Major Expansion under Way

Gary of the Hedges, is an extremely systematic analyst of the US economy and markets, and has collected a number of indices that - to me - suggest that the US is before a major expansion. I may be misinterpreting his data, but that is the impression I get. It is more surprising that everybody is talking about the end of the current cycle and the coming recession and bull market, which they already see here. It is confusing, but instinctively I choose Gary's vision.

US business activity unexpectedly rose in August, suggesting that companies continue to expand amid the sell-off in credit markets. Many companies still have the ability to increase spending without new borrowing, due to the historical string of profit growth increases over the last few years. I continue to believe manufacturing will help boost US growth over the intermediate-term as companies rebuild depleted inventories on rising confidence in the sustainability of the current expansion.

Orders placed with US factories rose more than forecast in July as customers bought more aircraft, machinery and electronics. Orders for durable goods, which make up over half of factory demand, surged a revised 6% in July versus a 1.8% gain the prior month. This gain was paced by a 7% gain in orders for computer and electronic equipment. July orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, gained 1.7% after falling .2% the prior month. Orders for automobiles surged 11%, the most since January 2003. At July’s sales pace, the amount of goods on hand is 1.21 months’ worth versus 1.24 months worth in June. Factory Orders should remain healthy over the intermediate-term. The average price of regular gasoline fell to $2.75/gallon in August versus $2.86/gallon in July. I continue to believe consumer confidence will rebound back to cycle highs over the intermediate-term as housing fears subside, the job market remains healthy, wages continue to substantially outpace inflation, interest rates remain historically low, inflation decelerates further and stocks resume their major uptrend.

Cleantech - A New Israeli Product

Chromagen, an Israeli solar heaters company, started to supply improved solar receivers for an experimental project in Japan and Spain, which will use thermal energy for cooling. The idea is to create air conditioning systems using solar energy, which will replace electrical systems. Shefer says that the project is extremely logical given that the hottest days are those with the brightest sun and result in the greatest demand for air conditioning.

Similar facilities are already in production, and several hundred have been installed in various locations around the world. Their biggest drawback is their high cost, which results in a return on investment in only 10-12 years. The developers believe that the cost of the technology will fall within two years, which will render it much more popular.

Boaz's Muffins Factory

The factory is in the first floor of the old Solel Boneh Industrial Building in Raanana. Boaz has bought the neighbouring shop and I am designing his installations. I am going to put a new sewage pipe attached to the outer wall and install a FOG interceptor in the street. Boaz is a 25 years old boy. He orders around a harem of beautiful young girls making the muffins. His factory is all noise and activity. In general, I am amazed by how hard Israelis work.

Abulafia Bakery

The Abulafia Bakery from Yaffo has split and one branch of this old Arab family is going to open a new bakery in Rishon Le Zion. I designed the water and wastewater systems. They have not paid me yet but they are decent people and I am sure it will be all right.

The Coming Scarcity of People

Demography Matters points out that the more developed parts of Asia - such as Singapore, South Korea and parts of China - are likely to hit the “demographic cliff” quite soon. More than a quarter of the population are expected to be older than 65 by 2015, including China, largely as a result of short sighted family planning policies. China is “ageing faster than any other nation in history”. Asian migration ten years from now will be largely a zero sum game vis-a-vis the rest of the world. This means that if Western Europe cannot continue to rely on workers from Eastern Europe, and if the United States cannot continue to rely on Latina America, and if neither Western Europe, nor Eastern Europe, nor the United States can rely on Asia.. the only source of available humanity will be Africa. Or none.

News from the Neighborhood

Jordanian riot police clashed with more than 200 Bedouin herders blocking the country's main highway between the capital Amman and the port of Aqaba with burning tires in protest over price hikes for animal feed. The price of a ton of barley rised from 90 Jordanian dinars (US$126) to 256 dinars (US$360).

"We cannot live any more, we have become refugees in our own country," shouted a beduin near the barley silos in Juweideh. "The government always gives the refugee camps aid and nobody cares for us Bedouin." Bedouins are estimated at one third of Jordan's population of nearly 6 million people. The rest consist of Palestinians displaced by the Arab-Israeli wars since 1948.

BAZAN to rise today

I expect my BAZAN shares to rise considerably today. Globes:

Minister of National Infrastructures Benjamin Ben-Eliezer made a scathing attack today on the handling of the recent privatization of Israel's oil refineries. "The economy received a stark reminder of what went wrong just a few weeks ago, with the jump in refining prices. These proved the claim that splitting up and privatizing the oil refineries is a mistake that the public at large will pay for," he said. Ben-Eliezer added that his ministry may recommend the introduction of mechanisms to stop the refineries putting up prices even further.

In other words, he thinks that the Refineries were sold too cheap and they will suck money from the public. It is an enigma for me how he can say that when the privatization process was managed by him and his Director General, who now is the Director of Mekorot.

A Wandering Aramean was My Father

This week we read the portion Ki Tavo, that is, When you are in the (promised) land. The Bible asks us to celebrate the harvest, and offer thanks for the abundance. The ceremony prescribes that the first fruits are to be brought to the priests in Jerusalem, who will bless them. Then the celebrant recites the following prayer:

A wandering Aramean was my ancestor; he went down into Egypt and lived there as an alien, few in number, and there he became a great nation, mighty and populous. When the Egyptians treated us harshly and afflicted us, by imposing hard labor on us, we cried to YHVH, the God of our ancestors; YHVH heard our voice and saw our affliction, our toil, and our oppression. YHVH brought us out of Egypt with a mighty hand and an outstretched arm, with a terrifying display of power, and with signs and wonders; and He brought us into this place and gave us this land, Eretz Zavat Halav uD'vash (a land flowing with milk and honey). So now I bring the first of the fruit of the soil that You, YHVH, have given me.

After learning that our per capita GNP is now equivalent to Germany's, a modest Thanksgiving is clearly called for. The pic is the Birkat HaCohanim - the Priests's Blessing Ceremony in the Western Wall.

Farewell to Alms

Razib made a nice interview to Greg Clark, author of Farewell to Alms, the new theory that the Industrial Revolution took place in England because there had been a thousand year of Malthusian selection that transformed the English people into docile, cooperative, hard workers. Not more intelligent, but more suitable for dumbing factory working. Clark studied the mechanisms, and the fine details, of how things actually function. He says that "modern economics is entirely theoretical, and even most empirical work in economics involves just looking at very high level correlations between variables such as income per person and education, or democracy, or the openness of trade." How true.

"Why could Indian textile mills in 1910 not make much profit even though they were in a free trade association with England which had wages five times as high?" He found that the behavior of the workers inside the factories that was the key. Simply, Indians were poor factory worker material. But when in the nineteen thirties textile factories were established in Japan and in China, Manchester simply went bankrupt.

One implication of Clark's model is that human populations that haven't been through the full Neolithic Revolution are going to fail when they try to build a modern market-oriented society. Clark: "The plight of Australian Aboriginals is very sad. The surviving Aboriginal communities have seen tremendous rates of poverty, alcoholism, drug use, violence and sexual assaults."

A difficulty I have with Clark's theory is that the most successful industrial people have rather short agricultural history: the Finns and the Swedes settled rather recently, less than 2,000 years. On the other hand, if a full run of Neolithic agriculture is the condition of the Industrial revolution, I would expect that industry would have started in Greece and Lydia (Anatolia), Syria and the Jordan Valley, where the Neolithic started some 10,000 years ago, and not in England. Also the MesoAmerican and Andean societies produced very docile and hardworking populations. If an island society is a pre-requisite, then Crete and Cyprus or Rhodes will perfectly do.

We are becoming confortable

The IMF published estimates Israel’s PPP-adjusted per capita GDP in 2007, at $ 31,767, which puts Israel at eighteenth place in the list. That comparison of per capita GDP shows that Israel is in a similar position to that of several OECD countries, including France ($ 31,872) and Germany ($ 32,178), and not very different from the OECD average of $ 32,098.

Incredible. The Moshiah must be near. We are at the same economic level of France and Germany.

Low Intensity Terror

Yesterday I supervised the construction of a house in Pedaya, a moshav - village near Gezer. Two of the Gabarit Black HDPE 4" sewage - air pipes that had been installed in the concrete columns had been vandalized by making a fire at its end. Possibly they poured gasoline inside to cause more damage. The very hot air escaping by the thermoplastic pipe totally ruined the pipe. Theoretically, the whole column has to be demolished and built again. That is what the owner demanded. In the end, with Shay the installation contractor, we found some kind of solution. Shay is an authentic folk-jude, red head and dropped eyelids like a Der Sturmer caricature.
He uses a talit ktana over his undershirt, with long tzitziot, all very dirty. He shouts like an angry gross contractor he is, and lifted by hand the owner of the house as to intimidate him. He is very strong. The decision was to force the contractor to demolish all damaged columns, but Shay - with his repartee - succeeded in sidelining the issue and did a big favour to the unfortunate main contractor. The owner had expected that I would be the strong man that would force the contractor to re-do the construction, but unfortunately I am not that kind of person.

The contractor is already losing money on the project (well, they are always claiming that they never make money) because the clunsaot (underground columns) were done in the wrong places, and the constructor engineer did not allow additional perforations, as it would have modified the soil structure. So they poured 60 cubic meters of concrete, forming a large "floating" platform (rapsoda, in Hebrew), on which the house was built. The additional concrete is a large expense.

Who are the prime suspects? Palestinian workers. Was it, may be, a personal vendetta against the contractor? A colleague told me says she is 99% sure that the contractor did not pay the palestinians, that's why they vandalized the project. She has much experience. People usually does not urinate in the beer they also drink.

The Natural Organic Food Supermarket

I spent the morning submitting (second or third time) some drawings to the Ministry of Health, but the inspector(ess) failed to appear so my morning was effectively lost. I commented to Dror (the project manager) that I had come for nothing, and he answered: "Dont worry. The whole life is for nothing" (Kol haHaim Stam, in Hebrew). A non-sequitur, if ever was one. The painting is Munch's Depression.

The Benjamina Project

I am designing a sewage pumping station with its 700 meter long sewage pipe. I spent hours last night calculating on a hand computer the Hazen Williams equation. This morning I found a website where the design could be made interactively. I checked my calculations (they were right) and immediately tried several alternatives. In a few minutes I did more work than TAHAL's best engineers did in a month, that is, a generation ago. I won a bid for a treated wastewater project near Ariel, I am slowly getting to the professional place I wanted. If it is going to be so easy, I may get bored too soon.

The Ariel Property for Rent Project

A long time that I am cultivating the idea of buying an apartment in Ariel and rent it out to students. I just have been there and a real estate agent said: There are no apartments for rent in Ariel. My daughter is paying 200 $ for a room and there are many competitors. Let see numbers:

Cost of the Apartment (3 rooms, university area) = 85,000 $
Cost of Transaction, lawyer, agent (2%) = 4,000
Total cost of the property = 89,000$
If I take a 50,000$ mortgage I have to take out of my pocket only 39,000$
Rent 530 $ p m = 6,320 $ p a brutto = netto aprox 5,000$
Mortgage 50,000 $ X 5% for 10 years = 530 $ p.m. = 530 X 12 = 6360 $
Net Income (-) 1,360 $ per year
Value of out of pocket Investment = 39,000 $ X 5% x 10 years = 63,257$
Value of 10 years maintenance 10 X 1,360 $ = aprox 15,000$

After ten years:
Value of property (+) 100,000 $
Maintenance (-) 15,000$
Initial out of pocket investment (-) 39,000 $
Interest lost on 39,000$ for 10 years 5% compounded = (-) 24,257 $
Profit = Value of property - Total Cost = 100,000 $ - 78,257 $ = (+) 21,743 $
That is, I invested 42,000 $ approx and was left with a property of 100,000 $ after 10 years. That means an expected rate of return (annually compounded interest rate) of 9%

The attractivity of the investment is that my daughter needs a room in Ariel for the next 4 years. In Israel we have no tax credits for mortgage payments. Current interest rate the Bank offered me is Libor + 1.5% = aprox. 7%
Not very attractive.

Fuel Cell Runs on Sugar

Sony Corp. has developed a prototype battery that runs on sugar, breaking down a glucose solution to generate electricity. The method has so far generated 50 milliwatts, enough power to run a Walkman music player. Because sugar is a renewable resource, use of it as a power source should be environmentally friendly, reports said. The battery's casing is made from a vegetable-based plastic, the reports say. Sony said it would produce the batteries for commercial use but didn't say when.

Frivolous Lawsuits

Pharyngula points out that a frivolous law suit was filed - for $15 million dollars- by Stuart Pivar against PZ Myers for negatively reviewing Pivar’s book Lifecode. Prof. Myers thinks the book is unscientific, and writes so in his blog. Now he has to deal with this trouble. As said in Yiddisch, he needs this like a hole in the head.

Blogger Cramer has been following with some puzzlement the strange tale of millionaire businessman and art collector Stuart Pivar's lawsuit against science blogger PZ Myers claiming "Assault, Libel, and Slander" over Myers' negative review of Pivar's foray into evolutionary theory, a book entitled Lifecode:The Theory of Biological Self Organization, the only book published by one "Ryland Press, Inc." I first read about the lawsuit on Making Light, but it has also been written up on Scientific American's blog. It is like a Monty Python skit containing the line, He used sarcasm. He knew all the tricks, dramatic irony, metaphor, bathos, puns, parody, litotes and satire.

Pivar, it seems, is used to being noticed and making waves, though in very different circles than biology or blogging. According to The New York Times (2004) he has a "long-running feud" with the New York Academy of Art which he helped found and where he alledges that "organized crime" has taken over. In 2006, he alleged that Sotheby's showed negligence to its stockholders in relation a refund given a Japanese collector for a statue for which Pivar had obtained a 1 million dollar appraisal. But the most interesting material relates to his friendship with Andy Warhol, which he wrote about for the Sotheby's Andy Warhol Collection 1988 auction catalog.

A rich art collector, an amateur biology aficionado, sueing PZ Myers, a quiet biology teacher in a small university, for 15 million dollars? They have nothing to do in life?

Blood Libels Forever

It was only to be expected, but it surprised me. Googling for typhus in the concentrations camps for the note below, I got lost in hundreds of different revisionist, Nazi, antisemitic websites with the message that concentration camps were unimportant, nonexistent, a Jewish invention. I was fascinated by a very serious analysis of the Wannsee Conference protocol, written by Eichmann, showing that the document was fake and that the conference never took place. I cannot judge it, I don't know if its German syntax sounds in fact like a translation from English, I don't know why Heydrich's name is not on the list of participants, why the bureaucrats mentioned by the protocol never accused of war crimes. The revisionists offer complicated calculations that deduct the loss of births in the Jewish population, the increase of natural deaths and migrations to this side and back again, changes of borders and duplications, and the result is a tremendous confusion. When I tried to follow the argument, I remembered that all the members of my family were deported to Auschwitz, they underwent selection, and most never came back, nor emigrated to anywhere or emerged in some faraway place after many years. My own four grandparents were deported to Auschwitz and did not come back. My parents researched their fate and their deaths were confirmed by those who came back. The black table in the Jaszbereny cemetery names more than 500 names, among them my grandparents and uncles and cousins, who were put on the train and disappeared. Provincial people, no one ever ventured further than 50 km from his village. These are facts, I may not have the knowledge or the capacity to debate the complicated numerical artistry of the revisionists, but then, where are my grandparents? Why there is not one Jew in Jaszbereny, where have they gone? One here, another one in Sweden, we are all lonely remnants with no relatives. I cannot be confused by complicated numbers that Hungarian Jews somehow dissipated, so many went to Budapest, another died of natural diseases, others by disease and so on. All my relatives, all the community, disappeared. They cannot be explained away. Not to me.

The Marcus Klinberg case

Yesterday the TV interviewed Dr Abraham Marcus Klinberg, the vice director of the Ness Ziona Biology Institute, who was convicted of heading a spy ring for the Soviet Union. He is 95 years old and very alert. He explained that all his family was killed in the Warsaw Ghetto and he escaped to the Soviet Union, that was the only country in the world that opened its borders to Jewish refugees. In Russia he was treated very well, given the opportunity to study and to have a professional career. After the war, he returned to Poland to build Socialism, but apparently it didn't work out and he ended in Israel. Here he made a nice career, heading a Department in the University of Tel Aviv and doing research in the secret Ness Ziona institute. He loved much his wife Wanda, a blond and tough Jewish girl who survived passing as Polish in the Arian side of Warsaw. His best friend in Israel was another Polish biologist, they were neighbors, who apparently managed a secret affair with Wanda.

I know very intimately the kind of person and kind of atmosphere the case took place. Tahal in its beginning was the same, a few inflated "scientists" and "professors", idolized by everybody. It cannot be imagined today the position "science" and "scientists" had in East European Jewish minds. They were bona fide scientists, but had the highest social position. Like in the Soviet Union. And they were all communists or pro-soviet. In those times it was awkward for an European Jew to be ideologically anti-soviet, because only the Soviet Union were openly, ideologically fighting antisemitism. The fact is that when asked, Klinberg openly informed them what they were doing and even gave them a culture of something. In the interview, asked why he did it, he said that those were the days of the Cold War, and he wanted the Soviet Union to have the same as the other side had. He said that Israel did never suffered any harm from what he did and I sincerely believe that he would not have harmed Israel. And that did not.

Now all these took place in the late fifties or early sixties. What were they doing in the Institute? According to open scientific publications Klinberg was working on rickettsias, mostly in typhus. In Israel there were thousands of people carrying the virus, because the Nazi camps had had terrible typhus epidemics. Anna Frank and her sister, as well my grandmother Ilona Lowy died of typhus. Epidemic typhus is caused by Rickettsia prowazekii. Humans are the natural reservoir for R. prowazekii, which is prevalent worldwide and transmitted by body lice when louse feces are scratched or rubbed into bite or other wounds (and sometimes the mucous membranes of the eyes or mouth). Louse infestation is usually obvious and strongly suggests typhus in the proper setting. Lice can easily eliminated by dusting infested people with DDT, malathion or lindane. But all these are insecticides that did not exist then. Klinberg's publication deals with recurring typhus, a disease that must have been quite common in Israel and that must have been very worrying for everybody. The secret work probably also dealt with typhus, a disease that in those times and in Israel, must have been - in the minds of these people - extremely important and dangerous. The Institute has many patents and US Patent 5411992 registers the use of terpenoids as lice repellents. Typhus as a biological weapon seems to me a poor choice, as it is transmitted by louse, that requires very poor sanitary conditions to thrive. Typhus, we now know, is a concentration camp or jail disease. I don't think they succeeded in making any effective weapon at all. Klinberg, in the interview, was provoked by the journalist who said: Imagine a person on a boat in the sea facing Tel Aviv, that opens a small box and a fine dust is carried by the wind to the city .... and Klinberg, 95 years old, replied in strongly Yiddish accented Hebrew, which we don't hear anymore in Israel, with theatrical earnestness: "I know the story, everybody will die, no, not only in Tel Aviv, but in all Israel...Don't you see that that is impossible, things do not work like that, that if there was something like that we would be all dead a long time ago...". He has a sense of humor, incredible for his age.

Now say that they did not develop any terrible biological weapon, as I think they did not, why the fantastic secret and trying to silence him? What is his real secret? Recently there was a public outcry because some soldiers who "volunteered" for an anti-anthrax injection before the Saddam Hussein war, now are suffering from side effects such as skin spots and other diseases. The Army explained that Israel was about to be attacked with anthrax (that was the disinformation coming from America) and that the American soldiers have been all injected with the same thing. But the press interviewed some former subjects of the experiment, and they were in terrible health situation, not faking it to extract money from the Army as could be assumed, and told about their "volunteering" and how the experiment was conducted. In a word, I can imagine that the terrible secret Dr. Klinberg is forced to hide is that in that time the Institute made experiment on typhus on human beings, Jews for sure, and that many had died. I can well imagine that that is what happened, because the same thing was being done in the Soviet Union and even in America, when a group of soldiers were subjected to the effects of an atomic bomb, to test how their fighting capacity would be affected. They never were told and many died of radiation-related diseases. But Russia and America are strong countries, Israel cannot afford a scandal of that proportion. Of course I have not even a fact to base this hypothesis, it is all my sick imagination. Let accept the official version, that the Institute developed some terrible biological weapon, that Klinberg delivered to the Soviets, and the revelation of what is that virus or rickettsia or whatever, would cause an irreversible damage to Israel. Truth is that I don't know and don't really care. The generation that created Israel has mostly died out, what they did, they did, and it was all for the good of the people as they understood it. I, for one Jew, forgive him and his collegues. I dont like their arrogance, but it hides insecurity and fear. Let them die in their beds and let them rest in peace and silence. The photo taken after the liberation of the camp by British forces shows a Mass Grave in the Bergen-Belsen camp, filled mainly with inmates who had succumbed to a typhus epidemic shortly before the end of World War II or thereafter.

Post Scriptum: Today's HaAretz brings another interview with a 100 years old scientist, the first director of the Nes Ziona Institute, who actually brought Klinberg into the place. He names names but they are all long dead scientists whose name says nothing to me. He says that the Institute was part of the Ministry of Science. The existence of a Ministry confirms the divine status scientists had in those times in Israel. He says Klinberg was no scientist but and administrative assistant, and the little work he did was in polio vaccine. The Institute's first mission was to develope the vaccine (that was before Salk did it). If so, they were working on polio virus, and the terrible secret of Klinberg may be unrelated to typhus. What can it be? It is known that the first mass polio immunizations in Israel failed, that is, they tried different vaccines and a large area near Hadera got a bad vaccine and many children got the disease. From July 31 to September 28, 1988, 16 persons in Israel (population 4.6 million) were reported with confirmed or suspected paralytic poliomyelitis. Thirteen cases were reported from the District of Hadera (population 180,000), located approximately 30 miles northeast of Tel Aviv. Israel began vaccination against polio with inactivated polio vaccine (IPV) in 1957. In the early 1960s, oral polio vaccine (OPV) replaced IPV nationwide. Hadera had reported the highest incidence of paralytic polio before 1982. The Ministry of Health reported in 1988 that the Hadera area received a Dutch batch and that is the reason for the failure. No one was guilty. In 1988 I was starting in the sewage business and living virus was found in the sewage. Dr Yair Folkman wrote an article saying that polio does not survive in sewage and there is no danger in sewage infected floodings. It may well be that Klinberg's secret is somehow related to this botched mass vaccination. Who knows? I dont know and it has no importance. Let sleeping dogs sleep.

Case Study of Investing in Real Estate

From the 2 million blog, a copy a 2006 note on The Real Return on My Rental Property . This intelligent person bought a property with mortgage and estimates that it made 7% during the first year (he does not take into account the considerable trouble, work and risk he assumed. I'll try to ask him how many hours of personal work went into the property maintenance, and filling paperwork, and how he is doing now after house prices went down and mortgage interest rates, up. Another doubtful issue is that he accepted a job in Shenzhen, China, while the properties are somewhere in the USA). Here it is:

I have been renting my 1st home for just over a year and now have 12 months of data to look at. Lets see how this investment is fairing. I purchased this property for $160,000 in 2002, lived in it for 3 years and began renting in 2005 for $1200/mo.

My first challenge is to establish what the investment amount is so we can calculate a rate of return. The wrinkle is I lived in the house for 3 years before I started renting it out. How should I calculate my investment amount?

I ended up using this formula [purchase price]-[current mortgage balance] = [Current Equity] for the investment plus I added any capital improvements or personal property I purchased for the property. Here is what I used to establish my investment amount:

Rental Investment as of 8/1/2005

Equity @ Conversion
$39,777.00

Closing Costs
$ 4,175.00

New AC
$ 1,548.00

Bathroom Remodel
$ 3,579.00

Appliances
$ 1,473.00

Total
$50,552.00


Note: While I think this will help us get a close approximation of my rate of return - its not exact. For example it doesn't factor in my usuage of the new AC system, or bathroom remodel - they probably were not worth what I put into them since I used them before I converted the property. I also calculate my equity using the purchase price of the property and I suspect the property has probably appreciated since I purchased it.


Here is the rental income from Aug 1, 2005-July 31, 2006:
Rental Income

8/1/2005
$ 1,200.00

9/1/2005
$ 1,200.00

10/1/2005
$ 1,200.00

11/1/2005
$ 1,200.00

12/1/2005
$ 1,200.00

1/1/2006
$ 1,200.00

2/1/2006
$ 1,200.00

3/1/2006
$ 1,200.00

4/1/2006
$ 1,200.00

5/1/2006
$ 1,200.00

6/1/2006
$ 1,200.00

7/1/2006
$ 1,200.00

Total
$14,400.00



Here are my cash outflows for maintenance, repairs, and other misc expenses:
Date Range
Misc Expenses

Aug 1,2005-Dec 31, 2005
$ 814.89

Jan 1, 2006-July 31, 2006
$ 185.61

Total
$ 1,000.50




This leaves the equity change and remaining cash to count as profit:
Date Range
Equity Change
Cash Retained

Aug 1,2005-Dec 31, 2005
$ 875.42
$ 395.96

Jan 1, 2006-July 31, 2006
$ 1,260.49
$ 1,368.56

Total
$ 2,135.91
$ 1,764.52



If I use $50,552 as my investment on Aug 1, 2005, and assume a profit of $3,900 by July 31, 2006 - I get a rate of return of 7.72% for this 1st year. Wow!

That is an awesome return when you realize 1) tax benefits (if any) haven't been factored in, and 2) the appreciation of the property over the time period has been ignored.

However, this is probably an optimistic return as
1) the property surely appreciated between the time I purchased it and subsequently converted it to a rental.
2) I managed the property myself - this would easy consume 5-8% of the income just for the management fees.
3) I did as many of the repairs as possible - I only called an AC repair-person when I couldn't fix it myself. Calling service technicians out instead of repairing it myself would add significant costs.
4) my rental property was continually occupied. The tenants renewed their lease so I was lucky enough not to have any costs trying to repair and/or rerent the property.
5) I didn't factor in my startup conversion costs such as cleaning, landscaping, vacancy etc. that occurred before August 1st when the tenants moved in.

Nonetheless this is a fantastic return for me. As with all leveraged rental property with a higher rate of return than the mortgage interest rate, this return will probably slightly decrease each year as my equity builds in the property. That means this investment return is probably as good as it gets with the least amount of equity tied up and my expenses below normal.

Performing this calculation mid-year is challenging as I can't accurately calculate my tax benefit - I plan to recalculate my entire 2006 return in January and could then include the tax benefits.

In my estimate, this business is unattractive in Israel, mostly because of high real mortgage interest rates (6 - 7% indexed) and the legislation protecting renters. I find admirable the American openness of the 2-million blogger writing about his financial situation. I would love to live in an open society like that, where the individual rights are sacred and secure, out of the reach of a capricious, arbitrary, vengative bureaucracy.

Minirefineries

I was wondering if many countries have crude but import gasoline (Ecuador, Venezuela, Nigeria, Iran) what is the problem to install minirefineries in these places? The transportation cost of crude and refined products is expensive, and refining - if crude is cheap and can be wasted - is not such a high tech industry. A 600 barrel per day mini refinery, mounted on squids, could even be purchased second hand and start working in a few days in Ecuador. The membrane process is less known, but it is also feasible in small, very small scale. I dont know why there are no small local informal refiners that sell lower quality gasoil in these places.

Bauchi

I spent more than a year in Bauchi, Nigeria, and read all the books of the Bauchi Club, but learned little of the history of the place. We also visited the Emir of Bauchi in his palace, and a close relative, a teacher of Koran, who lived in his compound, was our chief of the bush clearing team. Now, thanks to the internet, I read and understand what I saw then.

The Hausa word Bauchi means the land of slaves. Originally the term was applied generally to the whole region lying south of Hausaland, but later it came to be identified with the central massif which separates the Chad basin from the Niger-Benue River systems. The core of this massif consists of a high plateau of grassy plains at an elevation of 3,000-4,000 feet with rocky peaks rising to 7,000 feet. Before the jihad this region was inhabited by a large number of small tribes. Some of their languages show affinities with Hausa and it is safe to assume that they were the descendants of the indigenous people. Some of the pagans abandoned their vernaculars in favour of Hausa. Others, while retaining their mother tongues, could speak Hausa as a second language. Around 1400 the first Fulani pastoralists started to arrive and by the end of the eighteenth century the Fulani had penetrated the whole of this region except the high plateau.

The man who was to become the creator of Bauchi Emirate was the only leader of the first rank in the jihad who was not himself a Fulani. His name was Yakubu and he was born into a family of the Gerawa tribe, which had been Moslem for at least two generations. At the start of the jihad Shehu presented a flag to his supporters from Bauchi and bade them go and rally the country to his cause. Back in Bauchi he made his headquarters not far from the site of the present city. Although his own people, the Gerawa, did not at first support him, he seems to have had no difficulty in persuading the local Fulani to accept his leadership. At any rate, he soon collected a large following, which was later strengthened by the arrival of Hausa and Kanuri volunteers and adventurers from Kano and Bornu, and created a firm base for his future operations. In seven years of fighting he broke the back of the resistance and made himself master of virtually the whole region between the high plateau and the Upper Gongola. In 1811, pausing from these labours, he set about the building of his new capital, Bauchi City, on its present site.

I was very curious and I thought I have learned everything about Bauchi. I visited the house of Nigeria's first prime minister (Alhaji Abubakar Tafawa Balewa) and found a lot of objects abandoned in it, and took a figure from his ivory bat, till my mother threw it out with lots of my Nigerian souvenirs. He had a water reservoir in the place but it was abandoned. We explored the warm springs and watched the organized and disciplined troop of baboons as they came every evening to drink water. I went with a Lebanese cinema owner to the fantastically rich Yankari game reserve, full of baboons, buffaloes and lions, and brought home the skin of two young lions (which I bought, did not take it myself). My mother threw them out, I think, because moths ate them. The illustration is contemporary painting. I saw many processions like that, they were wild and undisciplined, with antique fire weapons, sick horses and poor horsemanship, meant to be magnificent but pathetic in my eyes.

Second Lebanon War: Follow Up

One of the post-war scandals was the rumor that Halutz, the Chief of Staff, called his broker and sold his portfolio the minute the war broke out. If true, it was the ultimate "inside trade". Was the rumor true? Halutz gone, no one cares.

The war can be divided into three phases: two weeks of air bombing, slow and disorganized land advance, and a last day dash to conquer "trading chips". Israeli casualties were light and mostly unrelated to direct fighting: one unguided rocket that fell on a group of waiting soldiers, one antitank proyectile that destroyed a house where a group was resting, and four or five "successful" antitank missiles. The enemy, Hizbullah, did not fight, but fired hundreds of rockets and 2 - 3 km self target seeking antitank missiles. The war succeeded in securing the border with foreign troops and the Hizbullah became very quiet. The Lebanese Army is disarming the palestinians, and taking control of the country. Politically, the war achieved its objective, except the liberation of the hostages.

The three week bombardment of Lebanon was a direct outcome of having Halutz, an Air Force man, as war chief. The trouble is that history shows air power doesn't win wars, or even battles. The best known example is the bombing of Germany by the Americans and the British in World War Two. The plan, as advanced by Britain's Arthur "Bomber" Harris, was to kill a million Germans and paralyze industrial production. The Allies' bombs killed many Germans, though not a million. But as postwar investigators headed by the late J.K. Galbraith found, war production actually increased. The bombs stiffened German morale and loathing of the enemy. But Galbraith's investigations failed to dent the myth of air power. It is still alive in Israel. At least it was in this war.

Paella Valenciana

Need I say more?

R-Squared Warns Me Too

From R-Squared's Blog: Legal Issues

Another factor in my thinking concerns advice I received recently from two different attorneys. As many of you know, I have provided free technical evaluations for numerous projects/ideas. The number of times I have done this from e-mails alone is certainly over a hundred. Other people write to tell me they are acting on the basis of something I have written. And while I am eager to help people out, one of the lawyers advised me that I am exposing myself to liability. If I provide useful advice to 50 people, then I will probably never hear anything else about it. But if the 51st person feels like they got bad advice because they made a bad investment as a result, they may decide they should sue (even though the advice was free). This was really news to me, but I was assured that it happens. I was told that I definitely need to put up disclaimers to the effect that if you decide to act on any of the opinions expressed in this blog, you are on your own. But it has also made me decide to permanently take my e-mail address offline. I don't have time for it, but throw in the possibility of a lawsuit, and it becomes a no-brainer.

For the record, nothing in this blog encourages you to do anything. You are invited to hire me as consulting engineer as against an equitable fee (about 40 US dollar per hour plus 15.5% VAT and expenses).

Pay attention to your daydreams

In a general way, I have achieved the objectives that I, as a 11 years old boy, put before me. I have vetted all the items on my "Cosas X Hacer" list, so I am entitled to daydream. I was encouraged by a video interview of T. Boone Pickens, who is 79 years old, speculating on oil and gas, and inviting a cute female journalist to fly with him to China (she accepted). Pickens thinks oil will go down to 67 - 68. By the way, back from his trip to China, he announced that had not made a deal to supply natural gas. "That's a long way to go."

Pickens has begun speaking out on the issue of Peak Oil, claiming that world oil production is about to enter a period of irrevocable decline. He formed Pickens Fuel Corp. in 1997 and began touting natural gas as the best vehicular fuel alternative because it's a domestic resource that, among many advantages, is clean (Natural Gas Vehicles or NGVs emit up to 95% less pollution than gasoline or diesel vehicles) and reduces foreign oil consumption. Reincorporated as Clean Energy in 2001, the company now owns and operates natural gas fueling stations from British Columbia to the Mexican border.

In June 2007, Pickens announced that he intends to build the world's largest wind farm by installing large wind turbines in parts of four Panhandle counties. The project would produce up to four thousand megawatts of electricity. Pickens' Mesa Power LP had filed documents with the state of Texas to add four thousand megawatts of electricity to the state grid.










Pickens has recently begun buying up subsurface water rights in Texas. Pickens' new company, Mesa Water, bought ground water rights for 200,000 acres (800 km²) in Roberts County, Texas for $75 million and over a 30-year period expects to make more than $1 billion on his investment. Pickens wants to take the water from the Ogallala Aquifer and pump it to El Paso, Lubbock, San Antonio or Dallas-Fort Worth. According to Seeking Alpha blog, his rights are worth seven times of what he paid for them. Is that business feasible in Israel? I have worked in the Netzivut HaMaim (the Water Commission) and they always quoted the 1950 Water Law that begins defining all water resources of Israel as belonging to the State. There is no private property of water in Israel. But since then, socialism has died and private property has been declared a fundamental human right. But contrary to American legal concepts, land ownership in Israel does not include the right to the water flowing through the land, beneath it or drawn from wells situated thereon. Water may be drawn from a well situated on a person's property only in accordance with a water production license, even if the water is intended solely for the landowner's own consumption. The Netzivut established a yearly quota of water (except for municipalities, that had unlimited right to buy water) that changed every year. There was a fire breathing dragoness (*) to deal with this trouble. I think that if the current trend toward capitalism continues, the 1950 Law will have to be dumped, as the kibbutz and moshavim land agreement was (the kibbutzim were not owners of the land, but rented them from the State in 49 years old contracts. Two or three years ago there was an "arrangement" about the property of the land. I didn't pay much attention to the issue but there seems to be no trade in the Kibbutzim's land). Regarding water rights, I remember that one of the arguments for avoiding drying out the Yarkon river (by pumping all what the Rosh Ha Ayin sources could give during a drought) was that there were still people with rights from the Turkish Empire period to the Yarkon River water, and they actually had pumps taking water from the river. If the River's water would have been taken away, they would need to be paid indemnization. There is no legal transfer of water rights in this country, but the fact is that there is a vast underground water trade. Since water can be produced from sea water, there should be an opening for a private market in water, but currently it is being pre-empted by Mekorot, which sells water much cheaper than the 0.5 dollar per cubic meter that it costs to produce.

The Water Law, enacted in the 1950s was based on the administrative control of water allocation. It allowed the country to direct economic development of the agricultural sector by allocating, subsidized, water quotas to the sector. The notion was correct for the time and was an integral part of an administratively controlled economy. The Israeli economy has since been privatized to a significant extent and water allocations should not remain administratively controlled. Furthermore, a gradual abolition of subsidies for water prices to the agricultural sector on the one hand and the development of large-scale, affordable, desalination plants will ensure that within a few years there will be no shortage of water at their marginal cost. Under the guidance of the Minister of National Infrastructure, the Water Commission is developing a proposal whereby the administrative control over water allocations will be substituted by a market-oriented approach.

Although I cannot see an opportunity today, the area deserves following and further research.
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(*) Wikipedia defines Dragoness as a fictional mutant villain character in the Marvel Comics Universe.

Nostalgia

Empanada. The Argentina I knew and is no more.

Picar la cebolla de verdeo, rehogar en el aceite. Incorporar la carne que, previamente, cortamos a cuchillo en pedazos pequeños (de este modo saldrán mucho mas jugosas).

Ponerles la sal.

Cuando la carne tomó un color parejo se incorporan los huevos cortados en partes pequeñas, las aceitunas trozadas (eliminar el carozo, o hueso interior) las pasas de uva, el pimentón. Dejar que cobren temperatura ambiente.

Se rellena cada disco y se cierra con repulgo.

Pueden ir a horno (previamente hay que pintarlas con huevo batido) o bien pueden freírse.

La verdá de la milanesa

La verdá de la milanesa was my barrio's slang (anno 1960) for an unpleasant truth, for an ugly reality packaged in a nice envolture, such as the schnitzel served in the restaurants of the barrio. They looked very tasty, but in fact contained meat of the worst quality. In my times Argentine people consumed only the best cuts, and inferior meat was given to the dogs and cats. When we arrived from starved Europe, were astonished that the butchershops gave organs (tongue, liver) for free. La verdad de la milanesa, the truth of America's prosperity, is the suffering of American working class from free trade and open borders policies. His income (see note below) is diminishing, and many industries have seen job losses.

ALL EMPLOYEES - MANUFACTURING: FURNITURE & RELATED PRODUCTS


China's inroads into the furniture market have led to a sharp decline in domestic employment. There is evidence that increased trade has led to wage compression in import-competing industries.

TRADE AND THE IMPACT ON WAGES


This chart shows the current account balance (which is a broader measure of the foreign trade account) along with the yearly percentage growth of wages between goods-producing workers and service-producing workers. From 1966 to 1982, goods-producing workers' wage growth exceeded that of services-producing workers by an average of 1.29%. This relationship reversed from 1982 forward, with service-producing workers' wage growth averaging 0.4% higher. Note that as the current account slipped into persistent deficits and goods-producing workers faced increasing competition from imports, their wage growth lagged. Service workers face less import competition because some tasks, such as haircuts, can only be done in the United States.

But also the situation of the hair cutting business is less than rosy. Illegal Mexican immigrants can cut hair as well as any Yankee, and will do it for less.

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(*) La verdá de la milanesa Para los lectores amantes del lunfa, si es que hay alguno, el Novísimo Diccionario Lunfardo explica: "Expresión enfática que alude a la desconfianza que sugiere la calidad de la carne empanada, que en la Argentina se llama milanesa". En la preparación de las milanesas solía aprovecharse la peor carne. El poeta Julián Centeya en lugar de decir la verdad de la milanesa, empleó Batirá el justo de la pulpeta. La pulpeta es lo que se usa para la albóndiga.

Ki Seitzei (Devarim 25:17-19)

This Shabath we read the Parashah Ki Seitzei. The portion commands how to behave during the war of conquest that was about to be launched, and the laws after settling the Land. The war laws have no similarity to the Geneva Convention. It was a different world and a different humanity. As Prof. Clark has shown, people has changed genetically and the English people of today is not the same as a thousand years ago. The war laws deal, for example, with the case of the beautiful female captive: What is permitted? I don't think the question ever passed by the mind of any other people: To take female captives was forever the object of wars, evolution made sure that it cannot be otherwise. But here we have the Israelites struggling with the ethics of the situation - before they have even crossed the river into the Land. They are to embark in a holy war, and this moral issue had to be cleared beforehand.

Ki Seitzei can be regarded as the marching orders for the Israelites and its main point is to instill the obligation of hating the enemy. "Because they did not greet you with bread and water on your path exiting Egypt... because [the King of Moav] hired [the evil magician] Bilam to curse you... Do not seek.... Do not speak of... Do not preach... Do not pursue... THEIR GOOD at any time!" Deuteronomy 23:5-7 Meaning: It is forbidden to say a good word about the enemy. The portion ends declaring total war against the Amalekites:

Remember what Amalek did to you along your way when you left Egypt. He confronted you on your way, and attacked the feeble stragglers who trailed behind you, while you were tired and exhausted. He did not fear G-d. Therefore, when G-d your G-d has given you rest from all your enemies around you in the land which G-d, your G-d gives to you as an inheritance, annihilate every trace of Amalek from under heaven. Do not forget this.

The battle order was carried out because today no one knows who the Amalekites were. There is not a trace of them anywhere. Some commenters propose that Amalek is not a people, but an abstraction. But the Bible is very concrete and material, when it says beautiful female captive, we can see what it is talking about, when it says the Amalekites who attacked the stragglers, we can easily imagine a desert people preying on the tired refugee host.

Keine Panik

Bloomberg says: Wall Street is in a financial panic and won't fund any mortgage bonds, even AAA rated bonds backed by prime home loans. Even the Fed's decision to cut the discount rate that it charges banks failed to revive demand. The market is unwinding because no one wants to own A1/P1 asset-backed commercial paper. That's just crazy. If it's backed by subprime, all right. If it's backed by junk, get out. But if it's backed by high-quality receivables from Macy's, that market should be functioning and that market has stopped functioning. Illustration: Wall Street During the Panic of 1884 Schell & Logan. Engraving: Harper's Weekly; May 24, 1884. Wall Street looking west toward Trinity Church past the statue of George Washington on the steps of the Sub-Treasury building on May 14, 1884 when a brief panic was caused by the sudden failure of the Grant and Wood Bank. Despite a flurry of unusual activity the Panic was not serious and business soon returned to normal.

Stupidity and/or Evil - Triumphant

Writing about the evil that (indirectly) caused the death of two New York firefighters, I remembered the Herzliya Marina project, in which I managed the infrastructure part. The Marina is all built on land reclaimed from the Mediterranean, and it was supposed to have a nice open park hinterland on the sand and sandstone dunes behind it. The Marina project was fought against ferociously from its very beginning, and they (a mixed multitude of leftists, environmentalists, anti-development activists) succeeded in provoking a much publicized judicial process against its promoter, the Mayor of Herzliya Eli Landau, who had a heart attack that almost killed him. The building of the Marina could not avoided, but they succeeded in stopping the development of the dunes, which are laid bare and full of garbage (see pics). It was supposed to be the habitat of unique plants and animals; regarding humans, they are deemed to hold no legitimate rights over Earth.

For many, America is not the Goldene Medina

Nearly half of Americans make less than $30,000 per year, and two-thirds less than $50,000. Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than the year before. Average income in 2005 was $55,238. That is 19,333 shekel per month, against 7,500 shekel in Israel. Even the poorest in America were better off than average Israelis.

The Deutsche Bank Fire in Manhattan

This event, the fire in the Deutsche Bank building that was being demolished, is interesting because shows the difficulty of maintaining firefighting systems. NYT reports that the only remaining standpipe had a valve between the basement and the first floor shut, effectively cutting off the only source of water for firefighters battling last Saturday’s blaze on the upper floors. But even if the valve had been open, water would never have reached it because the network of pipes that is supposed to deliver water from fire trucks on the street to the standpipe system was also compromised, with several breaks in it and a piece of the standpipe system was missing altogether. The piece was found next to the pipe. Thousands of gallons of water ended up being dumped directly into the building’s slab-concrete basement while firefighters stranded with empty hose lines on upper floors were encircled by black smoke from above and below. Two firefighters, Robert Beddia, 53, and Joseph Graffagnino, 33, died after their air tanks ran out as they scrambled on the 14th and 15th floors..

The Fire Fighters site says: These FF’s were apparently set up, by those responsible for the demolition, without ever knowing it.

The building, at 130 Liberty Street, which was the subject of one of the most complex and dangerous demolitions — a project overseen by nearly half a dozen city, state and federal regulatory agencies — lacked the most basic working tool for fighting a known threat, fire. The fire department was also now investigating why the building’s sprinkler system was not operational either.The failure of the standpipe system added to the challenges facing firefighters — more than 100 — who rushed into the building amid swirling winds on Saturday. The interior of the building was a maze of plastic sheeting and plywood meant to contain potentially hazardous material.

The Secret Engineer concludes that the regulating agencies were distracted into fighting imaginary, potentially hazardous environmental menaces (that is, inoffensive phantoms), while disattending basic, gross safety issues. Spitzer and other people are saying the same thing.

In a second thought, why an operational standpipe had to be maintained in a building being demolished? and why the hell these firefighters had to go inside the building? No human life and no property was in danger, the whole structure was scheduled to be dismantled. The fire should have been fought from the outside. I suspect if not for the idiotic environmental requirements to have the building isolated by plastic and plywood envolture, there would be no fire at all. What was so dangerous inside the building? Chromium, magnesium and metals. Sure, building are built from metals. Sure, metals are toxic, but who eats or breaths metallic building materials?

BAZAN posts 70$ margin/ton crude refined

But the improvement of American refineries operations does no good to second quarter profits. BAZAN also announced the investment of 250 million $ to acquire the capacity of processing heavy crudes. What is the crude they may have in mind? The nearest source may be Rumailan - a small field near Suwaidiyah which produces heavy oil; and Alian, Tishrine, and Gbebeh (Kebibe) - three small, depleting fields producing heavy oil. Also the Yarmouk Valley has shale deposits and Al-Bushri has tar sands (west of Der-Al Zour). Maybe they will buy cheap Venezuelan asphalt?

From where comes the profit?

Robin Blackwell, a Marxist professor of economy, says that modern financial profit comes basically from three sources: the annulation of promises, loan sharking and improved understanding and management of risk.

Annulation of promises refers to the vast devalorization of promised pension rights of millions of American workers (only General Motors has 1,000,000 pensioners !) by separating the financial obligations from the actual production, and selling these obligations in the financial market. American workers also lost much implicit future promises by annulation of health care rights. Many companies declared bankrupcy and freed from the pension burden, became profitable and attractive holdings. It happened in the steel business, it is happening in the automobile industry. In a sense, I feel, the vultures are doing a disgusting, but necessary work.

Loan sharking refers to sinking the American households in increasingly unmanageable debt, with platinum credit cards and subprime mortgages. While initially attractive, the heavily indebted American household is gradually forced to recur to usurious loans, in a veritable debt slavery for life.

Improved risk management is a legitimate scientific advance, making more efficient the allocation of capital and therefore of its yield. Risk arbitrage hinges on the possibility of interpreting securities in multiple ways . . . In contrast to value investors who distil the bundled attributes of a company to a single number, arbitrageurs reject exposure to a whole company. But in contrast to corporate raiders, who buy companies for the purpose of breaking them up to sell as separate properties, the work of the arbitrage trader is yet more radically deconstructionist . . . For example they do not see Boeing Co. as a monolithic asset or property but as having several properties (traits, qualities) such as being a technology stock, a consumer-travel stock, an American stock, a stock that is included in a given index, and so on. Ever more abstractionist, they attempt to isolate such qualities as the volatility of a security, or its liquidity, its convertibility, its indexability and so on. Thus whereas corporate raiders break up parts of a company, modern arbitrageurs carve up abstract qualities of a security . . . Their strategy is to use the tools of financial engineering to shape a trade such that exposure is limited to those equivalency principles in which the trader has confidence. Derivatives, such as swaps, options and other financial instruments play an important role . . . Traders use them to slice and dice their exposure.

In order to cash out their bets the arbitrageurs need ‘events’. A placid market with nothing happening and no volatility is bad for the hedge funds and for those on the ‘risk arb’ desks. But normally the traders need not worry since, as Hyman Minsky put it in a classic article, firstly ‘the internal workings of a capitalist economy generate financial relations that are conducive to instability’, and secondly, ‘the price and asset-value relations that will trigger a crisis in fragile financial structures are normally functioning events.’ One of the reasons for this is precisely that the prospects of a given stock cannot be distilled in a single figure since the balance sheet of an enterprise will always comprise a complex of receipts and liabilities in which the past, present and future uneasily coexist. The de-regulation of financial markets has also increased their proneness to ‘events’.

84

Yesterday we celebrated my Mother's birthday in the Lucca Italian Restaurant in the Herzliya Marina. My plate was canelloni alla fungi, very good. The Marina is a big success, full of thousands of weekend strollers. I was shocked by the rundown and unkempt condition of the large pumping station I had built at the entrance of the Marina, and other infrastructure in the port. Meshullam Granot, my boss the City Engineer, had suffered a very bad heart attack when he was a co-defendant in the Mayor Eli Landau prosecution for corruption for the Marina project. In a memorable courtroom scene, he was shown a protocol carrying his signature. Granot said: "I know nothing. I slept over the whole meeting. My signature was a meaningless formality." And he was telling the truth: the Mayor was (is) a very dominant personality and Granot used to sign blind everything that was put before him. We used to joke that he signed the morning newspaper as the secretary put it on his table. That I can attest. I was pushed by my staff to abuse this feature of him, which I did. Also Eli Landau had an open heart operation with five "ma'akafim" (by pass branches). After a tense 18 month public trial, all were acquitted of all charges. As Eli said: "Everybody is giving up territory. I am the only one who is adding land to Israel." Of course, in Israel, no vision and no leadership are left unpunished.

Russian Military Base in Latakia, Syria

From Sanders Intelligence Webletter: The global oil game is to close out Russia from the Caspian oil. Currently, the United State's best access to Caspian oil is through the Baku-Tbilisi-Ceyhan pipeline (BTC pipeline), which runs through Azerbaijan, Georgia and Turkey. Its opening gave Turkey's geopolitical standing a huge boost (especially in the Middle East), as well as significant income. Israel has had rocky relations with Turkey -- relations that we are trying to warm among others, to secure plans for a pipeline from Ceyhan to the Mediterranean port of Ashkelon. The BTC pipeline also forces the United States to take Turkey seriously. But Turkey is an unsteady ally. American support for Kurds adds to the strain. US military planners are worried about “defending” the BTC pipeline -- something that will only get harder if Turkey continues to gravitate outside of Western control.

It makes sense for the US to want an oil tap it knows is reliable. Israel fits that description nicely: it has ports on the Red Sea and the Mediterranean, has established military contacts with the USA and would provide a shorter pipe route for Iraqi and Middle Eastern oil than Turkey.

Once the pipeline is ready, it can begin shipping crude out of Israel's ports in Eilat and Ashkelon (the terminals of the Trans-Israel Pipeline, Tipline). Using the Tipline will give the oil alternate departure points, should one of the Mediterranean or Red Sea routes become unstable. The Eilat port allows Israel to service Far Eastern markets as well.

The reason that this political and military maneuvering is necessary, is because the US does not want to deal with Russia for oil. The US government has made it clear that it doesn't see Putin as a partner. American foreign policy has aimed to undermine Russia's economy and sovereignty. Whether it is in the American people's interest or not, the US government will avoid dealing with Russia for oil.

400 km superpipeline on the seabed

In January 2007, Turkey and Israel have tentatively agreed on building a network of pipelines to convey oil, natural gas and water from Turkey to Israel. A pipeline already carrying Russian natural gas to Turkey will be extended to Israel. Turkey and Russia have agreed to extend a pipeline from the Black Sea port of Samsun to Turkey's Ceyhan oil terminaland then to Israel. The same line could also convey Iraqi oil or Caspian oil. Turkey would also build the pipeline to sell Turkish water to Israel.

Technical problems are abundant. The Eastern Mediterranean has strong marine currents. It is doubtful that Lebanon and Syria will agree to the pipeline running in their territorial waters. The economic structure of the project is doubtful, regarding the water pipeline, I know it is economically not feasible.

Dreaming

I slept well and dreamt that I was young and starting university. I was in a room I shared with another student, and two girls - one tall, smiling and friendly, one smaller and curvy. Somehow the friendly girl ended in bed with my partner and out of alternatives we - the serious girl and me - made love too. Then my girl walked away, directionless. I wanted my partner to free up the other girl for me, but it did not happen. So we continued as a silent pair with the unfriendly girl while watching them have fun in the room. In the past, when I came in a dream, I also did so in life. Now it is only a dry dream.

On Momentum

Kent says:

Momentum exists because people are like the herd. If it starts to go up, they get greedy, and they all want to pile in. And when the last guy who wants to buy has bought, then that's the top. Then when it's falling everybody wants to sell and get out and save themselves. And when the last guy has sold, there's no more pressure to sell. And so it can start going up again.

Bottoming Out the Panic

Aug. 17 (Bloomberg) -- In the world's financial markets, the subprime mortgage collapse may finally be contained.

When the U.S. Federal Reserve unexpectedly cut the discount rate at 8:15 a.m. New York time, futures on the Standard & Poor's 500 Index soared 3.6 percent in 46 seconds, erasing a 0.4 percent decline. Within 15 minutes, Europe's Dow Jones Stoxx 600 Index was up 2.4 percent as the Fed demonstrated it would act to ease the credit crunch that began two months ago when defaults by subprime borrowers brought down two Bear Stearns Cos. hedge funds.

Gary writes:

Finally, insider buying is at levels last seen right before the bull market took off in 2003. These reading are all indicative of a market that is at a meaningful bottom. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less pessimism, subsiding credit fears, overseas gains and bargain hunting.

Israel's Oil

Within the context of my speculation in oil shorts, and investment in BAZAN, the Haifa Refinery, I am learning about oil. According to our enemies, Zionism is a colonialist creation to protect their oil interests in the Middle East. Of course that is nonsense, but it seems to me true that the Zionist movement (in the thirties) succeeded in aligning itself with the dominant powers and transform Eretz Israel into an important oil hub. The largest investment of those times was the TAPLINE, which was to end in the Haifa port and refinery. The TAPLINE was to be extended to convey the crude from Bazra and Kuweit to the European market. The scheme failed because the mortal blow received by the British Empire during WWII, and the failure of America to follow up British enterprises. The same happened in Argentina, after the war, Juan Peron unlinked the country from the British canned and chilled meat network, and Argentina lost its place in the global scheme of production and markets developed by the British and decayed mightily. Israel too, for different reasons, lost its role in the global scheme of oil production and marketing, and 80 years later is still has not found any role in the great oil network.

Our nearest neighbor, Jordan, gets its oil from Saudi Arabia via the TAPLINE. Saudi Arabia forces Jordan to underwrite the entire cost of operating the Tapline (US$25 million per year). Jordan tried to persuade Iraq to obtain an alternative oil outlet by building a pipeline across Jordan to Al Aqabah but the project foundered. The 1980 discovery of from 10 billion to 40 billion tons of shale oil deposits in the Wadi as Sultani area raised Jordanian hopes of greater self-sufficiency. Jordan has attempted to interest Western oil companies and Amoco, Hunt Petroleum, Petro-Canada, Petrofina of Belgium, and the Japanese National Oil Company made some survey work.

Jordan has one refinery, at Zarqa, with a capacity of 90,400 bbl/d. The facility is in need of major upgrades, and its owner, the Jordan Petroleum Refining Corporation (JPRC), currently is studying its options. The facility was designed to produce a product mix skewed toward heavy fuel oil, which was needed at the time it was built to run electric power plants, but the local market is now in need of additional gasoline and diesel, while electric power generation is switching over to natural gas.

Jordan's state Natural Resources Authority (NRA) has been promoting oil exploration within the country, which has been relatively unexplored until now. TransGlobal Corporation holds a concession for the Wadi Araba area in Western Jordan. Sonoran Energy of the U.S. was awarded exploration rights for an area near Amman in December 2004. Other small independent companies have conducted surveys of other areas as well, but without yet finding commercial quantities of oil. To help attract foreign investment, the Jordanian government has plans to privatize its oil sector. In October 1995, the country set up the state-owned National Petroleum Co. (NPC) to handle upstream oil and gas exploration and development. In mid-1999, NPC divested its oil-drilling operation, which now operates as Petra Drilling Company. NPC is still active in the natural gas sector.

A most interesting project is the Baku-Ceyhan oil pipeline's link to the Trans-Israel Eilat-Ashkelon pipeline, also known as Israel’s Tipline, through a system of underwater pipelines, from Ceyhan to the Israeli port of Ashkelon. The proposal under discussion would see the transfer of water, electricity, natural gas and oil to Israel via four underwater pipelines The BTC pipeline (see pic) consortium is made up of BP with a 30.1% stake as project operator, Azerbaijan's State Oil Company with 25%, the American companies Unocal (8.9%), Conoco-Phillips (2.5%), and Amerada Hess (2.35%), Norway's Statoil (8.7%), Turkish Petroleum (6.5%), Italy's ENI (5%), Total of France (5%), and the Japanese-based Itochu and Inpex with 3.4% and 2.5% stakes, respectively.

During 2003, the Eilat-Ashkelon Pipeline Company (EAPC) modified the pipeline to reverse flows on the 42-inch line, to facilitate Russian Caspian petroleum exports to Far East. In October 2003, it was first reported that Swiss trader Glencore would ship 1.2 million barrels of Kazakh CPC Blend crude and 600,000 barrels of sour Russian Urals through the line as an alternative to the Suez Canal, which can accommodate only smaller, "Suezmax" tankers. In July 2006, Israel also signed and agreement with the State Oil Company of Azerbaijan (SOCAR) to import and transport Azeri Light Crude through the pipeline.

A comprehensive settlement to the Arab-Israeli conflict could once again open up Israel as an alternative energy transportation corridor for Persian Gulf producers to the West. Currently Persian Gulf producers export oil via tankers that pass through Suez Canal or around the cape of Africa, by pipeline from Iraq to Turkey (design capacity 1.5-1.6 MMBD), or via the Sumed (Suez-Mediterranean) Pipeline (capacity 2.5 MMBD).

It is interesting to note that a trans-Balcan pipeline would have cost $1 billion, which is three times cheaper than the alternative via Turkey. The BTC tapps the oil and gas fields beneath the Caspian Sea and lands around it ... Azerbaijan, Georgia, Moldova, Ukraine and Uzbekistan formed an alliance within NATO which would defend “the area’s rich oil and gas deposits developed to the exclusion of Russia”.

By 2050, landlocked Central Asia will provide more than 80 percent of the oil distributed to the U.S. As a result, the control of pipelines through Afghanistan or Turkey to distribution centers will be vital to the United States. China will receive oil from Russian Siberia via pipeline.

It seems that there is concept behind what the apparent chaos.

Mistake, Big Mistake

I am finding that in engineering practice, the main selling point is the permit.Yesterday I was urgently called by the owner of a catering business, an anxious, pallid and blackhaired, Poylische-looking Jew. He had invested his life savings and possibly much more in buying an industrial property, a working catering kitchen, painted it wine red and filled it with shining inox furniture and ovens. He recruited a staff of beautiful young meltzariot and dressed them in smart black uniforms. he organized some events in the place and it was all success. But he built on selling catering services to the large, established event halls around, that had no kitchens. Soon he found out that no hall would buy his services without the stamp of the Ministry of Health, without the "food producer" permit. He had supposed that the operation he was buying had all the permits while had none.

He is now learning the very hard way the Israeli permitting Via Dolorosa.He discovered that he needed professionals: he contracted a food engineering firm to design the kitchen according to the laws, and then he asked for the fire permit. Mistake after mistake. His food engineer had an on-going feud with a key expert of the Ministry, with the obvious result that the plan he submitted was found faulty and rejected. Exotic food processing rules were applied, like crossing of fresh food streams with food remnants streams (they need separate corridors), the need for separate environmental disposal facilities for cold food, hot food, paper, plastic and so on. And air circulation rules in the kitchen. After a few months he discovered that he also needed a FOG interceptor and backflow preventers. Here I enter in the picture.

But his big mistake was the fire permit: he asked a contractor for an offer, which was duely inflated, including (unnecessary) sprinklers and gas extinguishers, but also insufficient, as it does not include the Machon Ha Tekanim (the Standards Institute) expert opinion (which cost about 500 $ and requires computer modelling of pressures and flows). I told the owner that he needed a water engineer for fire permit, but he could not deal with the idea so I didnt insist. Everything in its good time. The man is desperate, having large expenses and staff, and he finds himself in a position where he cannot start selling his food and start making an income.

An interesting point is that these chefs are all unaware of the poor quality of Israeli water. The water pumped form the Mountain aquifer has very high hardness, much calcium and magnesium dissolved for the calcium carbonate rocks. This hard water affects, for example, the taste of soups and also hot beverages like tea and coffee. You cannot make a real Soupe à l'oignon gratinée with this turbid water.

Préparation: Éplucher et couper les oignons en rondelles. Faire chauffer le beurre et l'huile dans une cocotte. Ajouter les oignons. Laisser roussir légèrement pendant 10 minutes. Saupoudrer de farine. Laisser cuire 5 minutes en remuant. Ajouter l'eau ou le bouillon. Saler, poivrer et laisser bouillotter couvert pendant une 1/2 heure.
Battre les œufs avec le cognac et la moitié des fromages râpés. Verser le potage brûlant sur les œufs et remettre-le tout dans la casserole. Faire chauffer, sans bouillir. Rectifier l'assaisonnement.
Allumer le gril du four.
Remplir les bols à gratin aux 3/4, disposer les croûtons sur le potage. Saupoudrer le pain du reste du fromage râpé. Mettre à gratiner 6 à 7 minutes.

I shall write more on this important subject later.

Forced selling and bankrupcy

The problem of a panic is that everybody wants his money ... NOW. If too many players are pressed to sell, the price will collapse and the whole system, based on peace, order, clear laws, mutual confidence, dies. That seems to be happening before our eyes. I am not sure that the collapse started with the hedge funds, since they had a rational, low risk investment strategy. According to Goldman Sachs, the problems started when too many hedge fund managers concentrated on the same stock, which started to behave in a strange, unexpected way.

Among the hedge funds hardest hit were credit funds and those using a type of statistical arbitrage, known as long-short equity neutral. Stocks in these portfolios are picked assuming certain shares will rise and others will fall. In this case, the complex models that drive them were upended by the extreme market volatility. Four building-blocks of such models are stock valuations, quality, price momentum and earnings momentum. These usually offset each other, but when they all started suffering, the models went awry. Some of the world's biggest hedge funds all began selling the same things at the same time. “You had the proverbial camel trying to get through the eye of the needle,” an analyst says. Although the pain was not confined to hedge funds—some long-only mutual funds were also hurt—the use of ample leverage (a staple in the hedge-fund world) meant they were hardest hit. One big investment bank is said to have offered leverage of 20-to-one to hedge funds investing in subprime mortgages just months ago.

The drawing is by Vaszary Janos, and is called Menekultek (Refugees). It pictures Jews in a train station fleeing to Hungary and the West during the First World War.

Parashat Shoftim, Deuteronomy 16:18-21:9

The weekly portion is called Shoftim, that is, judges. Tzidon in the Lebanese coast and Cartago, the Phoenician settlement in Tunis, were also ruled by shoftim, so the word can be translated as rulers, governors, magistrates or officials. Our weekly portion starts ordering "You shall name Shoftim and Shotrim for youself", that is officials and policemen. If anyone imagined that the Bible calls for universal love and freedom, he is dead wrong: the Bible demands an well-ordered, strictly-policed society with strong legislative and executive branches.

Another little-known point is the place the priests (cohanim) and the assistant priests (levi'im) should occupy in society. Landless, in the distribution of conquered lands they received no land, which in an agricultural economy condemned them to a fragile existence. Their sole source of income was to be religion - the Torah. The Bible set their portion of the agricultural produce and it is a most miserable portion. Not what the Catholic Church preaches. From each animal sacrificed (for food, of course), the priest was entitled to the stomach, the forelegs, and the cheeks. They are meatless, even repugnant organs, certainly the least valuable. If this was calculated to force the priests to excel and to develop a powerful religious machine to subsist, it succeeded only too well, because the Temple of Jerusalem soon became the most powerful and the richest of all the Middle East temples. Jewish priests were hyperactive and sanguinary in persecuting rival cults and priests (remember Elisha's burning hundred prophets of Ba'al), they caused gold to stream into Jerusalem, to the point that the Roman lawyer Tacitus claimed that the Judean Temple ruled the Roman forum. Moshe's Law (Torah) and Order survived thousands of years, and it is still in place.

Shultz: Fear is Overcoming Greed

The Guru says "For years, greed has been the underlying force in markets. Now fear is replacing it . We're into the very early beginnings of the unwinding of the derivatives hurricane". I am lucky that sold my Chinese Index Fund as Asia collapsed this night. Nasdaq also fell almost 2% so TASE is due to fall today. The bull market seems to have ended.

I feel seasick. Does it mean a sign that it is time to buy? I am buying BAZAN. For me caprex (cagazo pre examen) was always a necessary pre-condition to success. Rob writes: “Historically, there has been an amusingly high incidence of success in going long for a trade when my nausea hits a peak. When I feel like puking on my desk, it might just be time to buy……well, I’m here to tell you that… all kidding aside, I really do feel like throwing up.

The graphic design is by Linda.

They keep coming

Some are coming, others are strapped to prams and carried.

What I did today

(1) A day of constant losses (except towards the end when New York started positively), I sold IDB Pituach, Maraton, Walla - realizing my profits. Near the end of the day I bought BAZAN, the Haifa Refinery, which was still 2% cheaper than yesterday. Realizing profits and changing stocks has very high transaction cost, so I try to do it as little as possible. For example, Marathon had gone up 70%, so any further increase would have been on 170% of my original investment. Realizing the profit, I had to pay 20% tax on the profits, so the sum I had to re-invest (in BAZAN in this case) was 156% of the sum invested, and deducing selling and buying (2 X 0.2% = 0.4%) and costs of the lines on my bank statement as well as the "spread" between selling and buying, I am investing only 150% of my original investment in Marathon. So if there is a general 10% increase in TASE, if I had not sold Marathon I would profit 170 X 10% = 17 while changing horses to BAZAN I shall profit only 15. There is a 13% difference. But I think I have more than 13% better chances in BAZAN in comparison to Marathon, which has gained much during the last half year. (2) Spent the day preparing working designs for the stables farm near Gezer. Next Sunday I have to go to instruct the workers. Already I had been paid, this is follow up work to keep good relations with the client. The workers don't want to install buster pump, they say there is enough pressure and they want to save money for the owner. The Standards Institute made two measurements, and the results are pathetic. I have to check out how the responsibility is distributed if the stables burn down and there is no pump. I can also say that it was there and they took it away. It happens all the time. The pic shows a work of the German painter Beckmann, on the 1929 depression.

David Leonhardt Says Stocks are Expensive

The standard measure of the market is the price-to-earnings ratio. Right now, the stocks in the Standard & Poor’s 500-stock index have an average P/E ratio of about 16.5, which by historical standards is quite normal. But a harder view is that P/E ratios should not be based on only one year’s worth of earnings. The Graham-Dodd approach produces a very different picture from the one that Wall Street has been offering. Based on average profits over the last 10 years, the P/E ratio has been hovering around 27 recently. That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off. This from an article of D. Leonhardt in NYT. Conclusion: No one knows a shit.