating dollar, low unemployment and good salaries, American underclass may manage to pay back their mortgages. It is very confusing.

Where is a guru when I need it? The pic shows Taub Mozes, the Kallai csodarabbi unokaja, the Kalla (Hungary) miracle rebbe.

Tower Semiconductors: I am Getting Out

Tower quietly sold $29m short-term warrants, which, if exercised, will raise an additional $32 million.

Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) has raised $29 million gross in a private placement of 18.8 million ordinary shares and 9.4 million warrants. The warrants are exercisable for a period of five years at an exercise price of 20% premium to yesterday's closing price of $1.70. Tower also issued to the institutional investors short-term warrants to purchase ordinary shares at an exercise price per share equal to yesterday's closing price, which if fully exercised will result in additional gross proceeds of $32 million

This further dilution, and I dont like it. I am selling my holdings at a small profit.

Business Opportunities in Kurdistan

A U.S. defense official on Thursday encouraged Israelis to pump investments into the devastated Iraqi economy. Paul Brinkley, U.S. deputy undersecretary of defense for business transformation, told a business conference here that Israelis and any other investors were welcome in a country crying out for investment. "Israeli business people, any business people, we would encourage them to come," said Brinkley, speaking on the sidelines of a conference aimed at spurring investment into Iraq's northern Kurdish-ruled region. Brinkley leads the task force charged with reinvigorating Iraqi industry. The current plan calls for upgrading Iraqi manufacturing and agribusiness enterprises to meet demands of the domestic market.

Are there nationalized factories in Kurdistan that could be bought cheap for turning around? Finance should not be a problem, Kurdistan has oil. The situation seems to be like this:

The service and "rebuilding" contractors are frequently called "reconstruction rackets" not only because they obtain generous and often no-bid contracts from their policy-making accomplices, but also because they habitually shirk on their contracts and skimp on what they promise to do. For example, an investigative on-the-ground report from Iraq, sponsored by the Institute for Southern Studies and titled "New Investigation Reveals Reconstruction Racket," showed that despite "billions of dollars spent, key pieces of Iraq's infrastructure—power plants, telephone exchanges, and sewage and sanitation systems—have either not been repaired, or have been fixed so poorly that they don't function." The report, carried out by Pratap Chatterjee and Herbert Docena and published in the Institutes’ Publication Southern Exposure, further revealed that the giant Pentagon contractor Bechtel "has been given tens of millions to repair Iraq's schools. Yet many haven't been touched, and several schools that Bechtel claims to have repaired are in shambles. One 'repaired' school was overflowing with unflushed sewage." The report also showed that out of a $2.2 billion "reconstruction" contract with Halliburton, the company spent only 10 percent on "community needs—the rest being spent on servicing U.S. troops and rebuilding oil pipelines. Halliburton has also spent over $40 million in the unsuccessful search for weapons of mass destruction."The spoils of war and devastation in Iraq have been so attractive that an an extremely large number of war profiteers have set up shop in that country in order to participate in the booty: "There are about 100,000 government contractors operating in Iraq, not counting subcontractors, a total that is approaching the size of the U.S. military force there, according to the military's first census of the growing population of civilians operating in the battlefield," reported The Washington Post in its 5 December 2006 issue.

The report, prepared by Renae Merle, further points out, "In addition to about 140,000 U.S. troops, Iraq is now filled with a hodgepodge of contractors. DynCorp International has about 1,500 employees in Iraq, including about 700 helping train the police force. Blackwater USA has more than 1,000 employees in the country, most of them providing private security. . . . MPRI, a unit of L-3 Communications, has about 500 employees working on 12 contracts, including providing mentors to the Iraqi Defense Ministry for strategic planning, budgeting and establishing its public affairs office. Titan, another L-3 division, has 6,500 linguists in the country."

Neil Livingstone, a former Senate aide who has served as a Pentagon and State Department advisor and issued repeated public calls for Hussein's overthrow. He heads a Washington-based firm, GlobalOptions, Inc. that provides contacts and consulting services to companies doing business in Iraq. Joe M. Allbaugh, who managed President Bush's 2000 campaign for the White House and later headed the Federal Emergency Management Agency, and Edward Rogers Jr., an aide to the first President Bush, recently helped set up New Bridge Strategies and Diligence, LLC to promote business in postwar Iraq.

And something interesting: "On August 5, 2004, the White House created the Office of the Coordinator for Reconstruction and Stabilization, headed by former US Ambassador to Ukraine Carlos Pascual. Its mandate is to draw up elaborate ‘post-conflict’ plans for up to twenty-five countries that are not, as of yet, in conflict. According to Pascual, it will also be able to coordinate three full-scale reconstruction operations in different countries ‘at the same time,’ each lasting ‘five to seven years.’" Here we get a glimpse of the real reasons or forces behind the Bush administration’s preemptive wars. "A government devoted to perpetual pre-emptive deconstruction now has a standing office of perpetual pre-emptive reconstruction. Contractors drew "reconstruction" plans in close collaboration with various government agencies and how, at times, contracts were actually pre-approved and paper work completed long before an actual military strike: "In close cooperation with the National Intelligence Council, Pascual's office keeps ‘high risk’ countries on a ‘watch list’ and assembles rapid-response teams ready to engage in prewar planning and to ‘mobilize and deploy quickly’ after a conflict has gone down. The teams are made up of private companies, nongovernmental organizations and members of think tanks—some, Pascual told an audience at the Center for Strategic and International Studies in October, will have ‘pre-completed’ contracts to rebuild countries that are not yet broken. Doing this paperwork in advance could ‘cut off three to six months in your response time.’"

Memories from Apartado, Uraba, Colombia

In 2004 I made a consulting mission in Uraba, a banana producing area near the Colombia-Venezuela frontier. It rained every day a fine fog. I visited the banana port on the Caribbean and travelled with the balsa to the banana ships stationed in the gulf. Enjoyed the aguardiente and the Ballenato dirty dancing. A war was going on in the area, but I ignored it. I saw that American companies were leaving the area and transferring their operations to local companies, but only now I understand the background: Chiquita was paying God and the Devil to get by and knew that eventually they will have suffer for those illegal payments back home.

Chiquita to Pay $25M in Terror Case - Federal Prosecutors Say Chiquita Officers Did Business With Terrorist Organization - Banana company Chiquita Brands International has agreed to a $25 million fine after admitting it paid terrorists for protection in a volatile farming region of Colombia. The settlement resolves a lengthy Justice Department investigation into the company's financial dealings with right-wing paramilitaries and leftist rebels the U.S. government deems terrorist groups.

In court documents filed Wednesday, federal prosecutors said the Cincinnati-based company and several unnamed high-ranking corporate officers paid about $1.7 million between 1997 and 2004 to the United Self-Defense Forces of Colombia, known as AUC for its Spanish initials. The AUC has been responsible for some of the worst massacres in Colombia's civil conflict and for a sizable percentage of the country's cocaine exports. The U.S. government designated the right-wing militia a terrorist organization in September 2001. Prosecutors said the company made the payments in exchange for protection for its workers. In addition to paying the AUC, prosecutors said, Chiquita made payments to the National Liberation Army, or ELN, and the leftist Revolutionary Armed Forces of Colombia, or FARC, as control of the company's banana-growing area shifted. Leftist rebels and far-right paramilitaries have fought viciously over Colombia's banana-growing region, though the victims are most often noncombatants. Most companies in the area have extensive security operations to protect employees. "The information filed today is part of a plea agreement, which we view as a reasoned solution to the dilemma the company faced several years ago," Chiquita's chief executive, Fernando Aguirre, said in a statement. "The payments made by the company were always motivated by our good faith concern for the safety of our employees."

Chiquita sold its Colombian banana operations in June 2004. The end result is very bad for America: they lost a well established, profitable, important industry, developed a hundred years ago by Mr Meggs, the founder of United Fruit, and by Sam the Banana Man, Samuel Zemurray, our man in the banana business.

Wrong Business Model

The business model I am following is not good. Yesterday one client approved the design and paid me half of the miserly fee we agreed. He said that he had had a problem with the moded who received full fee and didnt give any service, didnt answer phone, etc. So now I have to wait, maybe till he build the house in two years. This is a problem, I am too soft. But on the other hand, I understand their problem and they mean to pay me. Taly works as I do, and has the same problems. Working for public enterprises may be better, not for small businesses nor small self home builders. This client was brought in by another from the same development, and the first one also refused to pay the fee we agreed, and conditioned the payment of the rest on his completing the construction. I should have foreseen the problem coming and refuse to do any work before payment.

Post Scriptum: I designed a system for a two-family house and one of the owners is a religious yemeni woman. She is an interior designer working on autocad and has quite a knowledge of the building trade. She told me that an architect receives 5000 dollars for a private house design, the constructor engineer about 1500 $ and the water engineer 250 - 350 $. The design of a simple house is about two days work, and the payment is very low. Taly has much architectural business, she designs houses in series for developers. In small projects the competition is intense since there are many Russian immigrant engineers employed in public and municipal service and private engineering offices, and moonlighting at home at night, exactly as Vladimir and myself were doing a year ago. The way to occupy more profitable niches is:

(1) by working for large companies, which can deduct the expense from taxes,
(2) by distinguishing oneself from the crowd by specializing in something, like feng-shui or green design.
(3) The industrial environmental area is more complex but profitable too.
(4) Working for foreign developers. Wladi and many other immigrant engineers are working for Russia, Ukrayna and Europe.
(5) Taking large projects, which the moonlighters are unable to do.
(6) Becoming outsource engineers for large public entities, such as the University or the Ministry of Infrastructure, where the payment is from the public budget and the paymasters are less interested in screwing the private consulting and design engineer.

Since I have vast experience and am good, my field should be (I dont know). My business plan was to develope towards a water recycling speciality and publish and sell my services in Europe. But I got so much work that I am unable to invest time and effort in developing in that direction. I should limit the quantity of unprofitable standard projects and invest in developing the more profitable segment as I planned originally.

A bad day

Yesterday I went to the Municipality of Tel Aviv to order a new water meter for my client. Mr Leibu started saying NO - the Municipality allows no plots with two different meters. There has to be one main meter (meshulav - costs 9,300 shekel) and from there I can do what I want. The change from a 1" meter as they have now, to a 2" meter costs another 5,500 shekels. Leibu explained me that the individual meters never add up to the main one, so they need a main meter to divide the difference between the different consumers. Tel Aviv neighbors like to cheat each other with the water meter. The whole water main installation with outlets for fire fight and so on would add to about 25,000 shekel at least. I informed the project leader and he accused me of creating this problem - Whose idea was a separate water meter? Why I make expenses? I was unable to work all the afternoon, watched TV and did some reading. I would like to work in a partnership with somebody who could give me some moral support in these cases. Regarding the illustration, no, he is not my team leader. Those phantoms are New Guinea highlanders performing a magic ceremony.

The Strategy is Working

The main problem identified was complacency, taking the easy way out, doing nothing, procrastination. The strategy to work myself up and focus on making money was to load up debt, which will not allow me to sleep and will activate me. Well, wife is already worried that our account is in red, we have an overdraft, and is pressuring me to take a job. We have two daughters in the university, it costs lots of money, and she is not sleeping. She wants to see a regular inflow of money. There is nothing like a worried woman to concentrate one's mind.PD: I put 3 months income on the account, so she will be less anxious.

Second daughter got 642 on the psychometric - it is equivalent to SAT 1284 that is the upper 2% of the population. Now she is going to study architecture in the Technion, in Haifa. The other daughters are no less smart, and the small one is very fast.

Equity premium

Brad De Long is a mine of original thinking.

The real return on the 20-year U.S. Treasury inflation-protected bond is 2.1%, while the current annual earnings yield on the S&P composite stock market index is 5.7%. These numbers suggest an expected equity premium today of 3.6%, lower than the 6% premium equity return of Mehra and Prescott (1985), but far, far higher than the value of 0.25% per year of Mehra's (2003) baseline representative-agent model for a coefficient of relative risk aversion of 2. and an equity premium of 3.6% per year is enough to double your relative wealth over twenty years, and quadruple it over forty. Plus you get substantial immunity from long-run inflation risk as well. The equity premium remains a puzzle. And there is no reason to think that it is a puzzle about to vanish. As Rajnish Mehra (2003) wrote:

The data used to document the equity premium over the past 100 years are as good an economic data set as analysts have, and 100 years is a long series when it comes to economic data. Before the equity premium is dismissed, not only do researchers need to understand the observed phenomena, but they also need a plausible explanation as to why the future is likely to be any different from the past. In the absence of this explanation, and on the basis of what is currently known, I make the following claim: Over the long term, the equity premium is likely to be similar to what it has been in the past and returns to investment in equity will continue to substantially dominate returns to investment in T-bills for investors with a long planning horizon.

Or as Warren Buffett wrote twenty years ago: [T]he secret has been out for fifty years, ever since Ben Graham and Dave Dodd wrote Security Analysis, yet I have seen no trend toward value investing in the 35 years I have practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing.... It's likely to continue that way.... [T]hose who read their Graham and Dodd will continue to prosper

There are those like Victor N. who seem to think that the fact that stocks yield the double of bonds means that that the stock exchange prices may double in the future. But it doesnt seem to be happening, the oscillating nature of the stock exchange puts the fear of God in the hearts of the investing public and that irrational fear causes stocks be sold half its "real" worth. Israeli stocks may be undervalued more than most, because the prevailing opinion is that Israel will not last, it cannot last, and even the steady growth shown by this outfit in the last hundred years will not change that perception. So there must be lots of investment opportunities here and not only in real estate.

Global unwinding

Brad De Long writes on the subject:

The principal fear, at least in the circles in which I move, is of a sudden unwinding of "global imbalances": a rapid and destabilizing end to America's very large trade deficit and to Asia's very large trade surplus.

In such a global financial crisis, if the Federal Reserve accommodates inflation and accelerates devaluation in order to prevent collapsing employment in formerly foreign capital-financed sectors from spiraling into a depression, American debt will be among the worst affected assets? But if the Fed refuses to accommodate inflation produced by a dollar collapse and accepts a depression in the belief that the long-run benefits of maintaining its credibility as a guarantor of price stability will come before we are all dead, American equities will suffer. Chinese property values and manufacturing assets would also be vulnerable, as the US abandons its role as importer of last resort and China's coastal-export development strategy turns out to be a dead end.

Don't get me wrong: somewhat more than half my brain agrees with Rubin, Summers, Wolf, and company. The principal risk I see today is that being borne by investors in dollar-denominated debt -- and I don't believe they are charging a fair price for what they are doing. But a quarter of my brain wonders how investors should attempt to insure against the lowest tail of the economic-political distribution, and that quarter of my brain cannot see which way somebody hoping to insure against that risk should jump.

One thing I like about Americans is that they are so open and frank. Jews would never talk freely about their inner fears, diseases are never mentioned by their name, God's name itself can never be pronounced loudly. Of course I am thinking about the same thing mentioned by Brad DE Long and the risks of holding assets in US dollars. But what currency will stand if the dollar falls? What assets?

The Juarish Clan Honor Killings

Lod and Ramle are mixed population cities. The Arabs live in neighborhoods formed by endogamous extended families or clans (hamulot) and are engaged in various marginal or criminal activities, such as drug trade. Yesterday, the ninth girl in a raw was assessinated in the Juarish neighborhood, an infamous Juarish criminal clan colony. Why are these young girls killed by brothers and other close relatives, and why it is accepted by everybody in the community as if a law of nature?

Generally it is thought that these "honor killings" punish women having out-of-marriage affairs, a shame on the husband that only blood can wash off. Nonsense. Most of Juarish victims were unmarried and virgins. What's going on?

Marriage, in these Arab clans, is - among other things - an exchange of scarce resources. A young man, to marry, has to purchase a girl, which normally is unable to do, or alternatively, has to supply his bride's family another virgin from his own family. If the girl refuses to marry the man selected for her, the family is in big trouble. If her elder brother or uncle already have married the other family's girl and is now unable to reciprocate, the other family will feel cheated and a long blood revenge process will unavoidably start between the two families. No family can be percieved as having been cheated off a girl without vengeance. Only killing the uncooperative girl can wash off the offense committed and it has to be done by the girl's male relatives. If the rebellious girl runs away and marries another man, the situation becomes totally unacceptable for both families, and bullets will fly in all directions for years and generations. The Juarish are maintening several blood disputes with other Arab clans and they regularly kill each other in an unending tit-for-tat game.

The tragic situation of this ninth girl was that her elder brother had put his eyes on a suitable girl and made the commitment to marry her. In exchange, his little sister was promised to his bride's family. But the little sister wanted to go to the university, not to marry a lowlife friend of her brother. She did not accept the traditional authority of the older brother and would better die than marry. Her refusal denied the older brother the chance to get the girl he loved, and possibly to marry in general. She even told him that she was expecting him to kill her - it was understood by all that it had to happen. Eventually the elder brother put several bullets in her and went to the police to give himself up. Israeli judges used to be quite lenient in these ethnic crimes.

Are the Juarish unadapted to modern life? I dont know. The fact is that their numbers are increasing very fast and are colonizing whole new neighborhoods that the Government builds for them.

The pic shows Saudi Arabian Beduin women a generation ago. In those freer days, their eyes were uncovered, nowadays it would be considered unmodest and scandalous.

Prosperity in Ariel

Today I had class in the Ariel College of Yehuda and Shomron. It was a nice end of winter sunny day. The second semester is starting and I have thirty new students. All these years, at the entrance to the city there were a few abandoned Arab buildings. Now that we have a hudna - a ceasefire - the owners of the houses have come back and transformed them into businesses. One is a pharmacy, another is a furniture shop and there are two supermarkets. I like to buy in Ahmed's market, which has all kind of Palestinian food products as well as halal imported mutton, all quite cheap. It seems that the business is propering, as Ahmed and his brother had two new cars with green Palestinian numbers in front of the shop. I bought 50 dollar value today, 2 lt of freshly pressed olive oil (half price), a Brasilian corned beef (unavailable in Israel), eggs and Russian sardines. The drugstore is always full, I have never been inside. These businesses have created a small commercial center at the entrance to the settlement. There is also a schwarmah stand, it sells a pita with shwarma and a cola for 14 shekel, exactly the half of its Kever Beniamin's price. And they are making money. Of course they dont have to pay an engineer to design a FOG interceptor to receive a municipal permit.

The Wet Well Problem

I designed a wet well for a sewage pumping station with 3 cu m effective volume, with a depth of 1.5 m. The imbeciles built instead a wet chamber of 6 m long by 1.2 wide and about 2 m high. The inflow pipe is about 70 cm high from the floor. That makes an effective volume of about 5 cu m which is right but I have to set 3 pears (liquid mercury switches) in only 50 cm. I am afraid it will not work. And at all times there will be an unpumped 4 - 5 cm depth sewage volume in the bottom of the chamber. What can I do? The project manager was very tense, and was very happy when I said it is all right, we shall manage. Shall we?

The Cleantech Conundrum

This Cleantech craziness has arrived to Israel with force. People is confused: What is cleantech? The article from Globes reflects the situation, and shows people thinking that cleantech is a new word for energy and water. Water dams? Cleantech? They have no idea.

Not keen on clean - Cleantech has taken off in the US and Europe, while in Israel, the venture capital industry still has its reservations. - Batya Feldman 5 Mar 07 16:49
It would appear that, two years after the US and Europe, cleantech is finally beginning to interest Israel’s larger venture capital funds, Pitango Venture Capital, Gemini Israel Funds, Vertex Venture Capital, and Giza Venture Capital, which are now looking at investment opportunities in the field.
At this stage no one knows whether this could develop into a new sector in Israel’s venture capital industry and whether, as in telecommunications software and medical devices, the funds will be able to nurture start-ups that will grow into another M-Systems or Check Point Software Technologies Ltd. (Nasdaq: CHKP), or at least be acquired for hundreds of millions of dollars.
In the US venture capital industry, cleantech is at an advanced stage, and in 2006 it accounted for 15% of total venture capital investment. In Israel we had to make to with a few investments in companies some of which are considered semi-cleantech.
Gemini Israel Funds managing partner Adi Pundak-Mintz says, “This is a large field and it has been receiving finance from venture capital funds and other sources worldwide. Israel could have important global advantages here. I sense this will happen more in water technologies. At Gemini we have devoted time to studying the field, which is a new one for the venture capital fund industry, and I believe that we will soon become a leading player in it.”
According to Pundak-Mintz, studying the subject made it apparent that a good many of the companies entering the field will discover that the markets are not necessarily located in the US. “They’ll be in other places, both in the third world and in Europe.”
Globes: What have you observed so far?
Pundak-Mintz: “This is a different kind of investment. We have looked at both the duration of the investment and what it means to invest in this field. Many companies are financed by way of investment per-project. It takes a tremendous amount of capital to construct an electricity plant or a water dam. Cleantech is a vast and diverse field and I believe that there will be some investments that will suit other financial entities and not venture capital funds. We want to know what kind of role venture capital funds can undertake. It’s already happening in the US, but how it will unfold in Israel is unclear.”
Not the first to take the plunge
A senior manager at one of the leading funds which is now looking at cleantech investments, says that a number of questions have emerged from their examination. “We have found that cleantech investments have a different character. No one knows how long a lifespan the company will have. If it is developing a membrane for water purification, it could be stuck at the R&D stage for five years. It reminds you a bit of the pharmaceutical industry and the way companies in this field are founded. It will require a different approach to the calculation of funds to be invested in the companies, and the consideration of the fact that companies will need more money far longer. The Israeli venture capital industry has not yet formulated an investment model for this.”
Giza Venture Capital co-founder and managing director Zvi Schechter says that his fund has also been studying the field and looking for investments. He is optimistic about the potential. “I believe that this will develop into a cleantech investment sector but it will take a few years. It’s a most interesting field and I personally invested in it as far back as 1982, in Luz (a solar power company). However, Israel has not given it any support. Basically, it is a technological field with unique characteristics and it has two key sides to it that could be of interest to us - energy and water.
"Past attempts in Israel to operate in the field were unsuccessful. Worldwide, most of the investments have been made in energy. In Israel, more attention has been given to water technologies, which have a historical connection with this country, but it should be remembered that a critical mass of funds will be needed in order for there to be an industry, and I don’t see how that will come about.”
For the present, there are designated funds such as Israel Cleantech Ventures, and the big funds have also been taking an interest. “There are specialist funds that have not yet made any investments,” says Schechter. “At least I personally haven’t seen any. True, there has been interest but the field is only just beginning to develop. Several elements will be needed in order for companies to be set up here. It will take both investors and experienced entrepreneurs and the field doesn’t as yet have these. We are in the business of making money for investors. We can’t be the first ones to take the plunge.”
"High tech people will move to cleantech without understanding it"
According to a senior executive at one of the leading funds, cleantech is a complex field and whether it would be suitable for venture capital investment is unclear.
Why not?
“Take water for example, which everyone says has a traditional connection with Israel. The customers in the industry, those that are supposed to buy the products that the start-ups will develop, are government-institutional entities, that are not under any pressure to generate profit, buy new equipment, or introduce new technologies. Sales to such entities are hard and take a long time. Anyone in Israeli industry circles who thought that it was a tough job to sell software and products to telecommunications operators, has seen nothing. In this instance if anyone can do something its investment companies like Elron Electronic Industries Ltd. (Nasdaq: ELRN; TASE: ELRN), not venture capital funds. No Israeli venture capital fund could do what Elron has done, for example, in funding Zoran Corp. (Nasdaq: ZRAN) for 20 years until it reached maturity.”
Are these the only potential customers?
“There is the industrial market. The good news is that there is a demand for products and technology. The bad news is that the average deal by a small company amounts to a few hundred thousand dollars. We’d need to develop an industry to make it worthwhile.”
What’s happening in the US?
“US and European entities invest in working companies with initial sales. Most of the companies in Israel are incubator companies that have only just begun. It will take them a few years to reach the product development stage and, as usually happens, some of the products will turn out not to work or to be unprofitable.”
Another problem, according to a partner in one fund, is the quality of Israeli entrepreneurs in the field. “Generally speaking, the entrepreneurs in this field do not have a background in business or venture capital. They don’t know the language. Their companies focus on research and less on the economic side. Will venture capital funds be able to finance companies when it is not clear how long they will need until they have a product, or begin recording revenue on the sale of the technology? Probably not. I would rather invest in companies that have more experienced entrepreneurs.
“The entrepreneurs in the field don’t know how to present their ideas to the venture capital industry. They don’t have any people with management experience. This means that a fund investing in a company like this will have to build it from scratch. That is not an easy task. People in Israel are attracted to cleantech because they see money in it. A lot of high-tech refugees will wander into the field without understanding anything about it, but you need to understand cleantech and know what it’s all about. We have looked at a lot of companies and many of those we saw had not reached the product feasibility demonstration stage. We still haven’t found a company that we could invest in”(Ed.: This resumes all.) A manager at another leading fund notes, “Israel is not alone in the cleantech industry and the world is not waiting for us. We don’t have a clear-cut advantage in this field. True, in the past Israel was known for its irrigation products, but not a lot has happened since then. It will take time to create a cleantech industry here. Some things are being done in research institutes, at the Technion Israel Institute of Technology and Ben Gurion University of the Negev, but as far as the setting up of companies goes, the sector hasn’t attracted any quality manpower.”
Challenge Fund - Etgar executive VP Yossi Vinitski also has his doubts. “The trend towards venture capital investment in cleantech is nothing new. It reached Israel a year and a half to two years after it made a strong breakthrough in the US. Specialist funds as well as large funds have been considering whether to allocate resources for it. What has happened in the meantime is that the specialist funds are starting from scratch and they have managed to raise small sums, and that is probably fine. The big funds have been looking at the field, and we haven’t yet seen any inflows for the simple reason that there’s nothing to rush in for.
“The scale of opportunities for venture capital investment in this industry is not the same as it is in the telecommunications, software, medical device or semiconductor sectors. There are not as many companies with which to make a $5 million venture round, as there are in the classic fields. This field does not have any companies with values or products. The number of real opportunities worth $4-6 million is extremely limited. One could invest in small things that are at an early stage, even at the researcher level, and actually there are more of these. Perhaps this would be the best way - invest very small amounts and at the earliest stages, before there’s a company. The way the field in Israel looks at present, if someone were to allocate $100 million for investment, I don’t think he would have anything to invest in.
“I think that we need to look at how strong we are in this field. There’s a tendency in Israel to think that we’re strong in everything. That’s not the case. In water technologies too, we have strengths in extremely specific areas. On the other hand, there are fields in cleantech which we could be good at, and as for the others that we have neglected, we’re already out of the game. The right thing to do is to go about it modestly, map out the field, and see where our strength lies and at which stages.”
They say that it’s not clear which customers cleantech products are designed for, and that venture capital executives don’t have the phone numbers of executives of global companies in the field.
Vinitski: “It’s similar to the HLS trend. The marketing turned out to be different from that in the telecommunications market. Cleantech has certain barriers too. A small company will have to learn how to sell to customers and at present there’s no know-how parallel to the know-how that the funds have in the classic fields, in which we have 15 years experience. Additionally, in the classic market, the global companies are represented here - there are R&D centers. There’s none of this in cleantech. While there is room for some investment and it would be worth doing some screening, it should be kept low-key. We will see where we fit in, and what the advantages are, and we’ll exploit them.”
Will Challenge invest?
“If any opportunities come up, we’ll look at them.”

The article faithfully reflects the situation in the field and my own opinion. There are no products, there are no customers, there are no promising companies. It is strange that no one questions the whole idea of cleantech, who invented this thing?

It is as I thought

A former Asst. Secretary of Ronald Reagan Craig Roberts (definitely not a leftwinger commie-sympathizer anti-imperialist) writes in Steve Sailer's website about American policy things that I long suspected but never saw published:

The American oil giant, UNOCAL, had plans for an oil and gas pipeline through Afghanistan, but the Taliban were not sufficiently cooperative. The US invasion of Afghanistan was used to install Hamid Karzai, who had been on UNOCAL’s payroll, as puppet prime minister. US neoconservative Zalmay Khalilzad, who also had been on UNOCAL’s payroll, was installed as US ambassador to Afghanistan. Two years later Khalilzad was appointed US ambassador to Iraq. American oil companies have been given control over the exploitation of Iraq’s oil resources.

It is the same thing America have been doing all the time in Latin America. Oil has long dominated American government. The Texas oil industry has been complaining that the world oil industry is being dominated by State owned companies and no areas are open to private (American) exploration. A Texas oil government, headed by Bush and Cheney, are only doing their job making available oil rich regions, such as Iraq, to Texas oil companies.

In testimony before Congress on February 1 of this year, former National Security Adviser Zbigniew Brzezinski said that he expected the regime to orchestrate a "head-on conflict with Iran and with much of the world of Islam at large." He said a plausible scenario was "a terrorist act blamed on Iran, culminating in a ‘defensive’ US military action against Iran." He said that the neoconservative propaganda machine was already articulating a "mythical historical narrative" for widening their war against Islam.

Who is pumping Iran's oil? Since Carter sacked the Shah, surely they not the Americans. Well, I hear them saying in Dallas "Its high time to correct that mistake."