An Experiment In Scotch

I write to discover what I believe

Month: February 2012

Buffett On Gold – And Why He's Wrong

Warren Buffett recently released the annual report for his company, Berkshire Hathaway. You can read that report in its entirety here. In it, Buffett gives us his insight into investing in the modern times. Buffett has a long history of being extremely successful in the investing world, a reputation that we would be crazy to ignore. However, like any human being, Buffett has biases, biases that might negatively affect his ability to accurately examine the world and accurately deploy capital in an attempt to gain a significant return on investment. Any time you read the opinion of someone on anything (including the one you’re about to slog through), it’s important to understand the motivations and biases that said person might be trapped by.

I don’t make it a habit of reading Berkshire’s annual report though I may start. However, I ran across it this year when Kent Beck linked to this excerpt and cited it as an example of persuasive writing. Since I’m both a writer and an investor in gold, I was naturally intrigued to see what Mr. Buffett had to say about the topic. Sadly, I fail to concur on both points. The writing is clearly done by someone with a somewhat outdated understanding of the current economic system and someone who has clear biases against investing in commodities, particularly the supposedly non-productive metal gold. The excerpt linked above is only a part of Buffett’s delineation of three categories of investments. While it’s nice to excerpt only the part you find mentally comforting, it’s far more important to read the entire section to get an idea of what Buffett is saying.

Starting on page 17 of the report, Buffett details the three main categories of investments he defines: currency based assets, non-productive based assets and productive based assets. Examples of these classes are (1) money market funds and bonds, (2) gold (and poorly, tulips according to Buffett) and (3) most everything else including farms, real estate and stocks. The excerpt linked above deals only with the section on gold but let’s take a look at the classes and Buffett’s writing in their entirety.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control

Buffett opens up with this description of the first class of assets, namely currency denominated assets. There are several key ideas here to glean from Buffett’s writing. The first is that contrary to popular wisdom he feels that currency assets are actually quite dangerous and from the standpoint of a long term view point with the greatest return on investment, they are very dangerous. The ugly spectre of inflation, insidious and often silent, will destroy any perceived value of these investment vehicles because as Buffett so aptly points out “governments determine the ultimate value of money.” So we can assume that Buffett is keenly aware of the negative influence on inflation and manages Berkshire in a way to exceed the negative inflation tax. The second interesting thing to note is Buffett’s choice of time frame. “Over the past century” is certainly a long time frame, one that is undoubtedly picked because it fits the narrative Buffett is trying to create. This is the first example we see of a specific period of time and it’s worth a small discussion.

As always, the discussion and interpretation of time is fundamentally dependent on the context of the parties being discussed. Six months might be long term for a terminal cancer patient while sixty years might be long term for an entity like Berkshire Hathaway. More importantly, time frames on the individual level are qualitatively different that time frames from an organizational or societal level. An individual investor has a long term time frame of 30-40 years to acquire enough wealth to satisfy any financial goals he might set for retirement. Unfortunately, at the macro level where the statistics are often quoted, 30-40 years is a tiny fraction of a time slice as evidence by the Dow over the past 12 years being essentially flat with a annual negative return once inflation is considered. A full 25% of a long term investor’s time frame has returned nothing if said investor had the misfortune of being born in a period where the Dow just didn’t appreciate. The usage of a century as the time frame for examining the performance of this first class of assets is convenient for Buffett’s argument but meaningless for anyone who is interested in investing at the individual level. One hundred year time frames tell you and I almost nothing.

Continuing with his discussion of the first class:

Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as “income.”

For tax-paying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor’s visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It’s noteworthy that the implicit inflation “tax” was more than triple the explicit income tax that our investor probably thought of as his main burden. “In God We Trust” may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human

Again, there is a wealth of information here. First, we notice that Buffett has now narrowed his time frame to the 47 years he’s been investing. This is much more useful as it’s a time frame we can understand and profit from as individual investors. Explicitly showing how inflation destroys the value of savers wealth, we begin to get a fuller picture of Buffett’s ideas. It’s clear he does not trust any government, much less the United States, to preserve the value of its currency and because he cannot trust them, he views the instruments they control as poorly suited for his hard earned investments.

This is a critical point because it directly contradicts what he goes on to discuss in the following section on so-called non-productive assets. We now know that Buffett distrusts governments and their currencies as investment vehicles because throughout history, both at the individual and macro level, governments have never shown an interest in preserving the value of their currency. Exactly the opposite, all fiat currencies throughout time immemorial have lost value. Some times quickly, sometimes slowly, almost never orderly, the value of any given governmental currency has disappeared over time.

However, it is interesting to note that while Buffett is disdainful of this class of asset, he states that at times in the past, Berkshire has discovered mispriced markets and profited in this class based on that mispricing. While largely focused on the long term, Buffett works on a daily basis on the short term, especially as it relates to the economic outlook of a given time. This points out yet another contradiction in the coming discussion of gold. While over the long term, investing in currency based assets has been detrimental and destructive to an individual’s capital, in the short term there have been opportunities to capitalize on market irrationality and profit in this class. This is also true for gold and it seems inconceivable to Mr. Buffett that we might currently be in a time when we can profit from exposure to metals in our portfolios.

Let’s turn to the second class of assets Buffett discusses.

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the futur

This is only a partial representation of this class and unfortunately, it is poorly represented by the example given by Buffett of tulips. I would argue that there are two subclasses of this class. The first subclass represents those items that have a shelf life. Examples are food commodities, cattle and of course, tulips. These items have value because somewhere at the end of the buying chain lives a person who is willing to pay retail price for the item. No one invests in tulips with the express intent of storing wealth over time.

The second subclass is represented by things without a shelf life at least in human terms and includes things like metals and oil. This class can be thought of not only as investments but as stores of wealth. A store of wealth is an alternative to currency and actually encompasses most things we buy. For example, I have a set of noise canceling headphones on my desk. At some level, they are a store of wealth in that at no point in the future will they have a value of zero. We can assume that if they continue to work, I can always sell them to someone even though the sale price may be a tiny fraction of the price I paid. A tulip clearly does not fit into this category. The problem with the headphones is that once I took them off the proverbial lot, they have depreciated in value at every single moment since and will continue to depreciate unless some strange confluence of events emerges that misprices the market for old headphones.

Hard commodities like oil and the metals on the other hand have throughout time, both long and short term, experienced periods where economic factors have created an increase in value of their wealth. We are experiencing one currently. This happens for a variety of reasons but it is often related to that very fear Buffett outlines in his section on the first class of assets, namely that governments cannot be trusted to preserve the value of their particular currency. Gold, as a store of wealth, has no overseer other than the market and the price that market is willing to support. It is fundamentally different in type from tulips and shouldn’t be discussed in the same way at all.

Further on, Buffett details what he believes motivates the buyers of gold:

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while

First off it’s important to note the pejorative distinction of bandwagon investors. The scare quotes alone are enough to tell us what Buffett thinks of those people currently buying gold in today’s market. There are two fundamental things wrong with this usage. First, at some level, all investors are bandwagon investors unless they are exceptionally lucky or exceptionally foresighted. Markets by definition in any growth industry are about the accumulation of more investors over time who believe the price of the market will go up. And secondly, a large part of Buffett’s strategy for acquiring wealth over the long term stands on his ability to identify markets where bandwagon investors will drive the market higher. While he clearly denigrates people who jump on the bandwagon of some market, his success is fundamentally dependent on that continuing to happen at some level. Also interesting to note is the usage of “for a while”. Again, time comes into play and just as Buffett has in the past made money on currency assets when the price was right, one would think that he would be open to making money on hard commodities when the time was right. All markets are right “for a while”. The key is knowing when that time is. And that brings us to what Buffett most likely thinks about gold and that is that the time is not right. He most likely believes that gold has reached the end of its run and will thus at some point in the not so distant future begin to lose value perhaps dramatically. The question is, is he right? We’ll look at that more in a bit.

Buffett then goes on to talk about two recent bubbles, Internet stocks and housing. The issue there is of course that those bubbles were driven largely by a Federal Reserve policy that eased the money supply in exactly the way Buffett outlines in his first section. Those bubbles were driven by cash chasing return. I believe the current gold boom is being driven by a completely different impetus and that is the collapse of the dollar as the world reserve currency though certainly the gold market is aided by the fact that the Federal Reserve, with the implicit and explicit support of the Treasury and an inept Congress, is greatly increasing the money supply forcing people to find alternative stores of wealth for their cash because the US Government is actively destroying it in an attempt to prop up a broken financial system.

If we look at the next ten years as it relates to the financial picture of the US Government, we see that the Federal Reserve has expanded its balance sheet in a manner unheard of in history. US Debt to GDP may reach 159% or more by 2020 which in and of itself may not be the death knell but is certainly the symptom of a very sick patient. Because the US Government will likely never default on its debts, the only other reasonable solution is to inflate our way out of the mess. When we do this, the dollar will be worth much, much less and gold will be worth much, much more. The important key here is see that the market for hard commodities including gold has a time frame. Buffett believes that the time frame is near the end of the bull run and thus he is not interested in investing in it. I, and many other people far smarter than me, believe that we are nowhere near the end of the bull run because I see no way out of the mess we are currently in short of inflating our way out of it. Our government could wake up tomorrow realizing the error of its ways and move onto a path of fiscal responsibility that included drastic cuts in spending. However, that would cause immense short term pain in the economy and I think we all know how likely our politicians are to implement something that directly affects their ability to get reelected.

When it’s all said and done (and I promise, I’ve about said everything I can), the outlook for hard commodities including gold is promising over the next 8-10 years in my opinion. I do not see the world economies stabilizing substantially until we either rein in run away spending or a collapse happens. Either way, gold will serve as a store of wealth in the interim, not as a fifty year investment but instead as a way to protect our wealth from the vagaries and shortsightedness of our political leaders. Until a balance can be returned to the financial markets, gold (and possibly far more profitably, silver) will be attractive to investors throughout the world including large governmental buyers like China who most certainly can see the writing on the wall for their investment in US debt and who are even now moving to acquire large reserves of other currencies including gold.

I largely admire Buffett and his success. Fundamentally, his outlook on the US economy is similar to my own in that I think the US is the best place for investing in the future and will continue to be so. However, our time frames are fundamentally different and that leads to a divergence on our views of the yellow metal, among other things. While Buffett has no interest in putting Berkshire’s money into the metals, I believe the bull market will run for at least another 8 years and at that point, depending on the economic factors of the time, perhaps a reevaluation of owning gold will be in order. Until then, I plan to acquire not sell gold until I’m proven otherwise wrong in the market.

Lent And The Associated Non-Religious Giving Up or Taking On That I Might Do

It’s that time of year again. No, not the collective day we designate to celebrate all Presidents not important enough to be named Washington which essentially just turns into a reason for mutual fund traders to play golf. I’m talking about Lent, the onset of which is the culmination of that most human of celebrations, Mardi Gras. I’ve never actually been to Mardi Gras and in fact, at the advanced age of 39, probably couldn’t physically consume the requisite amount of Pat O’Brien’s hurricanes to even participate. Still, one has to think that any God-fearing Catholic or hedonistic utilitarian (of which I am neither) should attend Mardi Gras at least once, if for no other reason than to throw beads at bare chested women and either urinate or vomit in public, all in the name of a bacchanalian celebration that is meant to mark the coming of forty days of penitential self denial metaphorically representing Christ’s fast in the desert (I always want to say “fast in the dessert” which strikes me as a great liturgical oxymoron). Lent is a time for Christians to give up something dear as a minuscule reminder of the sacrifice Christ made before starting his public ministry.

And with Lent comes my ongoing quixotic desire to better myself in some measurable or even immeasurable way. In the past, my windmills qua giants have been donuts, The Internet (as opposed to the internet, a mild and less powerful cousin to the personified version I tried to give up) and Facebook. Like Don Quixote before me (much much before me, I had no idea that the novel was published in the early 1600s. No wonder he thought inns were castles and windmills giants, it must have been exceptionally difficult to occupy free time in 1605 with no Internet), I attack things during Lent that I perceive as menacing giants though my attack comes in the form of self-denial and I don’t even pretend to expect to defeat the giants. My seeds of interest in Lent were probably planted young as I remember writing an essay at one point for the Advent calendar for my church. However, it didn’t become a ritual until the past 10 years or so. I blame my friend and former coworker Mark who would do crazy things like give up coffee.

The idea of physical self-denial is obviously strongly tied to Christ’s own physical suffering in the desert. However, my list of physical addictions/compulsions is mercifully short, the donut one notwithstanding 3 years ago (I’ve since given up donuts so maybe there’s something to this Lent thing). So I tend to gravitate to intellectual denial where by intellectual I mean the depravity of Facebook. However, I typically also try to take on a creative endeavor for the days of Lent. I basically have chosen to co-opt the non-random forty days of Lent in an effort to do something like write more or code more or be randomly creative more. I could chose any forty days but Lent works well for my purposes.

This year, as of Fat Tuesday, I have come up with zero things to either give up or adopt as a habit for Lent. I have gone without Facebook several times in past years but at some point, one has to ask oneself if one continually feels the need to give up the same thing, maybe one should give said thing up entirely or get over one’s hangup about the cheapness of social activity represented as an application that specifically wants to collect one’s data and make money off of it. Coffee could have been an option as I had essentially given it up about two weeks ago but I had just replaced it with tea which seems tantamount to giving up heroin in favor of methadone or cigarettes in favor of goofy plastic cigarette Nicotine delivery systems. Christ didn’t go into the desert and give up eating fatty foods. He gave up food. Replacing the habit with something else seems counter to the spirit of the idea. Plus, no caffeine for me means insufferable caffeine withdrawal headaches and who needs that (though frankly a little suffering is probably the point). I am already on a strict paleo diet that has removed sugar and alcohol from my diet, two prime Lenten targets for lots of people. So the list of physical things to give up is short this year.

We’ve already covered Facebook. I briefly considered Twitter but frankly, I actually like Twitter in a way Facebook lacks, namely I can post something on Twitter and not worry much about whether people say anything about it whereas on Facebook, I neurotically expect things I say to be discussed and commented upon, a happenstance that doesn’t actually happen that often leaving me to neurotically wonder if people actually like me, ala Stuart Smalley. It’s difficult to write about one’s neuroses without sounding self-indulgent but let’s just say I’m addicted to the tiny drop of dopamine I get when someone comments on one of my statuses on Facebook. Like previous nicotine (and sugar and bread and candy if my current cravings as a result of Eat Real are any clue) addictions, this addiction is south of the equator of the healthy-unhealthy hemispheres and is probably a reason why I have such a love-hate-hate-occasionally-sort-of-like relationship with Facebook. But this isn’t a post about Facebook so let’s not degrade the conversation any farther than we already have.

One of my constant interests relates to the intersection of attention, concentration and discipline. At one time, I thought discipline was an attribute you were born with like the attributes necessary to play professional basketball or sing with perfect pitch. It’s far more convenient to think that since that absolves you of any of the requisite work to actually develop discipline. But in extensive reading about discipline as well as attention and concentration, I think it’s clearly an attribute that you can bootstrap slowly by increasing the amount of discipline you exert every day. This has always been a difficult task but in the information age of constant and total dedication to acquiring more information, discipline as it relates to attention and concentration is monumentally hard to acquire. Of course, this begins to sound even more self-indulgent as there are many people who wake up each day and do what is required to continue down a path of their choosing. However, I’d argue that they are able to do this because of the long standing acquisition of the ability to be disciplined. Or they are forced to be disciplined by life circumstances, either chosen or unchosen, that dictate they be disciplined because they have five children or they owe the Yakuza a Datsun or they are poor. It is only recently that the artifact of choosing to be disciplined has arisen in our culture. Once upon a time, you got up when the damn cock started crowing (Charlie Sheen is in my head telling cock jokes right now) and you went about the hard work of making a living. The fact that I have a blog and am discussing discipline is probably giving my grandfather an aneurysm in his grave, rest his soul. I”m really not trying to find ways to make this post more self-indulgent but I’m succeeding extravagantly anyway. The topic of discipline as it relates to your status in life is probably the topic for another post entirely.

Ahem. So this Lent, I’m going to try and establish a disciplined habit of waking earlier than I’m comfortable with. As a general rule, I’m up by 6:30 at the latest, weekends included. This isn’t necessarily by choice as I have a cat who demands to be fed at what seems at the time the ungodly hour of 6 AM. However, I tend to wake up naturally these days by 7 for sure. It doesn’t take much effort on my part to do that. So, in the spirit of giving up something substantially difficult for Lent, I’m going to give up sleeping past 5 AM for the next forty days. That’s not an entirely arbitrary time. Assuming The Great Sabbatical is going to end within a few weeks, I looked at the list of things I’d like to do most mornings and in order to get them all in and still be at work by say, 9 AM, approximately 4 hours are required. But 5 AM sounds just crazy enough that it’s a worthwhile goal in and of itself.

I’m not going to take on any specific creative goals. I think getting up at 5 AM may naturally allow me to write more or play the guitar more (though seriously, I have lost all sensation in the tips of the fingers on my left hand and I’m only practicing chords about 15 minutes a night. I’m not sure I’m so interested in the guitar if it means sensation loss). We’ll see how that works out.

Eat Real And Other Non-Related Items

Not that anyone has been complaining but it seems like eight days is too long between posts. I haven’t felt particularly writerly of late on any front which is odd. I’ve had a few “ideas” bouncing around where “ideas” means the start of an essay but not the associated desire to actually do anything about it. Such is the life of an unpaid small time blogger.

Regardless, here we are. I started a nutritional challenge called Eat Real with CrossFit Rockwall this past Monday. In short, it’s a full on Paleo diet over 33 days designed to reboot your nutritional system. As an aside, I’m starting to detest the term Paleo, not because I’ve heard it 456 times in the last days and it’s preventing me from eating Thin Mint cookies, but because it has become so nebulous as to be meaningless even among those people who purport to understand the concept. For a little background, the original Paleo diet (well not original original, that would be sometime 45,000 years ago when we were getting killed by saber tooth tigers and pedaling our cars with our feet over to see our neighbor with the hot wife) came from Dr. Loren Cordain. He basically said we shouldn’t be eating a lot of crap like Thin Mint cookies washed down with a 44oz Coke and instead should eat meats and vegetables and fruits. I know, crazy talk. That version of the diet was pretty regimented and, God bless him, is now pretty financially successful if we’re to gauge financial success by Google trends.

The problem with Paleo in its original manifestation is that it’s hard to avoid Thin Mints and Cokes and bread and pizza. They are everywhere, not just literally but mentally as well. Tuesday night, I had a dream about doughnuts. I assume the set of people who dream about donuts is reasonably small. All my life, I have been a donut aficionado in the way that guy in the Dos Equis commercials is a beer aficionado. I don’t always eat donuts but when I do, I prefer to do it with hot super models and my pet cougar. No, but still, I like donuts. A lot. I was challenged in 6th grade Sunday school once to eat a cinnamon roll in under a minute. This wasn’t one of those wimpy Pillsbury canned cinnamon rolls (of which, I could eat all 8 if given the opportunity). It was a full on 7 inch in diameter cinnamon roll from Donut Stop, the crowning achievement of the donut industry in Amarillo, Texas. I lost the bet but not for want of trying. The point here is that everyone knows I like donuts including my Sunday School teacher in 6th grade who had me try to eat a 700 calorie sugar infused insulin bomb in front of the class. Not that I’m complaining. Yum.

My standard breakfast on the way to the golf course after college was three donuts (cherry frosted, cinnamon roll, buttermilk cake) and the biggest Dr. Pepper they’d serve me. How I don’t have Type II diabetes is a wonder. Suffice it to say, I liked donuts. So Tuesday night, two days into a nutritional challenge that most decidedly does not include donuts, I had a dream about donuts. I don’t recall the plot structure exactly but I do know there was a tasting contest and a monstrous maple frosted long john that chased me through a castle. I guess it’s not surprising I don’t remember the plot structure, sounds like there wasn’t one really. I’m surprised the Pope wasn’t flying an AC-130 shooting donut holes at me in Afghanistan. I digress. For me, the forbidden fruit is a box of sugar laden, fat fried, frosted confections from the donut shop in downtown Wylie and I can’t get away from them even when I sleep.

Most people feel this way (without the long john infested pastry nightmares) regarding the Paleo diet. So they change the definition to fit their predilections. Some people are lacto-Paleo. Some people are chocolato-Paleo. Some people are honeyo-Paleo. I doubt anyone with a straight face would say they were donuto-Paleo but honest to god if they were, I’d try that diet for 30 days. Still, the term Paleo has come to be fraught with definitions bestowed on it by people who want their cake and eat it too while still calling themselves Paleo. Trust me, I get why that happens but still, when I tell people I’m trying to eat Paleo, even those who know what that means, I have to say strict Paleo or lacto-Paleo. Who needs that hassle?

So I much prefer Eat Real. It’s not a term that demands a strict definition and even someone who has no idea what I’m talking about can probably get a good idea of what’s going on. Eat Real. As in Eat Real Foods. Things with no ingredient lists. Things without xanthan gum. Don’t know what xanthan gum is? It’s a food additive created from the bacterial coat of Xanthomonas campestris used as a thickener in foods and as a stabilizer for cosmetics so that they don’t separate. It causes black rot on broccoli. It thickens drilling mud in the oil industry. It’s an all-around thickening machine. And it’s in a lot of our food. If I told you I was eating real, you wouldn’t think I was eating xanthan gum.

Eat Real evokes an idea of eating things you might be able to grow or kill yourself. Eat Real says made up products with 30 ingredients like Doritos probably aren’t included. Ditto cokes or any other manufactured product that is made up of multiple individual manufactured products like high fructose corn syrup (HFCS). The usage of HFCS in a wide variety of products that once just included sugar is probably the biggest science experiment ever foisted on the public. As it turns out, there is a wide public backlash against HFCS largely due to some unsavory studies that show what long-term exposure to HFCS can do. Like greatly increase the amount of organ fat around your heart and liver. Or increase the roaming triglycerides in your blood stream. Or drastically increase abdominal fat in rats. It’s gotten to the point lately where the Corn Refiners Association of America has launched a widespread campaign to patch over the spotty reputation of HFCS including an attempt to get the Food and Drug Administration to rename their product to simply “corn sugar”. I don’t know about you but when a leading industry wants to rename one of their products so that people don’t realize it’s in other products, I get a little nervous.

So, I like the term Eat Real. It’s easy to describe to people and they tend to just get it. Meats, vegetables, fruits, nuts and seeds. Water, tea and coffee. Simple. In description anyway, the application is a little tougher (see the donut dream above). Still, there is a growing attraction to knowing where your food comes from, what’s in it, what processes it went through in the production stage. Forty years ago, this was just normal life but these days, when you can buy a $5 box from Taco Bell or a $10 dinner box with breadsticks, cinnamon breadsticks, pizza, icing and marinara, eating real seems strangely quaint. That’s what makes it so hard to follow through on. Watching a basketball game last night, I saw no fewer than ten food commercials, none of which had a single vegetable or fruit in it other than the poor little tomato wedged in-between the mounds of bacon and hamburger on the Carl’s Jr. Six Dollar Burger (don’t get me wrong, I don’t have anything against bacon or hamburger).

Eating Real isn’t hard in implementation, it’s hard in follow through. We are bombarded by food manufactures who know our weaknesses and how to exploit them. It’s a constant challenge to avoid the temptation of easy food that is anything but real. That’s the hard part, staying conscious of the constant pressures to do something you know will make you feel good. Because that’s a benefit of eating real, feeling good again. I’m waking up feeling semi-energized (except for this morning when after a brutal workout from hell yesterday, I really just wanted that massive maple long john to fall out of my dreams and crush me in bed). I’m able to focus for longer periods of time. The cravings for high carb, high sugar non-foods are subsiding. Of course, some of these benefits might be psychological. It’s clear I have a bias to be looking for them. But it’s hard not to agree that removing things like xanthan gum and high fructose corn syrup from your diet can’t be beneficial, claims of the Corn Refiners Association notwithstanding.

We’re only 4 days into this challenge so who knows what things will look like in the middle of March. Still, Eat Real has fundamentally changed how I look at nutrion if for no other reason than I’m completely and totally aware of what is going into my food at any one point. Most of us don’t think for a second what’s in a Coke or a burrito supreme from Taco Bell or Chicken McNuggets. And frankly, that’s a problem. Just raising awareness can critically change eating habits.

In other life related news, there really isn’t any. It looks like I’m going to have to replant the spinach, chard, lettuce and peas I put out two weeks ago after our little cold snap last week. I started my tomatoes and pepper inside on Sunday, probably far too late for actual use in the garden this year but at least the housekeepers will be shocked that the planting supplies finally moved off the table where they have been sitting in the study for the past 10 months. The squash and tomatillos have germinated but nothing yet from the tomatoes and peppers. No job yet but I’ve applied for one I’d really like. It’s a slow process though. Thankfully, my golf game is getting a lot better though I’d trade a good golf game for a paycheck right about now. I have been writing quite a bit of code related to NBA statistics and that’s been fun. I tried to play the guitar Tuesday and I still can’t feel the tip of my left index finger. Playing the guitar may not be for me. For one, my fingers are apparently too fat to appropriately play the A chord (I can’t get all three on the same fret without hosing things up, chord-wise, downstream). Maybe I could just play songs that don’t involve A. Or switch to A minor. I”m starting to feel like my life is more like a minor chord anyway.

Meditations On Gardening

Many of the most prominent memories from my childhood revolve around the gardens of my grandparents. Both sets, paternal and maternal, had gardens in their backyards though in entirely different settings. My maternal grandparents lived on a farm in the exceptionally barren (barren to the ill-informed anyway) plains of the Oklahoma panhandle, at least for most of my formative years, let’s say post 1983 and the release of Yes’ album 90125 containing the anthem of said formative years, Owner Of A Lonely Heart. As an aside (if one can have an aside in the very first paragraph of an essay on a completely different topic), that was the first cassette for my first boom box. I blame Yes for penning a song that voiced the ongoing conflict in my later, less interesting teenage years, never completely agreeing with their conclusion that a lonely heart was better than a broken one. I spent most of my twenties empirically testing that hypothesis.

Back to gardening, the garden on the farm was a decent sized patch on the south side of the house. As I recall, it had chicken wire around it to keep both the chickens and rabbits out though the rabbit population typically took a turn for the worse when I spent any time around the farm. Grandma grew tomatoes and corn and okra and beans among other vegetables. I’d like to say I was a big help in the garden but I always preferred to spend my time on the farm hunting or playing GI Joe in the hay barn. However, I remember the jars and jars of pickled and canned vegetables that Grandma had in the cellar. The cellar was actually an old rail car that Granddad had dug a huge hole for in the back yard. It served as a storage area for a variety of canned goods, jellies, jams and other assorted foodstuffs that you made when your closest grocery store was 16 miles away along mostly dirt roads. Granddad, always looking for a chance to break a new or previously broken bone, actually fell into the hole before the boxcar was inserted, breaking either his ribs or his collar bone. (The stories are legend of the broken bones my grandfather had and how little they seemed to affect him. He was exceptionally tough. Jumping out of a plane on June 6th, 1944 over Normandy and landing in an apple orchard, breaking several bones in the process will probably do that for you.)

In that area of Oklahoma, wild plums grow in large thickets along the side of the road. Every summer, when the plums would ripen, Grandma would know the places to find them and we’d set out across the plains to pick wild fruit. Again, my interests rarely tended towards foraging but where there were thickets, there were rabbits and my cousins and I would take our BB guns and stalk the mighty cottontail, almost always returning empty-handed with an occasional, triumphant hunt. Grandma and my great aunts would take the plums and make jelly and preserves, a treat pulled out at Christmas time among other occasions when the snow was on the ground and fresh produce was at a minimum.

Once, I remember my grandmother driving me to the back of the farm near the hay barn. She grabbed two plastic grocery sacks, handed one to me and said we were going to pick lamb’s quarters. Not having any sheep on the farm, I was understandably confused and probably slightly worried, either that my grandmother had gone over the edge or that I was going to have to chase down the neighbor’s sheep and stuff its quarter (whatever that was) into this plastic bag. Imagine my surprise when we wandered out onto the prairie and Grandma began picking what looked for all intent and purposes to be a weed growing randomly. I have my doubts that I was particularly useful in the lamb’s quarter gathering that day or any other but the image sticks with me of gathering food that grew wild on the plains of Oklahoma. I do recall being quite unimpressed with the resulting dish that night, a mess of greens flavored with onions and bacon that tasted incredibly different from pizza, my favorite food. However, you couldn’t walk out the backyard and pick any pizza so lamb’s quarters it was.

To this day, even though she’s long left the farm, my grandmother grows tomatoes in several places in her small yard in Amarillo. Every fall, when the weather turns cold and the first freeze hits, she’ll pick the remaining fruits from the vines and place them in the garage, just in case she needs a green tomato in December. She comes from a time when food might very well be scarce at some point in the future, before buying organic and beyond organic became hip. You harvested what you could from nature, planted as much as you could and made it through the lean times by the hard work of your labors.

My paternal grandparents were decidedly more urban and urbane yet they still had a garden in the backyard. They played bridge, were fantastic dancers at the local social club and played golf in country clubs but every summer, they had fresh corn on the cob, picked straight from the backyard. The plot was much smaller than my Oklahoma grandparents’ but it seemed like there was always fresh corn, tomatoes and asparagus for dinners. Nostalgia always clouds the memory slightly but I definitely remember a time when I had lost my front teeth and Granda Betty had taken the corn from the cob, sliced off the kernels into a bowl and then microwaved them with enough butter to practically make the corn float. Quite possibly the best corn ever.

My grandfather built an arbor in the back yard and planted two grape plants. I was always fascinated by the evolution from spring into late summer when the grapes, initially small green clusters, grew into edible fruit, large purple sugar laden globes best picked straight from the vine and popped into your mouth. You could slide the skin of the grape off in your mouth, releasing the flavor and flesh. I ate them by the handful, squeezing the sugar from the skin and then spitting it as far as I could (I was a boy, after all). They were seeded grapes and to this day, that’s probably where my dislike of all things small-seeded derives. I would swallow the grape whole instead of chewing it and risking getting a seed caught in my teeth. I still gum my blackberries for the very same reason.

I see now how picking the grapes and picking the lamb’s quarters were intertwined parts of my growth as a kid, ingraining the wonder of producing your own food whether by planting, tending and harvesting it or foraging along road ways and in fields for nature’s bounty or hunting for rabbits and quail (My grandmother still tells the story of the rabbit I made her cook at 11 PM one night. I believe she exaggerates the timeframe but there is no doubt that at least once, I brought home game that she was then required to fry up late at night for her intrepid hunter). Today, if I walked out and spoke with any of the kids on my block, I doubt a single one could imagine the thought of walking into the empty field behind our houses to pick greens for supper. There is something magical in producing your own food, a connection to the world around us so frequently lost in the day to day urban existence. I never realized growing up that those habits were forming in my personality until I had a place of my own large enough to produces substantial quantities of home grown fruits and vegetables. Now, I can’t imagine not having a garden.

It’s interesting to watch and observe the locavore and grow your own food movement gain steam in today’s society. Articles are written in Urban Farm about foraging in your neighborhood for greens, an idea that has come full circle from a time when it was required to a time now when it’s hip. More and more people are planting backyard and community gardens as a way to supplement the produce they buy from the grocery store. At a time when one has no idea what chemicals are being used on our large scale agricultural farms, it’s refreshing to know how and where a vegetable or fruit was produced.

So far this year, I’ve planted swiss chard, lettuce, spinach, sugar snap peas, onions and potatoes. They are all months away from harvest. The garlic and fava beans I planted in October still have 3 months before they mature. It’s this separation between the planting and the harvesting that is most instructive, replacing the idea of the easy fix with the concept of work and dedication to produce something worthwhile. Growing a garden connects me to the seasonality of foods, the idea that there is a time and place for everything as Ecclesiastes said. I’m looking forward to another year of harvest, the successes and the struggles that go along with producing your own food.

With These Kinds of Friends, Who Needs Enemies?

I recently started receiving Kiplinger’s magazine, a Christmas gift from my dad. I was working through the first issue I received when on page 9, I ran into an article of such glaringly bad advice that I almost thought it was parody. Thankfully, though Kiplinger’s is fomenting stale financial advice on their readers, they have joined the 21st century and put their content online so here’s the article for your perusal as we go along. The article argues that people who choose 15 year mortgages over 30 year mortgages or who prepay their principal down throughout the mortgage are making a big financial mistake.

Right off the bat, an astute reader can see where this is going:

When it comes to home loans, we’re a nation of debt-a-phobes.

This is in fact not true. Homeownership rates are actually higher than they were 40 years ago but the equity in the homes have steadily fallen since World War II. That actually means we, the citizens of the US, are the opposite of debt-a-phobes. While it’s true that the last few years have seen a huge deleveraging in the consumer sector, it’s akin to coming down to base camp on Mt. Everest from the summit. While the height has changed dramatically, we’re still badly in debt. The average consumer is deleveraging because of poor economic outlooks after years of being told that consumption was the path to the holy land of happiness. This is completely rational behavior and yet, Kiplinger’s, in all their infinite wisdom, is now arguing that not only should you own a home, you should buy it with a 30 year mortgage instead of a 15 year mortgage and that you should never pay down the principal.

They argue that the 30 year loan confers tax advantages on the owner (true) and that by leveraging that advantage, your effective mortgage rate is 2.9%. They then make the amazing leap of conclusion that there is a good chance you can make more than that in the stock and bond market over the long term, conveniently leaving off the necessary qualifier for what “long-term” means in this scenario. Based on the last 10-15 years of the stock market performance, it seems safe to think “long-term” might be much much longer than what the average Kiplinger’s reader might feel comfortable with.

The next whopper is this:

You can save a lot of interest by choosing a 15-year loan over a 30-year — about $63,000 after taxes on a $200,000 loan for someone in the 28% tax bracket. But ask yourself whether you can really afford the higher monthly payment — in this case, $1,420 versus $955. Have you maxed out your 401(k) and built up an emergency fund? Paid off credit cards? Funded insurance policies and, if you desire, college savings? If you haven’t, choose the 30-year loan. And if you have, choose the 30-year loan anyway and put the difference between the two payments in a savings or investment account.

There are so many problems with this paragraph it’s hard to know where to start. First of all, this is akin to arguing that you should buy a TV with a credit card instead of cash if you can’t afford the TV. Here’s a bit of advice: if you can’t afford the 15 year payment, you’re buying too much damn house. The author just handwaves away that $63,000 in interest as if it’s meaningless in terms of your financial freedom when in fact it’s a HUGE issue for why people stay in debt. Then after trying to dismiss the interest, she says to do it even if you can afford the 15 year and use the difference to fund other savings, ignoring the fact that if buyers don’t have the discipline to pay for a 15 year mortgage, they probably don’t have the discipline to pay for a 30 year and use the difference to fund other savings. Again, if you haven’t funded your savings and if you have substantial credit card debt, you shouldn’t be buying a house to begin with, much less a house with a 30 year mortgage that will cost you $63,000 over the course of the loan. This is fundamental financial advice that we the American consumer have ignored for 30 years to our own peril.

The logic gets even more twisted:

There are few better hedges against inflation than a mortgage. If inflation rises, so will interest rates. But you’ll have borrowed at a low, fixed rate while savings rates climb and you’ll pay the loan back with increasingly cheaper dollars.

If this is true (which it is in a way), it’s even more true with a 15 year mortgage since the rates on 15 year mortgages are EVEN LOWER than 30 year mortgages. So this little gem actually proves the counterpoint.

Overall, the entire advice is based on the now horrifyingly broken assumption that home prices will rise over time. While this was true for the first part of the rush to own a home in America, there is little evidence that it is now, or will become, true. The housing boom was driven by a cycle of extremely easy money provided by a lax Federal Reserve who refused to believe that a bubble was blowing up right in front of their eyes. The glut of homes in foreclosure will continue to surpress prices and the exceptionally gloomy economic outlook will keep the housing market from any kind of rebound for the foreseeable future. Telling people to lock themselves into a 30 year debt that may very well be worth less money when they sell it is like telling people they should buy a car with a 6 year loan.

Debt is not a bad thing, in and of itself if you are disciplined and if you have a way to leverage that debt to your advantage. However, the days are long gone of buying a house and watching the price go up, essentially becoming a built in savings account. Debt has to be used intelligently and infrequently by consumers and there is no evidence most consumers are capable of the discipline required. Seeing this kind of advice in a major financial outlet just shows we have an exceptionally long time yet to go before the economic picture becomes anything resembling rosy.

Intangibles

If you walked down the street and ran into Wes Welker, you likely wouldn’t have any idea that he’s one of the premier receivers in the National Football League, having caught 122 passes in 2011 for 1569 yards, second only to megastar Calvin Johnson. Welker is 5’9″ and 185 pounds, not exactly your prototypical size for a wide receiver. He went undrafted coming out of Texas Tech 8 years ago so you wouldn’t be alone in assuming he wasn’t a football player. He signed with the San Diego Chargers as an undrafted free agent in 2004, was cut by the Chargers and picked up by the Miami Dolphins to play special teams. Playing for the Dolphins, he made his way into the starting line up by 2006, catching 67 balls for 687 yards. He returned 48 kickoffs for 1,048 yards (22.2 average) and 41 punts for 378 yards and a touchdown (9.2 average).

In 2007, the New England Patriots traded second and seventh round draft picks for Welker. In the Patriots system, he has thrived in the slot receiver role, highlighted by his 2011 season stats listed above. He doesn’t have prototypical size. He has average speed. How is it possible for Welker to not only exist but thrive in a sports league where guys 50 pounds heavier and faster than him are trying to kill him on every play? It’s a combination of the intangibles he possesses and the system he’s in. Welker is exceptionally tough. Playing in the slot, he regularly goes into the middle of the field on routes putting him in the midst of the biggest and fastest defensive players. He has exceptional hands, rarely dropping balls. He’s very good at reading defenses and finding holes he can slip into.

None of these qualities are measurable in the ways most people judge football players. No matter how many times he ran the 40 yard dash at the combine, no one was going to be able to see that he was unbelievably tough. No matter how many times he benched 225 pounds, no team was going to find out how good his hands are. Welker possesses qualities that only appear on the football field.

The Patriots realized all this and developed ways to get Welker the ball. More conventional teams would have kept Welker as a special teams contributor, never thinking that a guy who is willing to catch punts and run at full speed into the oncoming defense might be useful as a slot receiver. Because the Patriots have a system that is unconventional and willing to take chances on players, Welker has become an extremely successful professional football player even though on the outside, he looks nothing like one.

Intangibles are by definition slippery and difficult to pin down or determine but when someone one has them, they typically far exceed the expectations of potential employers. Of course, because they are difficult to measure or determine without actually working with someone, people with intangible qualities often go missed in hiring decisions because it takes a very experienced and careful person to be able to tease those qualities out of a candidate. Modern hiring, especially in technology, will almost always miss people who make very good employees but who don’t fit the stereotype of a particular position.

I recently applied at LivingSocial for a developer position. I’ll be the first to admit I was and am horribly under-qualified for the type of work they do. Normally, I never would have considered applying for such a high profile company but several people I know work there and thought I had a chance at getting on in a junior position. Part of the LivingSocial process is to complete a coding challenge which I did (you can see the code here if you’re so inclined). Apparently, based on that code, whoever reviewed my application felt that I would require too much mentoring to be offered a position. However, they had a program starting called Hungry Academy. It’s basically an apprenticeship program where the members of the program will undergo five months of training to become a LivingSocial engineer. My recruiter at LivingSocial said they thought I’d be a good fit for that program so I applied. The application process was twofold. You had to submit a video answering some predetermined questions and point them to some code that you had written.

Yesterday, after three weeks of silence, I got my rejection letter saying that the process was very competitive (it was, they got 560 applicants for 24 positions) and that they couldn’t extend an offer for this session of Hungry Academy. I have no idea what the criteria were for the selection process (the entire thing seemed to be rather opaque) but obviously, whatever I had wasn’t what they were looking for. On one hand, this is understandable. As I said, I knew I was horribly underqualified from a purely technological standpoint. However, I have a long history of far exceeding the expectations of people who take a chance on me. So I felt like a program like Hungry Academy might be a perfect fit, one where the intangibles I have might shine through.

Alas, it wasn’t to be. I didn’t get so much as a phone call to discuss my application leading me to assume it fell somewhere in the bottom 500 of all applicants. In many ways, this isn’t surprising. My history with canned hiring processes is dismal. I have been to several interviews over the course of my technological career and none of them were what you’d call spectacularly impressive. I don’t interview well because I don’t have prototypical engineering attributes. I didn’t have a Commodore-52 (yes, I know that’s not a real computer) when I was a kid, programming games as a teenager. I can’t readily write code on a whiteboard to determine the position of a chess piece. And yet, for 12 years, almost everyone I’ve worked with has said the code I write and the way I go about my work is of the highest quality. When interviewers call my references, references they often know personally (Dallas is a smaller tech community than you’d expect), they find out that I do things like create build servers and processes that cut 45 step compile and deploy scenarios into the click of a button. They find that I go out of my way to do things the right way instead of cutting corners. They find that I love to teach and spread information, instead of hoarding it as career protection. They find out that I implement and maintain wikis with organization knowledge that was once spread across multiple departments and people.

None of these things ever come out in an interview, even in one as atypical as the Hungry Academy one. And so, another opportunity that seems like would be a good fit for everyone involved is lost. I’m not going to say I’m not upset (the original title to this essay was “Dr. Bitter Disappointment (How I Learned to Stop Worrying and Love the Fact that I wasn’t going to work for LivingSocial”). However, I understand why it was such a long shot for me to get into Hungry Academy. I know that hiring at a top company like LivingSocial is exceptionally difficult and that a bad hire can cost them dearly. Taking a chance is almost always frowned on in engineering hiring because a bad hire isn’t just a matter of poor output. It’s actually a net negative, a situation where another body actually makes you less efficient.

Still, it’s hard to swallow when it seemed like a situation tailor made for getting past the normal barriers to entry. As it is, I’m going to take a day or so to get that behind me and go on about finding a job. I’ve learned a ton of things, not just about programming and writing in the past 8 months but about myself as well. I’m looking forward to getting back to being a productive member of a team, doing those intangible things that help make me a great employee.