Virtual Timber 2: the Pinchot Plan

I got spammed with a solicitation for True Wealth, one of the top five financial newsletters in the world. Yeah, right. The email touts the "Pinchot Plan",

"...an unusual investment most Americans have never heard of... which was made possible by a former U.S. Presidential Advisor and Governor of Pennsylvania.

This investment is safer and more profitable than stocks, bonds, real estate, mutual funds, gold... and just about every other asset on the planet."

Gifford Pinchot was the first Chief of the US Forest Service, and advocated scientific forest management. Very Progressive, very Teddy Roosevelt. He has a National Forest named after him. The "Pinchot Plan" is investing in publicly traded timber companies. Minus the huge steaming pile of marketing, that's all it is. No need to subscribe to the newsletter. Anyone can do this on his own.

I mentioned Plum Creek Timber (PCL) in an earlier post, but here are a couple of other possibilities: Rayonier (RYN) owns 2.5 million acres and has a 4.27% dividend. Potlatch (PCH) owns 1.5 million acres and has a 4.25% dividend. All three companies are REITs. I own some PCL right now, but both RYN and PCH are plausible alternatives.

Virtual timber is a decent investment. Buy it when it's on sale. Better than stocks? Better than gold? Well, no, not better, just different. It's a good diversifier.

Spamming God

I found something new, at least new to me: the prayer blog. There seem to be a number of these, and of two varieties. Some are places where people post their prayers, which raises some interesting theological questions.

Does posting to a prayer blog count as prayer? Does God have an internet connection? Does infinite bandwidth go along with omnipotence and omniscience? Is Heaven behind a firewall? Does God have a PC or a Mac? Does God use commercial software without paying for it?

Other prayer blogs are solicitations for others to pray for a particular purpose, like healing a child with a medical problem. The parents have presumably already tried prayer, to no avail, and now want some help spamming God with prayers.

Does God like being spammed? In other words, do a million similar prayers have more effect than one prayer? Does God have a spam filter? Is that why so many prayers go unanswered? Does spam piss Him off? I assume that dietary restrictions aren't a factor here, since spam is only metaphorically a pork product. However, the God of the Old Testament was a wee bit touchy about a lot of things, and getting spammed just might qualify as smiteworthy.

Guest rant: Eye Candy

I keep hearing and seeing a term that for some reason irritates me: "eye candy." This term is often used to describe the visually appealing aspects of new computer operating systems like Windows Vista and Mac OS X Leopard. The term gives me the creeps, because it makes me feel like I have some sticky gooey (not GUI, forgive the pun) substance in my eye. The use of "candy" in this way probably comes from the seventies term for cocaine, "nose candy." The meaning is slightly different, however. With "eye candy" the meaning is one of something aesthetically appealing to the eye, whereas "nose candy" was not aesthetically appealing to the nose, which it often did damage to, but made the user feel good. The metaphor here does make more sense because the cocaine was physically ingested by the nose just as candy by the mouth, although the nose didn't necessarily enjoy the experience. However, it might suffer damage as the mouth does from candy in the form of tooth decay. "Eye candy" is not physically ingested by the eye, and won't damage it.

Taking these two terms together, one might arrive at the following meaning for the new additive element, "candy": some aspect of a thing or process that contributes an enjoyable or aesthetic feature appreciated by one of the senses.

Now imagine the horrific results if this usage spreads. If cocaine is "nose candy", then marijuana can be called "lung candy", and heroin, "vein candy." Music will have to be referred to as "ear candy" and art in general is an other example of "eye candy." Would Preparation H be "butt candy"? Perhaps the users of this product might disagree, because the term "candy" implies that the thing, substance, whatever, is not essential to the "operating system."

Finally, if the term really gains wide acceptance, then we will have to call real candy (like chocolate) "mouth candy," which of course could refer to cake, ice cream, and all forms of desert. I suppose alcohol would be included.

So please, stop the spread of "candy," and instead of "eye candy" substitute "aesthetically appealing features." Not as catchy, but it won't give your eye that sticky gooey sensation.

And if you find this rant to be a frivolous, but enjoyable addition to Regruntled, just consider it "blog candy."

Pascal's Wager 2: the Apocalypse

In a previous post, I discussed a warm and fuzzy version of Pascal's Wager. Today, something a bit more extreme.

Some Christians believe that the "end times" are coming as soon as 2008. Allowing three and half years for the Great Tribulation, that would put the Second Coming sometime in 2012. Coincidentally (OR IS IT?), December 21, 2012 is the Mother of All Solstices, when the Mayan calendar's odometer rolls over into a new age.

How exactly did the Mayan astronomers and the Biblical prophets synchronize their watches? And why didn't someone tell the Millerites, who abandoned their farms or quit their jobs in anticipation of October 22, 1844?

What would Pascal do? Would he profess belief in the Second Coming while quietly putting away money in his 401K plan? It's a huge waste of money if he gets Raptured. On the other hand, the scoffers who die in the Great Tribulation lose their lives AND their 401Ks. Would Pascal max out his credit cards, figuring that the money lenders will be wiped out along with everyone else?

The Second Coming is the original vaporware. Christians have been expecting Jesus to come back Real Soon Now for 2,000 years, and they've been wrong every single time. By induction, they're almost certainly wrong this time. Even if you believe that the Christians will be right sooner or later, it's almost certain that their timing is wrong now. And that's a purely statistical argument that doesn't even look at the validity of their belief system.

Does sustainability lead to collapse?

I've been reading Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed". Diamond studies a number of societies from the past for lessons we can use today. He discusses the usual suspects (Easter Island, the Maya, the Anasazi, etc.) within a five-point framework:

1. Cumulative environmental damage
2. Gradual climate change
3. Conflict with neighbors
4. Support from neighbors
5. Adaptability

The most interesting story is that of Viking Greenland. The Vikings settled Greenland during the Medieval Warm Period (984 AD) and vanished sometime in the 15th century at the beginning of the Little Ice Age. Climate change is the obvious explanation, with the colder weather reducing crop yields and the increase in sea ice making it more difficult for ships from Iceland to get there.

And yet, the Inuit had the technology to survive in harsher climates than the Vikings' protected fjords. All the Vikings needed to do was copy the Inuit. Here is where the last factor, adaptability or the lack thereof, comes into play. The Vikings thought of themselves as Europeans, and apparently preferred to die as Vikings than live as skraelings.

The modern notion of sustainability seems to be about reaching equilibrium with a more or less constant environment. Equilibrium leads to conservatism which leads to a lack of adaptability. But nature is not constant. Sooner or later, Mother Nature will try to kill us with earthquakes, tsunamis, hurricanes, tornados, floods, droughts, forest fires, ice storms... even if we get our carbon dioxide under control. When that happens, we need adaptability, not sustainability.

Micro-lending

MicroPlace, an eBay company, is a new online micro-lending platform. The idea of micro-lending can be traced back to Lysander Spooner, but the most well-known implementation was by Muhammad Yunus and Grameen Bank (2006 Nobel Peace Prize).

Foreign aid involves transferring relatively large amounts of money from government to government and is subject the usual inefficiency and corruption. Micro-lending places small amounts of money directly into the hands of specific poor entrepreneurs, for example $500 to a woman in Peru who wants to expand her pig farm. (Is a Peruvian pig an Oinca?)

The internet, of course, can help match people who have money with people who need money and there are several models available. Kiva matches lenders directly with the borrowers, but Kiva loans pay no interest. Kiva lenders diversify by spreading their money over several borrowers. MicroPlace matches lenders with organizations in specific countries. The organizatons spread the money out over many borrowers and pay the lender 2 or 3% interest. Is this a better model? Will below-market monetary interest attract more capital than individual stories with human interest?

Are loans better than grants? At Save the Children, one can sponsor a child for $28 a month. On the other hand, at current money-market rates, $28 in foregone interest works out to about $7000 in Kiva loans or $19000 in MicroPlace loans (to an organization that pays 3%).

We can compare micro-lending to peer-to-peer lending platforms like Prosper. At Prosper, the borrowers are not third-world entrepreneurs, but fellow Americans. The interest rates are much higher and the default rates are much higher. It is possible to earn above-market returns at Prosper, but in practice many lenders end up with below-market returns.

I say let many flowers bloom. Some of these models may not work, but there's no reason that several different models can't thrive at the same time.

Boomeritis

Ken Wilber defines Boomeritis, the characteristic psychological condition of Baby Boomers, as Narcissism plus Relativism.

Using the language of the "story", narcissism is the notion that the story is about oneself, while relativism is the notion that one story is as good as another. Combining these, we get the notion that we can have whatever story we want. This appears in various forms:

I don't feel the need to limit myself to linear logic.

I choose to live life on my own terms and not be guided by charts based on statistics.

I like to consider myself a co-creator with the powers that be in the story of my life.

Like my fellow Boomers, I'm so vain, I think this song is about me. I acknowledge that there is no one right way to be. There are, however, wrong ways to be. The universe sets limits on our stories.

The problem with Boomeritis is that Mother Nature has a story too, and that story is not about us. In Mother Nature's story, our survival is a matter of complete indifference. In Into the Wild, Alex thought he was living an adventure story, but in fact he and the Alaskan wilderness co-created a story in which he starved to death.

Ironic consumerism

I was browsing at a Ross store the other day. My rule is to browse one day and come back to buy on Geezer Tuesday for the discount. If it's not worth making a second trip, it's not worth buying.

Anyway, Ross often has quality stuff at a discount, but they've also got a lot of godawful garish crap, made in China, and very inexpensive. This got me to thinking. Living in a consumerist society as I do, I have some choices to make. I can play the game and pay up for recognizable brands and try to impress people. I can hunt for bargains at Ross and maybe find a recognizable brand half off. Or I can shop at Wal-Mart and people will instantly recognize me as the type of person who shops at Wal-Mart.

Or... I can buy godawful garish crap at Ross and people will think, "duhhh, I get it! He's being ironic. How clever of him."

One does have to avoid paying up for irony. I saw a bottle labeled "Cheap Red Wine" that was twice as expensive as Inglenook Burgundy, which really is a cheap red wine, only without the irony.

Voluntary Simplexity

Voluntary Simplicity is a lifestyle choice for those disgruntled by modern life, who want to quit the rat race, get off the treadmill, drop out or walk away. The idea is that by simplifying one's life, by working less and consuming less, one can enjoy life more.

Sometimes I find the complexity of modern life aggravating. For example, I have a digital camera with features I've never used, and a 200-page manual I've never read.

On the other hand, I like to do Sudoku. A Sudoku, with the squares and the numbers and the zillions of possibilities, is a rush of pure complexity. Maybe you have your own favorite obsession, like crosswords or chess or bridge.

If I simplify my life so I can spend more time doing Sudoku, am I practicing Voluntary Simplicity or Voluntary Complexity?

The Voluntary Simpletons see a spectrum from complexity to simplicity and conclude: complexity bad, simplicity good. I think they're looking at the wrong spectrum. The right spectrum is the one from aggravation to satisfaction, from disgruntlement to regruntlement, and the goal is to find a more satisfying mix of simplicity and complexity.

Prosper

Prosper is a peer-to-peer lending plaform, an eBay of unsecured personal loans. The premise is that banks take in deposits at low interest and lend them out at high interest, so there is an opportunity to disintermediate the banks. The borrower gets a lower rate, the lender gets a higher rate, and Prosper gets a little something in the middle for matching the borrowers and lenders.

I am a lender at Prosper, with $200 of edutainment money. You can see my loan portfolio if you like. It's been a fascinating experience, reading people's sob stories and bidding on the loans. Prosper would make a great hobby, at the $2000 level or so, where you'd have decent diversification and receive enough money in payments to make a new loan every three or four weeks. The hobby would keep your interest and pay for itself besides.

I think there is an agency problem. Prosper offloads all the risk to the lenders, so there is no direct incentive to collect on the loans. On the other hand, Prosper is a start-up with $40 million in venture capital, so there is a strong incentive to scale up as rapidly as possible by whatever means are available. In my judgment, Prosper has to scale up from $90+ million in outstanding loans to about $7 or $8 billion. The US consumer debt market is $2.5 trillion, so it is certainly possible.

The result is that a lot of lenders have been sucked in by the marketing hype and ended up with much lower returns than they expected. There is a large community of lenders, many of them disgruntled, both on and off Prosper, for example at Prospers.org. If you're even thinking about lending on Prosper, read the forums and learn from the mistakes of others.

As for me, I've stopped lending at the edutainment level. It's still early days. Prosper is changing, lender behavior is changing, and there are competitors on the horizon. Someone will get it right, and peer-to-peer lending may become a viable asset class for investors.

However, all the things that make Prosper unattractive for lenders, work to the borrowers' advantage. If you want to borrow money, by all means check out Prosper! Read the forums, and study which stories get funded and which don't. You may be able to borrow on excellent terms at Prosper.

Movie review: Into the Wild

Great movie! Great scenery, good music. The screenplay is based on a book, which is based on a magazine article, which is based on the true story of a young man who goes off into the Alaskan wilderness and dies there. The story of his death is intercut with his adventures on the way to Alaska. It's a road movie. The ending is tragic, but he meets the obligatory offbeat characters on the way, and we get a glimpse of some unusual locations. Slab City is a real place, and so is Salvation Mountain.

I find it difficult to watch a movie about foolish youthful dreams through risk-averse middle-aged eyes. On the one hand, I see a kindred spirit, a fellow seeker of regruntlement in a way. On the other hand, I see an idiot, who does one stupid thing after another, until he finally does something so stupid that it kills him.

Alex, the young man, burns his remaining cash in the desert, to what, set himself free? Later we see him making fries in a fast-food kitchen. The manager tells him that he will have to start wearing socks, and he walks away. This establishes him as a man of principle. But what exactly is the principle? That he will take a minimum-wage McJob to replace the money that he burned, but he won't wear socks? Wouldn't it have been smarter not to burn the money in the first place? But that would deprive us of two dramatic scenes: the money burning in the desert, and the confrontation over the socks.

I don't know how true to life the movie is. It's not a true story, it's "based on" a true story twice removed. The socks incident and Slab City are not in the magazine article. On the other hand, there are things in the article and book that didn't make it into the movie.

The movie business is about drama, not logic, and sometimes characters have to do stupid things to move the story along. Maybe there's a lesson here. Maybe Alex thought his life was a movie, and his story would be more dramatic if he did some really stupid things.

Guest post: a poem

A Complaint
You of the brilliance,      with a mind full of thought Twisted and tricked      and trapped to compliance That all is commerce      and happiness is bought Wigged-out and drugged      by diagnosis and shame Your transcending thoughts      are totally to blame Thoughts that you are both      human/humane Expressed with self-doubt      when outside the frame

Selling Ron Paul short

Congressman Ron Paul of Texas is running for the Republican nomination for President. I'd estimate his chances at approximately zero. Intrade gives his chances at 7.5%. Intrade is an online prediction market, the modern equivalent of a bookie. There are people betting for Ron Paul, and people betting against him, and 7.5% is where the market clears. Of course, this is a new millenium and we don't talk about making bets, we talk about buying and selling contracts. It amounts to the same thing.

The trade is obvious: sell Ron Paul short at 7.5 and cover at 0. Can it really be this easy? It's a short sale, and Intrade requires a margin that doesn't earn interest. The contract runs through August 31, 2008, after the Republican convention. The trade works out to about 9% annualized. For all intents and purposes, the nomination will be over by the end of January, after Iowa and New Hampshire, so I can probably cover then, if not at zero then close to zero. I wouldn't be surprised to see a 20% annualized return on this bet, I mean investment.

Or I could look at this in a "Wisdom of Crowds" sort of way. The people at Intrade know something that the mainstream political pundits don't, and Ron Paul really does have a snowball's chance in hell of getting the nomination. Nah... I don't think so. Al Gore has a better chance of getting the Republican nomination. I think there are libertarians and conservatives at Intrade who are betting on what they want to happen, not what they would rationally expect to happen. However, there is a lot of enthusiasm on the internet, and you can read "Ron Paul Can Win" for the Paul supporters' case.

Or I could look at this as psycho-financial arbitrage. I like Ron Paul. I'd like to see him get the nomination. I voted for him when he ran for President as a Libertarian in 1988. So I sell him short at Intrade. If I'm right and he doesn't get the nomination, I make some money. If I'm wrong and he does, I have the satisfaction of seeing him run and voting for him in the general election. If I bet, I mean invest, the right amount, on balance I come out ahead either way. Such a deal.

I have $250 of edutainment money on its way to Intrade. If Ron Paul is still at 7.5% when my account is cleared to trade, I will sell him short.

Pascal's Wager

In a recent episode of House, a man in a hospital bed, in pain and hours from death, wishes he could just get it over with and go to heaven. Dr. House, of course, tells him that there is no heaven. Dr. Wilson says to House, "why did you do that? You don't know for sure that there is no afterlife. What harm does it do for this man to have a few hours of hope?"

Eloquently put. And yet... aren't we all terminally ill, and in pain? Maybe not so much pain, and maybe we have decades left instead of hours, but aren't we in the same existential position? What harm does it do for us to believe in heaven, or in reincarnation, or something else.

I think this is the wrong question. We are constantly bombarded with messages from advertisers, schools, governments and religions that seek to modify our behavior. The messages range from innocuous to misleading to malign. A lack of critical thinking puts a person at such a disadvantage in life.

I say focus on the critical thinking. If critical thinking leads you to warm fuzzy feelings about an afterlife, good for you. I find it does not. I see multiple belief systems that can't all be true at the same time, and a lack of evidence from which to judge which belief system is more likely to be true. Overly analytical perhaps, and not very comforting, but the flip side is that being less deluded than most gives me an advantage in the here and now. Your mileage may vary.

Department of Synchronicity: just before posting, I found yet another modern restatement of Pascal's Wager in an email:

"I would rather live my life as if there is a GOD, and die to find out there isn't, than live my life as if there isn't, and die to find out there is."

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Is there a podiatrist in the house?

I've only been blogging for 4 days, I have maybe half a dozen readers, and one of them really does have Godzilla feet in her closet!

"Actually, I have the Perfect Godzilla's feet in a box in my closet."

OK, I'm convinced. Seeing is believing. St. Anselm's argument is valid.

Consumerism, deconstructed

A snippet from a recent commercial: a young woman is at the office and her boss asks her, "How can you afford those brands on what I pay you?" The answer being "Burlington Coat Factory".

This is just wrong on so many levels. First, the emphasis is on the brand, not the coat. A brand is totally intangible, a status symbol, a piece of information... as opposed to a coat, which might keep a person warm and dry. It's assumed that the woman, her boss and the viewer all recognize the brands and acknowledge their status.

Second, there's the word "afford"... the brands are not ranked by utility or appearance, but by price. It's assumed that a more expensive brand has more status.

Third, there is a power relationship here, mediated by money. The boss sets the woman's salary, and sets it low enough to keep her in her place. But wait! By being a smart consumer, by "affording" a higher-status brand than the boss thinks she is entitled to, the woman is challenging the hierarchy! Two alpha consumers are battling it out for dominance, and Burlington Coat Factory is on the side of the challenger.

Then there is the assumption that the boss is actually impressed, instead of thinking "Jeez, what an ugly outfit! Where does she shop, Burlington Coat Factory?"

Finally, the commercial assumes that the office is the real world, that the job is real life, that employment is an authentic human relationship, and that impressing the boss is something that a normal person would bother with.

A Voluntary Simpleton would work just long enough to buy a nice warm coat at Wal-Mart, and that would be that.

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Clarification: the boss is a woman. The coat picture is from the Burlington Coat Factory web site, not from the ad. If someone can find me a video of the ad itself, I'll link to it.

Virtual timber

Plum Creek Timber (PCL) owns 8.2 million acres of timber in 18 states. Divide the market cap by the acres and you get about $900 per acre. Cheap land, professionally managed, 4% dividend. Land and timber are hard assets, so they should stay even with inflation, plus GDP growth. You're diversified across 18 states, so there's less risk from natural disasters.

But wait, there's more! If the price of lumber goes down (can you say "real estate bubble"?), management can always just... do nothing. The trees will keep growing, and when the price of lumber goes back up, the trees will be bigger. As opposed to corn, which will rot in the fields if it isn't harvested. The only downside is that there is no specific acreage that you can walk on, no actual trees that you can hug.

All in all, and over the long term, virtual timber should provide a return comparable to that of stocks. PCL, a single company, is riskier than a broad-based index like the S&P 500, but a little bit of PCL should reduce overall portfolio risk.

Disclosure: I do own a few acres of virtual timber.

I'm a Rocka too!

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