Talking About a Revolution?

I don't know what thought scares me more: People waking up and realizing what's going on in this country or people not waking up and realizing what's going on this country.

From David Einhorn's piece in the NY Times:

......I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.

According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010. This does not take into account the very large liabilities the government has taken on by socializing losses in the housing market. We have not seen the bills for bailing out Fannie Mae and Freddie Mac and even more so the Federal Housing Administration, which is issuing government-guaranteed loans to non-creditworthy borrowers on terms easier than anything offered during the housing bubble. Government accounting is done on a cash basis, so promises to pay in the future — whether Social Security benefits or loan guarantees — do not count in the budget until the money goes out the door.

.........How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.

........The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money?

The recent United States credit crisis was attributable in large measure to capital requirements and risk models that incorrectly assumed AAA-rated securities were exempt from default risk. We learned the hard way that when the market ignores credit risk, the behavior of borrowers and lenders becomes distorted.

.......It was once unthinkable that “risk-free” institutions could fail — so unthinkable that the chief executives of the companies that recently did fail probably didn’t realize when they crossed the line from highly creditworthy to eventually insolvent. Surely, had they seen the line, they would, to a man, have stopped on the solvent side.

Our government leaders are faced with the same risk today. At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?

I recently posed this question to one of the president’s senior economic advisers. He answered that the government is different from financial institutions because it can print money, and statistically the United States is not as bad off as some other countries. For an investor, these responses do not inspire confidence.

.......We should have learned by now that each credit — no matter how unthinkable its failure would be — has risk and requires capital. Just as trivial capital charges encouraged lenders and borrowers to overdo it with AAA-rated collateral debt obligations, the same flawed structure in the government debt market encourages and therefore practically ensures a repeat of this behavior — leading to an even larger crisis.

.......The Fed wants to have low interest rates to fight unemployment, which, in a new version of the trickle-down theory, it believes can be addressed through higher stock prices. The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other “risky assets.” This speculation drives stock prices higher, which creates a “wealth effect” when the lucky speculators spend some of their gains on goods and services. The purchases increase aggregate demand and lead to job creation.

Easy money also aids the banks, helping them earn back their still unacknowledged losses. This has the perverse effect of discouraging banks from making new loans. If banks can lend to the government, with no capital charge and no perceived risk and earn an adequate spread, then they have little incentive to lend to small businesses or consumers. (For this reason, higher short-term rates could very well stimulate additional lending to the private sector.)

Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization. Allowing borrowers, including the government, to get addicted to unsustainably low rates creates enormous solvency risks when rates eventually rise.

........Though we don’t know what’s going to happen next, the good news for our grandchildren is that we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course. If we don’t, Mr. Geithner and others might regret having never said never about America’s rating.

Roger, Roger?

Nassim Taleb on "Keynesian Stimulus"

Nassim Taleb offers us a few thoughts on "Keynesian Stimulus":

I just realized that what is called "Keynesian stimulus" works differently when the government is starting off in a situation of deficit. The math works out differently, which makes me wonder why economists cannot spot it (I inject more perturbations and see massive fragility). In one case, to make an analogy to an individual, you can invest money you have on the side (assuming you've had suspluses from the past). In the other, you fragilize yourself by borrowing, and transfer the liabilities cross-generations. Patris delictum nocere nunquam debet filio. [A father should not leave liabilities to his son.]

But you can't expect economists to perturbate their models, or inject rigor in their arguments. They are the very same idiots after all who got us here.

Just Like He Planned

The one thing that I really admire about President Obama is that he appears, as far as politicians go, to be a man of his word.

He said he was going to spread the wealth around and that is exactly what he is doing:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

It's All About Decision Making

It's hard to believe that this Op/Ed appeared in the NY Times, but this piece from Nicolas Kristoff is one of the more powerful pieces I have read on the importance of proper decision making:

There’s an ugly secret of global poverty, one rarely acknowledged by aid groups or U.N. reports. It’s a blunt truth that is politically incorrect, heartbreaking, frustrating and ubiquitous:

It’s that if the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children’s prospects would be transformed. Much suffering is caused not only by low incomes, but also by shortsighted private spending decisions by heads of households.

That probably sounds sanctimonious, haughty and callous, but it’s been on my mind while traveling through central Africa with a college student on my annual win-a-trip journey. Here in this Congolese village of Mont-Belo, we met a bright fourth grader, Jovali Obamza, who is about to be expelled from school because his family is three months behind in paying fees. (In theory, public school is free in the Congo Republic. In fact, every single school we visited charges fees.)

We asked to see Jovali’s parents. The dad, Georges Obamza, who weaves straw stools that he sells for $1 each, is unmistakably very poor. He said that the family is eight months behind on its $6-a-month rent and is in danger of being evicted, with nowhere to go.

The Obamzas have no mosquito net, even though they have already lost two of their eight children to malaria. They say they just can’t afford the $6 cost of a net. Nor can they afford the $2.50-a-month tuition for each of their three school-age kids.

“It’s hard to get the money to send the kids to school,” Mr. Obamza explained, a bit embarrassed.

But Mr. Obamza and his wife, Valerie, do have cellphones and say they spend a combined $10 a month on call time.

In addition, Mr. Obamza goes drinking several times a week at a village bar, spending about $1 an evening on moonshine. By his calculation, that adds up to about $12 a month — almost as much as the family rent and school fees combined.

I asked Mr. Obamza why he prioritizes alcohol over educating his kids. He looked pained.

.........Two M.I.T. economists, Abhijit Banerjee and Esther Duflo, found that the world’s poor typically spend about 2 percent of their income educating their children, and often larger percentages on alcohol and tobacco: 4 percent in rural Papua New Guinea, 6 percent in Indonesia, 8 percent in Mexico. The indigent also spend significant sums on soft drinks, prostitution and extravagant festivals.

..........Look, I don’t want to be an unctuous party-pooper. But I’ve seen too many children dying of malaria for want of a bed net that the father tells me is unaffordable, even as he spends larger sums on liquor. If we want Mr. Obamza’s children to get an education and sleep under a bed net — well, the simplest option is for their dad to spend fewer evenings in the bar.

Because there’s mounting evidence that mothers are more likely than fathers to spend money educating their kids, one solution is to give women more control over purse strings and more legal title to assets. Some aid groups and U.N. agencies are working on that.

.......Well-meaning humanitarians sometimes burnish suffering to make it seem more virtuous and noble than it often is. If we’re going to make more progress, and get kids like the Obamza children in school and under bed nets, we need to look unflinchingly at uncomfortable truths — and then try to redirect the family money now spent on wine and prostitution.

Athletes and Bankruptcy

This is a fascinating post from the blog The Liberal Order:

Professional Athletes and the Prevalence of Bankruptcy

.........Now comes even worse news regarding NFL players and bankrupt.

The 78 percent number (i.e., 78% of NFL players go bankrupt within two years of retirement) is buoyed by the fact that the average NFL career lasts just three years. So, figure a player gets drafted in 2009, signs for the minimum and lasts three years in the league: He will have earned about $1.2 million in salary. Factor in taxes, cost of living and the misguided belief that there will be more years and bigger paydays down the road, and it becomes a lot easier to see how so many players struggle with money after their careers end.

If this data is correct, the probability of a high school athlete making it to the professional level is about 1 in 12,000. (I've heard that the probability is far more remote.) Baseball offers the most lucrative potential as well as the likelihood of having the longest career. But even that is estimated to be just three years for MLB. Doing the math, and discounting $400,000 per year for three years, beginning at age 17 and entering the big leagues at age 21 (not likely), the expected value of a career in baseball is about $86. Who's likely to pursue that?

Now, certainly it's not the average high school athlete who considers himself pro material, but It's still predominantly those with low opportunity costs of their time that pursue the professional athlete track. Even if we changed it so that a particular high school athlete was ten times more likely to make it to the professional level than the average high school athlete, the expected value is only about $860. That is total, not per year.

Making to the pros for many athletes is like the person winning the lottery who lives in a trailer - they've never learned how to handle wealth.

25 Ways to a Happy Marriage

Read all 25 if you have time, but here are my five favorite:

3. You don’t have to like every quality your partner has. You do have to decide whether you can live with those qualities, says Loren Gelberg-Goff, a longtime marriage and couples counselor. You won’t be able to change them.

7. Stick to the present. Don’t bring up old conflicts or things that went wrong in the past, says Jason Trachtenburg, a Brooklyn musician. “It doesn’t pay to bring up past hurts or reopen old wounds. It only creates resentment, and that’s not something you want to play around with.”

8. Follow the 5-to-1 rule: five compliments for every criticism of your partner, says Gelberg-Goff. “You must be willing to find more that’s positive in your partner than is negative,” she says.

15. Create a world that the two of you share. Every couple should have things they do together that they both enjoy, even if it’s just going to the movies. “We like each other’s jobs, and we like each other’s friends,” says Shelly Strickler, 69, of Brooklyn, who will have been married to Larry, also 69, for 48 years this June.

25. Be an optimist. It’s simple, but if you think positively about your marriage, your marriage will often be positive. California field mice can be faithful for life, research shows. Why not you?

Just the Facts from Senator Tom Coburn

Senator Coburn sets the record straight on the United Nations:

• American taxpayers provide nearly a quarter of the entire UN budget (and more than a quarter of peacekeeping operations), or about $6 billion annually. Comprehensive data on the UN spending is scarce and very difficult to obtain—even by the U.S. Congress.
  
  
• Over forty percent of all UN contracts audited in 2007 were found to include fraudulent spending. Of the $1.4 billion in contracts reviewed, $630 million of it was found to include “significant fraud and corruption schemes.”
  
  
• According to the Associated Press, last week “seven countries accused of human rights violations have won seats on the U.N. Human Rights Council in an uncontested election, including Libya, Angola and Malaysia.”
  
  
• The UN has been regularly criticized for its lack of transparency and commitment to ethics reform. For example, an American whistleblower acting as a high ranking official for the United Nations in Kosovo was fired three years ago after assisting with an internal investigation looking at corruption. The Secretary General has refused requests from agency inspectors for key documents related to this and other ethics investigations.
  
  
• The UN Environment Program, which manages the UN’s global warming initiatives, spends in excess of $1 billion annually and lacks significant transparency or oversight. According to a key task force report in 2008, it would take the program’s auditor 17 years to review identified high-risk areas. The program continues to delay efforts to bring greater transparency to its work.
  
  
• Renovations of the United Nations’ headquarters in New York City, which were originally estimated to cost $1.2 billion, are now forecast to cost $2 billion. Cost overruns continue to plague the project. U.S. taxpayers will be responsible for at least $485 million.
  
  
• Between 2004 and 2008, the U.S. Agency for International Development (USAID), along with other federal agencies, contributed over $400 million to the United Nations Office for Special Projects. Yet, when serious allegations of fraud within the program prompted the attention of U.S. investigators, the program denied the United States access to key records and limited interviews with agency managers.
  
  
• The United Nations Development Program (UNDP), whose mission focus includes global poverty, HIV/AIDS, and the promotion of democracy, receives over $200 million annually from U.S. taxpayers. Investigations by a Senate committee revealed that UNDP accounts have been used by North Korea to hide financial transactions. Worse, UNDP funds may have ended up in the hands of an entity used to sell North Korean weapons. Internal UN audits of UNDP programs have been kept from American inspectors.

Drayton Bird on Pilots and Marketing

I really do love everything Mr. Bird writes:

What an airline pilot could teach you about marketing

A few years ago a friend sent me something called Rules of the Air, from the Australian Aviation Magazine.

As it was very funny, I sent it to my ex-partner Glenmore, who was ejected from the RAF (not from his plane) when young for doing something in a jet over the M1 that frightened a few motorists.

No, he wasn’t exposing himself, madam.

After I read the piece I noticed how many of the rules apply to our business (or any other, come to think of it).

For instance, (1) was "Every takeoff is optional. Every landing is mandatory". In other words, you're not forced to try that bright idea, but if you must, make sure you do it right.

The same thought emerged rather more frighteningly from (3) "Flying isn't dangerous. Crashing is what's dangerous". If people worried more about what might go wrong than rubbing their hands with glee at the sure fire profits, they’d do a lot better.

I liked (9) which suggested a little study - so rare in our industry: "Learn from the mistakes of others. You won't live long enough to make all of them yourself".

A similar thought underlies (16) "You start with a bag full of luck and an empty bag of experience. The trick is to fill the bag of experience before you empty the bag of luck."

That's a bit like (20) which I always thought was said by Walter Wriston, former CEO of Citibank – but maybe, being a banker, he stole it.: "Good judgment comes from experience. Unfortunately, the experience usually comes from bad judgment".

(12) - "Never let an aircraft take you somewhere your brain didn't get to five minutes earlier" - endorses planning.

Whilst (13) suggests caution: "Stay out of clouds. The silver lining everyone keeps talking about might be another airplane going in the opposite direction. Reliable sources also report that mountains have been known to hide out in clouds."

Put no faith in easy answers, says (15) – which reminds me of all the ballyhoo I have heard over the years about CRM, Social Networks, rebranding and other miracle solutions.

And (22) wisely states, "Keep looking around. There's always something you've missed".

But the one I liked most simply read: "There are three simple rules for making a smooth landing. Unfortunately no one knows what they are".

And I don’t know what number that was because I’ve lost the original.

Crashing Down

I really do believe that we are dangerously close to seeing the world's fiscal house of cards come crashing down on all of our heads.

From George Will's column yesterday:

So the U.S. government, which would borrow 42 cents of every dollar it spends under the president's 2011 budget, is borrowing to rescue Greece and others from the consequences of their borrowing.

That nation, whose GDP is below that of the Dallas-Fort Worth metropolitan area, is "too big to fail," meaning too inconveniently connected to too many big banks. Bailing out Greece really rescues European banks that improvidently bought Greek bonds.

........America's projected $9.7 trillion in budget deficits in this decade will drive the nation's debt to 90% of GDP (Greece's is 124%).

So some people say that to avoid a Greek-style crisis, America should adopt a value-added tax.

But Europe's most troubled nations — the PIIGS: Portugal, Ireland, Italy, Greece and Spain — have VATs of 20%, 21%, 20%, 21% and 16%, respectively. As part of its austerity penance, the Greek government is going to give itself more money by raising its VAT to 23%.

Social Media

Wake Up America

Venture Capitalist Bill Frezza doesn't beat much around the bush in this article in RealClear Markets:

Wake up America! How many million unionists are we expected to carry on our public payrolls? How long can we keep government employees on defined-benefit pension plans while the rest of us scramble to fund our 401(k)s ? How many more people are we going to drop from the income tax rolls as we lean on a smaller and smaller slice of citizens to carry an ever greater percentage of the load, leaving the rest free to vote for tax increases? How large a swath of our population can we pretend to keep supplied with newly manufactured economic rights like free healthcare as Social Security and Medicare careen toward insolvency? How much more do we think we can borrow from the Chinese to fund day-to-day government operations? How long do we think we can afford to police the world?

What the world's political leaders and those who elect them need most right now is a shocking example of the only possible outcome of trying to practice redistributive justice on a national or even global scale. Rescuing Greece is a mistake. What they deserve is a good hard dose of exactly what they are asking for - unvarnished socialism.

Throw Greece out of the European Union. Let them default on their debts. Teach buyers to beware before they invest in sovereign bonds. Dare Greece to print Drachmas by the wheelbarrow. Put the whole country on the public payroll then challenge them to demonstrate what a truly egalitarian society looks like. Maybe a dramatic spectacle of what a workers paradise looks like under the media's glare will teach us what's in store if we don't change our ways.

Democracy is broken. You can't mix Freedom and Free Lunch. One or the other has got to go.

Negative Equity

Below is a chart (click to enlarge) of the percent of homeowners in each state with negative equity or near negative equity in their home.

Negative Equity: Situation where the market value of a mortgaged asset is below the amount of loan taken against it.

Munger Rule

The Charlie Munger Rule:

When a guy is offering you free money don’t listen to the rest of the sentence.

Tom Barrack on Real Estate

This is just awesome stuff from billionaire real estate entrepreneur Tom Barrack:

Keep it simple and go where they are not!

The trip to Baja and the simple and consistent waves at SS reminded me of the real estate business. There is so much real estate in the world that one does not need to be in a frenzy to acquire it. Since there is no real exchange and it is definitely not homogeneous there is plenty of it for everyone. My first partner in life used to tell me, "Every time you think you are so brilliant at real estate look out the window and see what you did not build, what you do not own and what you did not finance." No one anywhere owns more than 1 percent of any market in any asset. There are really relatively few big players who know the way down the signless dirt roads to the pristine spots and it is simple and easy to see what they are doing. Real estate is a simple business and bricks and mortar can be exchanged privately without the parade of horribles that we have discussed. There is no need for a "digital odometer." It normally moves in a lumpy fashion through private treaty trades and in a lagging fashion to the world around it.

The challenge with real estate is simply one of the amount of "risk" which is inherent in the investment. Usually, that risk is measured in terms of the perceived quality of the assets and the quantity and cost of debt used to acquire or refinance an asset. Real Estate on a cash basis is very forgiving and a simple and effective "capital preservation" tool. We change its risk profile by demanding higher and higher returns from the same asset by changing the capital structure or adaptive re-usages. The use of debt and debt instruments turbo charges yields and raises the risk curve without regard to the underlying cost of capital.

Best Marketing Advice Ever - Have a Good Product

From the legendary Drayton Bird:

........I really must apologise for the utter banality of most of my marketing advice, as it seems to consist of a series of blinding glimpses of the obvious without nearly enough long words or references to social media.

However, since I often make the most fatuous mistakes myself (I committed an unforgivable sin a few weeks ago that I have long advised others against) maybe I should just carry on dishing out these platitudes.

So let's talk about what matters most.

Three weeks ago, stranded in Brooklyn, and too damn incompetent or idle to go to the laundrette, I went to Macy's to buy some underpants. I bought their own brand, and they are the worst-fitting, least- elasticated-where-they-should-be load of rubbish I've ever wasted money on. And one of the 5 T- shorts I bought to go with them ripped on first use.

I bet the big cheeses who run Macy's don't buy their own underwear. In fact I bet the big cheeses who run most large businesses don't use their own products or services, because (this is going to sound so sad) I also bought some underpants a few weeks ago from Marks and Spencer. They used to be famous for their underwear - but these were almost as bad as Macy's. So I guess Sir Stuart Rose, capo di tutti capi at M & S, doesn't buy his own stuff either.

Macy's are not doing too well. Nor are M & S. But in the US, Target are on a a roll. So after my failure at Macy's I went there and squandered a few dollars on their stuff. It fits perfectly. So I suspect the people who run Target do buy their own stuff. And after my failure at M & S (get a life, Drayton) I went to H & M and bought their. Also much better. And also, I suspect, because the people there deliver what they promise (cheap stuff that's value for money) and keep an eye on the store.

I guess you see where I'm going with this, but just to rub it all in, take French Connection. They're having their problems, and I think I can see why. No big secret. Their stuff is just not very well made for the money. Someone there clearly thinks the solution is one of the silliest advertising campaigns I've seen for a while, top left. It isn't.

Everyone spends a huge amount of time effort, syllables, powerpoint slides and all-round bullshit on marketing, and it is all a complete waste if you don't deliver something good and make sure you are doing so - in person.

Munger Quote

A great quote from Charlie Munger:

"When you picked your wife, you picked the best who would take you. We should live the rest of our lives like that.”

Liar Loans Part Deux

From real estate consultant John Burns:

Does anyone really think that homeowners can afford to pay 60% of their income for housing? Apparently, the architects of the latest loan modification program called HAMP do. Government officials are touting that they are saving the housing industry by modifying more than 1 million loans to date, and converting 170,000 of those to "permanent" status, with many more to come.

Those so-called "permanent modifications" cost the Borrower 31% of their income today, but the Borrower still has 60% of their income going to total debt obligations (credit card, HELOC, car payment, etc.). These statistics, known as the Back-end Debt to Income ratio, can be found on page 4 located here . Although not disclosed, we believe most of these loans exceed 100% LTV today as well. This is nothing more than a fully documented version of the same garbage that took down the banking system two years ago, and this time the Federal government rather than Countrywide and New Century are underwriting it. Almost all of these Borrowers will eventually re-default.

It is very obvious that the architects of HAMP are short-term focused, and are tricking us into thinking they are solving the problem by calling these permanent modifications. Until these loans are renamed, let's call them "Liar Loans 2," except this time the liar is the Bank of the United States rather than the Borrower because this modification is anything but "permanent". We do believe that stabilizing home prices and the banking system are critical to the recovery of the U.S. economy, but let's at least tell the truth about what is being done.

What this means for you is that the housing recovery that is being touted by elected officials is far from assured. There will be fewer homeowners thrown out on the street this month than would have occurred otherwise, but they will be tossed out later. The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring the write-off of bad loans. The biggest beneficiaries of this program are the banks with the largest Home Equity Loan portfolios, which are also the banks needed to provide capital to businesses to start hiring again.

How does this change things? We will be adding 170K additional future foreclosures to our forecast, with many more to come, and guiding our clients through these turbulent times by analyzing every indicator we can get our hands on. Despite the negative tone of this email, there are and will continue to be plenty of opportunities to make money, particularly taking advantage of the distressed selling that will go on for years, but having a long term investment horizon. Also, the national housing market is becoming more local than ever, which means those with local market knowledge, or the ability to roll up all of the local factors into a national view, will make the most money. In other words, those who do their homework will get straight A's.

Life Lessons from Buffett and Munger

The Reading for Your Success blog has a fantastic post about life lessons learned from Charlie Munger and Warren Buffett.

13 Life Lessons from Warren and Charlie:

1. Lose money and I will forgive you, but lose even a shred of reputation and I will be ruthless [Warren]. This has been echoed across the business world for years and it applies to us all. Life is too short to cut corners to make an extra buck. Wealth can always be recreated but reputation takes a lifetime to build and often only a moment to destroy. As Warren says, “we will not trade reputation for money.”

2. The best defense in a tough economy is to add the most you can to society. Your money can be inflated away but your knowledge and talent cannot [Warren]. No matter the external circumstances, you are always in control of your talent, learning and passion for life. “There will always be opportunities for talent” as Warren says.

3. We get worried when people start to agree with us [Warren]. The best fruit is found out on the limbs. The road less traveled makes all the difference. Make a rule to always stay on the side of the minority in your life’s path and you will likely be greatly rewarded and you’ll certainly experience a lot more excitement.

4. We celebrate wealth only when it’s been fairly won and wisely used [Charlie]. The goal is not to make money at all costs. It’s easy to forget that in a lot of industries and sub-cultures around the U.S. where everyone is in constant competition to keep up with the Jonses. Wealth is worthless if you’ve destroyed all your relationships to attain it. As Charlie says “take the high road. It’s far less crowded.” Sad but often true. Makes it pretty easy to stand out.

5. When you are exceptional you jump off the page. There really isn’t that much competition there [Warren]. Be your own best competitive advantage. Then it doesn’t make a difference what others are doing. You are in control.

6. Do what you’re passionate about. If you do this, there will be few people competing or running faster than you [Warren]. The best way to be exceptional is with passion! As Tony Robbins says every day of his life, “Live with Passion!” And trust me, life is a lot more fun this way.

7. I think I developed courage when I learned I could deal with hardship. You need to get your feet wet and get some failure under your belt [Charlie]. Courage does not grow on it’s own. Just like a muscle, it must be constantly worked out and developed. Life begins outside your comfort zone and that is where your courage is developed. Most people don’t succeed because they’re afraid to fail. Failure isn’t that bad anyway. It will make you tougher and more likely to win the next time around. No one has succeeded without going through their own failures at some point. To try and fail is much better than to never try. Why not get started early and get some of them out of the way! What’s the worst that could happen anyway? As big wave surfer Laird Hamilton says “If you’re not falling then you’re not learning.”

Charlie Learning

8. There’s no better way to be happier than getting your expectations down [Charlie]. Most unhappiness comes from misaligned and unrealistic expectations of life. Expect the world of yourself, but expect nothing of the world. Then you can not help but live your life pleasantly surprised.

9. If I can be optimistic while I’m nearly dead, you can deal with a little inflation [Charlie]. This had the crowd laughing out loud. Life is what you make it. Don’t let things get you down. It could always be worse.

10. If the only reason you find for doing something is because others are doing it then that’s not good enough [Warren].Enough said.

11. Bad behavior is contagious. That’s how human nature works [Warren]. Watch out for this. It can catch you off guard.

12. We’ve done a lot of stupid things but we’ve avoided a small subset of stupidity and that subset is important. It’s about avoiding the dumb things [Charlie]. They hammer this every year. Their success does not come from doing so many things right. It comes from avoiding the things that are terribly wrong. Some say this is two sides of the same coin. But it’s not. It requires a fundamental shift in psychology. The stories are endless of people who did a few things right and were massively successful, but then did something stupid that took them back to zero. Before Charlie and Warren do anything, they “invert, always invert” as Charlie says. They list every way imaginable in which they could fail at a particular task and then take massive effort to avoid those failures. Do that and the success will come automatically.

13. Go to bed a little wiser than when you woke up [Charlie].This covers the whole meeting in a word. Life is about learning. If you are always learning you can never lose. Keep this as your only rule for the day and the world be yours for the taking.

Go to bed a little wiser than when you woke up.

-Charlie Munger

The lessons from Warren and Charlie are endless. We can all stand to learn and be better people from what they are willing to share. They don’t charge any money or ask for anything in return. Except of course that we live a life with a burning desire to learn and do all we can to be valuable additions to society. Take these lessons to heart. There will likely not be another Warren and Charlie for a very long time. Take advantage of the education while you can. Do so and I have a feeling success and fulfillment will come naturally.

Gotta Love Nashville

Who Owes Who What?

This will not end well.

As economist Don Boudreaux stated on his blog:

Rescuing Greece isn’t the end of the problem, it’s more akin to the Bear Stearns rescue of March 2008. It’s just the beginning of something that won’t end well.

100 Year Flood?

Sorry for the lack of activity on this blog over the last few days.

Over the weekend, Nashville experienced what may turn out to be a 100 year flood.

Please keep this city in your prayers as we try to move forward with cleaning up the city and trying to deal with the devastation this storm has caused.