Reader's Digest Funny Stuff

A relative has purchased Reader's Digest for our household for so many years now that it continues to show up, month after month, as if it's free - it's not. With 12.5 million copies per month and 44 million readers, its circulation trails only the AARP membership publication in the general magazine category.

They have some of the best humor available in print, much of it submitted by readers, such as the always popular "Humor in Uniform". A recent issue contained a compilation of the fifty funniest jokes of all time.

The entire set is available online - some of the best ones are reproduced here:

Timing Is Everything
"Martin Levine, owner of a movie theater chain in New York City, has passed away at age 65," the newspaper obit read. "The funeral will be held on Thursday at 2:10, 4:20, 6:30, 8:40 and 10:50."

-- Merrill Markoe, Late Night With David Letterman, The Book (Villard)

What's in a Name?
A young man called directory assistance. "Hello, operator, I would like the telephone number for Mary Jones in Phoenix, Arizona."

"There are multiple listings for Mary Jones in Phoenix," the operator replied. "Do you have a street name?"

The young man hesitated, and then said, "Well, most people call me Ice Man."

Say a Little Prayer
Squirrels had overrun three churches in town. After much prayer, the elders of the first church determined that the animals were predestined to be there. Who were they to interfere with God's will? they reasoned. Soon, the squirrels multiplied.

The elders of the second church, deciding that they could not harm any of God's creatures, humanely trapped the squirrels and set them free outside of town. Three days later, the squirrels were back. It was only the third church that succeeded in keeping the pests away. The elders baptized the squirrels and registered them as members of the church.

Now they only see them on Christmas and Easter.

Happy Hour...With a Twist
A bear walks into a bar and says, "I'd like a beer ............ and some of those peanuts."

The bartender says, "Sure, but why the big paws?"

More Happy Hour
A grasshopper hops into a bar. The bartender says, "You're quite a celebrity around here. We've even got a drink named after you."

The grasshopper says, "You've got a drink named Steve?"

Live and Learn
Psychiatry students were in their Emotional Extremes class. "Let's set some parameters," the professor said. "What's the opposite of joy?" he asked one student. "Sadness," he replied.

"The opposite of depression?" he asked another student. "Elation," he replied.

"The opposite of woe?" the prof asked a young woman from Texas.

The Texan replied, "Sir, I believe that would be giddyup."

What's Black and White and ...
A penguin walks into a bar, goes to the counter, and asks the bartender, "Have you seen my brother?"

The bartender says, "I don't know. What does he look like?"

Thick Walls Make Good Neighbors
Last night I played a blank tape at full blast. The mime next door went nuts.

-- Steven Wright

A Little Perspective Goes a Long Way
A man walks out of a bar and sees a bum panhandling on the corner. The bum says, "Mister, can you spare a dollar?"

The man thinks a minute. Then he asks the bum, "If I give you a dollar, are you going to use it to buy liquor?" "No," says the bum.

The man then asks, "If I give you a dollar, are you going to use it for gambling?" Again the bum says, "No."

So the man says to the bum, "Do you mind coming home with me so I can show my wife what happens to someone who doesn't drink or gamble?"

Blue Collar Comedy
What's the last thing you usually hear before a redneck dies? "Hey, y'all ... Watch this!"

Three things you'll never hear a redneck say:

1. The tires on that truck are too big.
2. I thought Graceland was tacky.
3. Duct tape won't fix that!
   

The Usual Suspects
Two nuns, a penguin, a man with a parrot on his shoulder and a giraffe walk into a bar.

The bartender says, "What is this? Some kind of joke?"

It's a safe bet that, historically, walking into a bar is about the funniest way to start a sentence.

Read more...

My Right Index Finger Hurts

Buying a few gold coins a couple years back has turned out to be a terrible decision when considering the current plight of my right index finger, and probably many more like it all around the world. With gold prices reaching new 22 year highs at $503 per ounce yesterday in New York, and having waited for what seems like an eternity for confirmation of having made such a shrewd investment decision, watching the gold price action in the last few weeks has turned into a potential health hazard.

A potential health hazard, that is, caused by repetitive left mouse button clicking to learn the latest spot gold price from Kitco.

Since mid-November when the Federal Reserve announced they were going to discontinue reporting of the total number of U.S. dollars foisted upon the world, gold has been on a tear. The yellow metal has climbed from $470 per ounce to $503, an annualized rate of nearly 170 percent (OK, admittedly, this percent change is meaningless as it is based on only two weeks of data for a very volatile price - but after looking at so much annualized GDP data in the last couple days, annualizing it seemed like the right thing to do).

It seems many more people now want in on the precious metals sector - gold, silver, platinum, palladium - and prices are being bid up. Maybe the hope is that with the noticeable cooling of housing, the next asset bubble has been identified in an early, formative stage.

The equivalent of buying technology stocks in 1996 or real estate in 2002 - maybe.

Soon, company nurses may be inundated with employees complaining of wrist, hand, and index finger fatigue (purportedly from working too hard) requiring alternative approaches to make the workplace more comfortable - switch hands, try a trackball, use a touch pad.

OSHA might have to get involved. Ultimately a warning label may be mandated for all American Gold Eagle coins - "Warning - Excessive checking of the spot gold price could be hazardous to your health".

The Impact on Productivity

But when you think about it, there is a potential impact far greater than the health issues - this could have some rather severe repercussions throughout the business world.

Gold prices are not like real estate prices. You never really know what house prices are until months later - it's not like this data is updated every minute with ready access via the internet. And, back in the late 1990s when technology and many other stocks were soaring, not everyone had a computer with a broadband connection in front of them all day long. That was a different era - CNBC instead of ESPN at the local pub, waiting for CSCO or QCOM to come crawling across the bottom of the screen.

Very little stress on the digits and the left mouse button.

Today, many millions of workers have computers in front of them and ready access to the internet all day long. And, if they were wise enough to purchase a few gold coins a while back or even at today's prices, they may end up spending hours each day checking the price of gold.

Let's do some quick math:

• Refresh your favorite provider of the Kitco spot price - 1 second
• Wait for it to update - 2 seconds
• Marvel at the new number - 5 seconds

A total of 8 seconds per refresh, then figure this is done once every 20 seconds during an eight hour work day and that works out to be over three hours a day!

This could be a huge productivity problem.

On the bright side for business, surely the standard computer mouse has not been designed to withstand the repetitive action precipitated by recent and possible future gold price action. This may kick off a boom in mouse manufacturing, research and development to provide better, more durable pointing devices, ultimately resulting in new sustained economic growth for years to come.

Or, maybe not.

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[UPDATE - Friday 12/2 - 8:11 AM PST]

Just came across this website which appears to be sorely in need of a "funny filter" - don't know what to make of this piece mixed in with all that death. A screen shot is provided below, as hopefully it will quickly roll off the first page or someone will delete it.]


Click to enlarge

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[UPDATE - Saturday 12/3 - 6:00 AM PST]

This also made it into the legal section at Topix.net:


Click to enlarge

Read more...

GDP - A First Look

The "big three" economic statistical releases are employment, economic growth, and inflation, as measured by the labor report, gross domestic product (GDP), and the consumer price index (CPI), respectively. Having previously looked at the employment data (here, here, and here) as well as the inflation statistics (here, here, and here), it is now time to turn a discerning eye to the reporting of economic growth.

Economic growth, that is, that has been the envy of the rest of the Western world in recent years and the demure love child of Larry Kudlow over at NRO:

Will someone please explain why the Bush White House and the Republican Congress are not trumpeting this economic boom on a daily basis? Their polls are sagging, but the economy is soaring. This simply shouldn’t be.
...
Real GDP has grown at 3 percent or better for ten straight quarters, averaging 4.1 percent at an annual rate for the best performance since the middle 1980s. Wall Street expects the good times to continue, with a consensus of economists predicting 4 percent growth for this year’s fourth quarter.

If past experience is a guide, today's post will do little more than scratch the surface - this is the first close look at this data, so it will really be a matter of familiarization, scoping out the territory, and assessing vulnerabilities. The good stuff will likely appear in the coming days or weeks.

Let's begin...

The Commerce Department reported yesterday that the preliminary estimate of real GDP for the third quarter of 2005 increased at a robust 4.3 percent annual rate. This is markedly higher than the 3.8 percent advance estimate announced last month - the final GDP number for the third quarter will be not be announced until December 21st.

The higher growth rate was attributed to increased consumer spending which rose at an annual rate of 4.2 percent, along with equipment and software spending which showed a 10.8 percent increase and residential expenditures at 8.4 percent. Offsetting these increases was the yawning trade gap with an annualized total of $621 billion.

The Treasury Department Comments

This chart was posted at the Treasury Department website - it looks impressive, rising about 15 percent in the last five years. When considering that both total credit market debt and the money supply have been increasing at multiples of this rate, it doesn't seem nearly that impressive.


Treasury Secretary Snow had these outstanding comments about the solid track on which the economy rides:

Economic growth was outstanding in the third quarter of this year. The government's estimate of the rate of growth increased to 4.3 percent, which is very good news for American workers and those seeking jobs. Additionally, it is good news for federal and state government budgets with economic growth inevitably leading to higher tax receipts.

Continued strong GDP growth, along with news of a rebound in consumer confidence in November and a robust start to the holiday shopping season are all compelling indications that the American economy is solidly on a track of healthy growth.
...
The President's economic course of lower tax rates and the Federal Reserve Board's sound monetary policy are the foundation upon which the American people build a strong economy. We need to continue these pro-growth policies, and prevent harmful tax increases.

So, 4.3 percent - that's pretty good, especially when compared with other Western economies. One of the best charts in the back of The Economist magazine shows GDP and unemployment for the Western countries of the world. This puts current U.S. economic growth into perspective. The latest number beat all others in this list except for commodity rich nations down under and a few relatively small countries in northern Europe.


GDP - Definition and Calculation

So, what is GDP? And, how is it calculated? For that, to no one's surprise, Wikipedia is the first stop:

GDP is defined as the total value of final goods and services produced within a territory during a specified period.
...
Whereas nominal GDP refers to the total amount of money spent on GDP, real GDP adjusts this value for the effects of inflation in order to estimate the actual quantity of goods and services making up GDP.
...
The most common approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + investment + exports − imports

Consumption and investment in this equation are the expenditure on final goods and services.

Hmmm... adjusted for the effects of inflation. Surely there is work to be done there.

Continuing further down the page, there appears a "Controversies" section containing eleven bulleted items - this is already intriguing before any of the controversies are divulged. It is not known how common a "Controversies" section is at Wikipedia, or one of this length and detail. The sixth bulleted item would surely be controversial to someone like Larry Kudlow:

GDP doesn't measure the sustainability of growth. A country may achieve a temporary high GDP by over-exploiting natural resources or by misallocating investment. Oil rich states can sustain high GDPs without industrializing, but this high level will not be sustainable past the point that the oil runs out. Economies experiencing a housing bubble or a low private saving rate tend to grow faster due to higher consumption, at the expense of reduced pensions in future.

So, apparently the message here is, "From a long-term perspective, GDP may be a misleading indicator".

If you follow the housing bubble link you get to a well-written page about today's real estate madness, replete with the Time Magazine cover from this summer, and at the very bottom of the page are links to two well-known housing bubble blogs - Ben Jones' The Housing Bubble 2 and James Bednar's Northern New Jersey Real Estate Bubble.

Before looking at the data release, there is one more topic of note at Wikipedia - two sets of tables showing GDP and PPP (Purchasing Power Parity) ranking of the world's economies. Note that China moves from position number seven to two and India moves from number twelve to four when switching from the standard GDP measure to the Purchasing Power Parity measure, which attempts to include exchange rates and other factors into the calculation.

The GDP Data

Looking at the main page for the data release at the Commerce Department it becomes clear that the government is there to please the data-hungry populace. Fourteen tables in html and pdf formats, but best of all, also available as Microsoft Excel files. This makes whipping up charts all the more convenient, but something which sadly will have to wait for another day.

After just a quick look through this data, there are a few areas that are already begging for attention - attention that will be provided in due time:

1. The PCE deflator is 3 percent (see Table 4) - this is the inflation measure that is somehow subtracted from nominal GDP growth to yield real GDP growth, which is, the most commonly used expression of changes to GDP. How is this 3 percent value calculated? Dunno. It is well established that changes to the CPI were pretty much off the chart during the third quarter. If you add up the monthly changes for July, August, and September (0.5, 0.5, and 1.2), you get 2.2 percent, which annualized is 8.8 percent - about three times the value used to account for inflation in the GDP measure. Something doesn't add up here (or subtract up, as the case may be).
   
   
2. Consumption and investment are broken into a number of different subcategories (see Table 3), the most interesting of which, at first glance, seem to be the private vs. government categories for consumption. Defense spending consumption increased at an annual rate of over 10 percent with this report - war gives GDP a nice boost, apparently. Also of note here are the subcategories within personal consumption - some of the biggest contributors to the total percent change were medical care and real estate expenditures (see Table 2), yet somehow it seems they may be underrepresented in the PCE deflator used to calculate real GDP - a case of getting something for nothing?
   
   
3. By definition, debt is not involved in calculating GDP - it is strictly a measure of final consumption. Given the convenience that this data is presented to inquisitive minds, it shouldn't be too difficult to get debt and consumption on the same chart to get a better feel for just how sustainable our housing bubble, low savings rate, high consumption, 4.3 percent growth really is.

GDP - we'll be back.

Read more...

M3, "Moneyness", and Conspiracy Theories

This is another follow up to the ongoing discussion regarding the announcement that the Federal Reserve plans to discontinue reporting of the broadest measure of the money supply, the M3 data series. A fair amount has been written in the last week, since the previous roundup was done - the original report on this subject first appeared here over two weeks ago.

Two commentaries stand out in today's update - one by Doug Noland of Prudent Bear, the other by Caroline Baum at Bloomberg. In A Quickie on "Money", Doug writes:

“Money” connotes quite different things to different people.
...
I will attempt to clarify my view that we are at no analytical loss with the upcoming relegation of M3 to the government data scrapheap. First of all, M3 is today definitely not reflective of marketplace perceptions with respect to “moneyness.” With each boom year, the spectrum of perceived safe and liquid instruments expands. This year will see record ABS and commercial paper issuance, with the combined growth of these two categories of financial claims likely in the range of total M3 growth. M3 captures little of this imposing monetary expansion.
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Market-based securities issuance is now a major aspect of monetary expansion, and the M’s are undoubtedly ill-equipped for such an environment. The unprecedented expansion of GSE obligations (debt and MBS) created several Trillion dollars of perceived safe financial sector liabilities.
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And while I question the premise that the Fed has much to gain by eliminating M3, this nonetheless misses the much more salient point: The Fed has lost control of our nation’s “money” and Credit creation processes. The Greenspan/Bernanke Fed can now only administer feeble attempts to remove accommodation, hoping that over time baby-steps makes some headway but without ever attempting to impede, interrupt or discipline Wall Street Monetary Processes.

From the Federal Reserve Z1 Flow of Funds Report, the following chart shows some of the mortgage components that Doug identifies as not being included in any of the money supply totals today.


Click to enlarge

Notice the leveling off of GSE debt in recent years, as problems at Fannie Mae and Freddie Mac came to light. Their credit issuance has been basically flat, while Wall Street's ABS issuance has handily taken up the slack.

Comparing this with last week's chart of the money supply, using the same scale and duration, it becomes clear that the money supply numbers capture only a portion of what is happening in the financial world today.


Click to enlarge

In fact, going from around $3 trillion ten years ago to near $9 trillion today, the three securitized debt categories are growing at a much faster rate than all of M3 over the last decade - at comparable absolute levels in the $9-10 trillion dollar range. The change in M3 from $4.5 trillion to $10 trillion, about a 120 increase, pales in comparison to the 200 percent increase in the first chart.

In the mainstream financial media Caroline Baum of Bloomberg filed the report Europeans, Conspiracy Theorists Lead M3 Mourners, where she observes:

A chill wind swept across Western Europe, rattling the remains of long-dead Germans who carried memories of wheelbarrows full of worthless deutsche marks to their graves. Stateside, the conspiracy theorists seized on the new information as further proof of deceit and manipulation.
...
In the M3 review, the board staff determined the elimination would save roughly $500,000 a year for the board and Reserve banks and $1 million a year for depository institutions, according to a Fed board spokesperson. In addition, a search of the economic literature yielded very few results for M3.
...
So while the discontinuation of a series very few people pay attention to may have been a surprise, it was not nefarious. Nor was it a prelude to a massive, secretive money-printing operation on the part of the Fed, which is how the hard-core conspiracy theorists are playing it.

On Safehaven.com, where fantasy and reality mix, contributor Robert McHugh offered up the answer to why the Fed is discontinuing the weekly report of M3.

``Why? It's simple, really,'' wrote McHugh, a regular contributor to the site. ``So that the Plunge Protection Team can hide its market manipulative, equity buying activities.''

The PPT is an alleged cabal of government institutions and large banks that intervene to support the markets, most notably stocks and gold.

Repurchase agreements, which are among the M3 components to be discontinued, are ``the most obvious reporting item where PPT market buying transactions show up,'' McHugh said.

If the theory sounds far out, the accounting is even harder to follow, especially when actions are in anticipation of some future stock-buying binge, as McHugh implies.

Altruistic Exposure

"Apparently, the Federal Reserve (a key member of the PPT?) sees a coming need to buy -- or facilitate the buying -- of markets, including the equity market, incognito.'' That explains "the extra M3 growth over the past several months.'' can print as much money (buy as many government securities) as it wants, but if the banks don't want the reserves, they will dump them, and the federal funds rate will collapse.

That isn't happening. The funds rate has been creeping up every six weeks to 4 percent even as M3 expanded an annualized 10.9 percent in the last 13 weeks.

If the markets are rigged, and McHugh has it all figured out, "why is he exposing it rather than telling me how to profit from it or profiting himself?,'' asked Jim Bianco, president of Bianco Research in Chicago.

Good point. Don't let reason interfere with a good conspiracy theory.

Not defending Robert McHugh here, since anyone reading his commentary would have more than one rasied eyebrow as a result, but there is definitely something amiss in Ms. Baum's analysis when she writes about the accounting being hard to follow.

If, hypothetically speaking, you were going to do something really bad that you know would show up in a money supply statistic, wouldn't you discontinue the reporting of the statistic before you did the really bad thing, so that the really bad thing would not be noticed? Wouldn't that be the whole point - to make the accounting hard to follow?

And as to the embellished question of Jim Bianco (notice Ms. Baum's words preceding the start of the quote) regarding McHugh seeking profit from this, there is a newsletter available for about $300 per year - it's just a click or two away at the bottom of McHugh's article.

Re-reading the McHugh attack a couple times makes you wonder about both Caroline's motives and how her book sales are going (thanks to alert reader L'Emmerdeur for pointing out this connection in the comments section of last weeks post).

Doug Gillespie over at Shadow Government Statistics didn't have much good to say about either the Federal Reserve of Caroline Baum when he wrote Fed Abandons M3 Without An Honest Explanation:

Something is terribly afoul at the Fed, but the popular financial press offers little but moronic platitudes and attacks on "conspiracy theorists" who dare to question the sanctity of the Federal Reserve Board.

I even saw one related comment yesterday from a well known financial reporter who laughed at the concept of there being a Plunge Protection Team that intervenes in troubled stock markets. She cited such a concept as evidence of the absurdity of some conspiracy theories.
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The Federal Reserve, not the Treasury, generally is the ultimate backstop for the financial markets. Sometimes the Fed does intervene on behalf of the Treasury, particularly in the currency markets. Despite Mr. Greenspan's denials of Federal Reserve Involvement in stock market intervention, I have had a former Fed official confirm to me that interventions, at times, have been coordinated by the New York Fed.
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What game the Federal Reserve is playing will become clear soon enough. Chances that M3 was eliminated because it just duplicated M2 are nil. The cost factor also is a canard. The Fed could privatize monetary reporting, if it wanted to, the same way the government put the Index of Leading Economic Indicators out to bid.

Back in the mainstream financial media Peter Brimlow at CBS Marketwatch writes M3 Mutterers Refuse to Give Thanks, where he reports on all the other reporting going on regarding this topic - he didn't think much of Ms. Baum's reasoning either:

Last Friday I wrote last about the astonishing lack of comment outside of investment letters and the financial blogosphere about the Federal Reserve's curiously discreet announcement that it intended to stop publishing data on the broadest monetary aggregate, known as M3.
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Baum has an iconoclastic manner but she usually comes down on the side of Wall Street orthodoxy. A recent example was her Oct. 24 column sneering at the Sprott Asset Management paper documenting the evidence that a "Plunge Protection Team" exists to support the stock market at crucial moments.

Her argument essentially was that none of her friends admit it exists, so it can't.

Baum's Nov. 22 column on the M3 controversy did acknowledge a peculiar lack of consultation. She quoted Maurine Haver, president of Haver Analytics and chairwoman of the National Association of Business Economics statistics committee as saying, "It doesn't seem they reached out very far to get user feedback on the discontinuation of the series."

Mr. Brimlow is of course referring to this prior work by Ms. Baum about the non-existence of the Plunge Protection Team, where she voiced disdain for the Sprott Asset Management Report on market intervention (warning - PDF). Interesting reading, especially in light of the much talked about trader 990N.

At the New York Post, John Crudelle asks What's the Fed Up To?

Bernanke is the guy who said a couple years ago that if the government's monetary policy wasn't working, Washington could just print money to get the economy going and drop it from helicopters.

That's OK for a professor lecturing to freshmen, even the bright ones in the Ivies. But that's not the sort of thing that inflation-wary professionals on Wall Street are accustomed to hearing.

And in the very unlikely event that the government took Bernanke's advice, where would that shocking breach of monetary policy show up? In the M3 figures that are being discontinued, of course.

David Chapman provides a nice summary of the issue in What's Happened to M3?

M3 is very important. Indeed of the Fed's monetary numbers only M3 was of major importance and in other G7 countries we also focus on M3 including our own Bank of Canada. No word that they intend to follow. So why are they dropping M3? Well we have seen nothing to tell us why we only know they are doing it. Oh it's not that the numbers will completely disappear. For those that wish to take the time they can pore through the Flow of Funds accounts (released quarterly as Z.1 release and the H.8 bulletin released weekly for commercial banks) and piece together the former M3. Painstaking, but that is not the way it is supposed to be. European Central Bankers put great stead in M3 so why has the Fed after all these years decided to cease publication?

The economist's point of view can be found at David Altig's Macroblog, where, in More Ado about M3, he states the case that M3 just isn't important in formulating Fed policy:

I'm still somewhat surprised by the sentiment that the Board's decision is, at least in part, motivated by the desire to downplay a statistic that appears to be contradictory to the achievement of price stability. I'm surprised because such sentiment seems to imply that the FOMC places significant weight on the behavior of monetary statistics in the first place!
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If you have a sense that M3 is providing any information at all related to the objectives of monetary policy, you know something I don't know.

A commenter stated:

There seems to be a growing disconnect between what people are told the rate of inflation is, and what they experience in their own lives - and not just for energy. Healthcare, tuition, and many other service categories have been rising sharply, while at the same time the cost of imported goods remains stable or declines (how many DVD players do you really need?).

And then there's housing.

Congresswoman Carolyn B. Maloney put it best when asking the following question of Alan Greenspan before the Joint Economic Committee meeting on November 3rd:

"The question that my constituents ask me, I'm going to ask you, 'If the economy is so good and inflation is so well behaved, and there's price stability, then why does everything cost so much more when you go to buy something?"

Not just energy, "everything" (exclusive of DVD players, probably).

Over the last ten years inflation as measured by CPI-U has been in the 2-3 percent range, whereas money supply growth has been in the 5-10 percent range, with the fastest growth coming from the M3-M2 component, the reporting of which is being terminated.

The sense that I get is that the rise in prices felt by consumers is higher than what is being reported in government inflation statistics, and that past and future M3 growth is the uncomfortable confirmation of this.

You'll have to read the rest on your own, or maybe they'll get updated later in the day.

Catherine Austin Fitts - A Note from Catherine on the Fed's Cancellation of M3

Paul VanEden - A gold bull market

Sol Palha - M3 reporting: What’s The Big Deal?

Read more...

Gambler Nation

In a recent trip to visit relatives in Pennsylvania, the following conversation was overheard as family and friends were catching up on how their children were faring in life. "Our oldest son was in an accident a while back - he's recovering, but slowly", she said.

Then she paused, rolled her eyes, and continued, "And our youngest quit his job and gambles full-time now - on his computer. He says he's able to support his wife and their newborn, but it's only been a couple months."

Talking about their offspring is something that aging parents are wont to do - sometimes not so much to share or inform, but just to have something to discuss. There is much to be learned by paying close attention to conversations like this - sometimes the body language speaks louder than the words.

It seems that the older generation has much to say about what the younger generation is doing these days, but often times they are not heard.

Things haven't always been the way they are today.

One thing that has been pretty much the same over the years is the purchase of Christmas gifts around this time of year. What's popular this year? By the looks of what's for sale in local stores and at Costco Online, poker sets seem to be a hot item. Look at all the neat gambling accessories you can get:

• Bellino Poker Table with 4 Swivel Chairs - $1,999.99
• Sportcraft 56" Gaming Bar Table - $629.99
• Texas Hold'Em Casino Table & Poker Set - $379.99
• 1000-Chip Tournament Poker Set w/ Case - $129.99
• Spades Deluxe 500pc Embossed Poker Set - $69.99
• Texas Hold 'Em Folding Game Tabletop - $47.99
• Bellino Bar w/ Two Bar Stools & Poker Table - $3,499.99

It's a pretty safe bet that very few retired adults are buying items on this list for the parents of their newborn grandchildren.

These items do, however, seem to find their way into the living rooms and basements of baby boomers - in many cases baby boomers with teenagers. Gambling has sky-rocketed in recent years among the nation's youth - many parents apparently feel it's better to have their children gambling at home than roaming the streets, as evidenced by this PBS NewsHour segment:

LEE HOCHBERG: A dozen teenage boys in the Seattle-area town of Snohomish gather after school and on weekends, sometimes twice a day, and the poker bets and the money fly. They said the purse could reach $150 before long. Seventeen-year-old Seth Follis said he's walked away from poker games with twice that in his pocket.

TEEN: In a night, I've lost 50 bucks. But then the next day I won close to $300, so...

LEE HOCHBERG: So you're a net winner.

TEEN: Yeah. Since the beginning of last summer, I've won, like, $700.

Gambling just seems to be part of the culture now - European teenagers drink wine at the family's dinner table, American teenagers gamble at the family's poker table.

Then there is real estate - everyone needs a place to set up that new poker table. The real estate gamble has paid off handsomely for many Americans in recent years, though many of its participants don't see it as a gamble at all. The risk-free interpretation of real estate investing often includes the logic, "Real estate is only going to go up. People are always going to need a place to live".

Thanks to easy home equity extraction, many millions of people now have easy access to many millions of dollars that can be wagered on investment property and second homes. There seems to be little desire to build home equity in a first home when investing the equity can be so much more exciting and rewarding.

As David Lereah, chief economist of the National Associate of Realtors once said, "If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years. It's as if you had 500,000 dollar bills stuffed in your mattress." He called it "very unsophisticated."

Paying off your mortgage is apparently for old people - unsophisticated old people.

At a seminar some time ago, the Citibank home loan specialist commented that this sort of "mattress money" was in fact "dead money" - just sitting there, doing nothing. He argued that it should be put to work - investment real estate was his recommendation.

Today, some people combine card playing with real estate careers until one of the two emerges as the clear winner - professional gambler or real estate tycoon. In this case, a big win tipped the scales:

Aaron Kanter in Elk Grove, Calif., parlayed a $50 buy-in at PartyPoker.com into $2 million this summer when, by playing on the website, he won his way into the World Series of Poker in Las Vegas and took fourth place in that event, the richest casino tournament.

At home, Kanter, who recently ditched a real estate career to play poker full time, competes in as many as four games at once on his 23-inch computer monitor. "Any more than that, it's hard to pay attention," he said.

A necessary prerequisite for playing poker and investing in real estate is easy access to credit (Aaron's case above is the exception to the rule). Access to credit is one thing that has been a constant in recent years - something that senior citizens knew little about when they were young adults.

Many years ago, the only reason people needed credit was to start a business or if they were in trouble. Borrowing against the family home was done only to help pay for medical expenses due to some tragic accident or illness, or as a last ditch attempt to save the family business.

Today, credit is too easy. Too routine.

From credit cards funding Party Poker accounts and Las Vegas cash advances, to all-too-easy home loans - the amount of credit available and the ease with which debt is acquired surely must surprise the older crowd. "I don’t' know how they do it", they say, "Where do they get the money?"

Nothing exemplifies this credit-debt-gambling connection better than seeing house-rich Californians spending their home equity in Las Vegas or at Indian casinos that seem to grow like weeds around the country. At the craps tables or in line for pre-construction condo sales, they are ready and willing.

Ready, because they are now wealthy beyond what they or their parents could have ever imagined just five years ago, willing because this sort of thing is now accepted behavior - everyone is doing it.

Craps, condos - this is the way the world now works. You've got to play to win.

To really appreciate how much the world has changed in the last twenty years, you must go to Las Vegas - to see the new casinos and the new condominiums. The scale of things is breathtaking. The amount of money people have to spend is daunting.

While the younger generation crowds around the craps table, the older folks contently sit in front of the quarter slot machines, avoiding the condo sales offices completely.

Casinos and condos and generational changes in attitudes toward credit, debt, and risk.

What will Las Vegas look like in another twenty years? Who knows?

Today it is just another part of our gambler nation.

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Five Hundred Dollar Gold

Who knows what's going to happen now? Having been knocked down hard early in New York trading, then two more times during the day after steady, plodding rallies, gold has finally breached the $500 mark in Sydney and Hong Kong - $501.80 as this is written.

The end of the current cycle, or just getting warmed up?

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More Interesting Gold Stories

It seems that the mainstream financial media reporting on gold is becoming more and more interesting as each day goes by and the price of gold edges higher. The word 'interesting' is a polite choice of words here - the spirit of the season, and so on.

Well, at least they are talking about gold. lf you go to the Wall Street Journal/Barron's search page and type in 'gold', you'll see just how much they're talking about it there - five, ten, fifteen articles a day contain this magical word.

Not all of these stories are about the yellow metal, as many proper nouns contain these letters in this sequence, but nonetheless, this is a marked increase in attention. All of this is completely understandable, of course, as gold has now come within whispering distance of five hundred dollars per ounce.

A search for 'inflation' on the WSJ/Barron's site yields an even higher number of articles per day. Here, it is safe to assume that the count is not skewed upward due to its use in names, however, anything is possible.

Gold and inflation, what a secretive couple they are - much talked about, yet little understood.

In the last two days, the mainstream financial media has produced two more articles about gold - one from Bloomberg and the other from the New York Times. They seem to be begging for attention:

Newmont Forecasts Gold to Rise Above $1,000 on Asian Demand by Miriam Steffens
To See How Gold Is Doing, Check the Rest of the Market by Floyd Noris

In the Bloomberg article, the possible path of future gold prices is pondered, during which it is first learned that Japanese investors are buying bullion to hedge against inflation. What? In a country with chronic disinflation and deflation, investors are hedging against inflation? Fascinating.

Newmont Mining Corp., the world's largest producer of gold, says the price of the precious metal may rise to more than $1,000 an ounce in the next five to seven years as demand growth driven by Asia outstrips global supply.

The gold market "is hot and it is going to get hotter,'' Denver-based Newmont's President Pierre Lassonde said in an interview on Australian Broadcasting Corp. television today. "By early next year you are going to see $525 and down the road even a lot higher than that.''

Gold for immediate delivery touched $497.02 on Nov. 25, the highest intraday price since December 1987, as Japanese investors bought bullion to hedge against inflation and jewelers in Asia and Europe stocked up. Lassonde's prediction surpasses a Merrill Lynch & Co. forecast in July that gold may rise to $725 by 2010 because of rising demand from China.

Then the talk turns to inflation:

Some investors buy gold to hedge against accelerating inflation. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose more than 12 percent from the previous year. Gold last climbed above $500 an ounce on Dec. 11, 1987.

"Everybody thinks inflation is going to stay at 2 percent, I don't believe it,'' said Lassonde. "There has been way too much money printing in the world for that to happen.''

Inflation, excluding food and energy, will probably rise 2.4 percent by the fourth quarter next year from this quarter, up from a 2.1 percent gain a year earlier, a survey by the National Association for Business Economics found.

So what's the message here? The last time gold soared, in 1980, was completely different than today. Today, inflation is under control - twelve percent to two percent.

Yes two percent. As in two percent inflation. The core rate. It's a reasonable guess that as a gold mining executive, when Pierre Lassonde said two percent inflation he was joking, but it looks like he was taken seriously.

Excluding food and energy, the core rate of inflation, as seen by economists, is benign both today and one year out. There's nothing to worry about - both inflation and inflation expectations are well contained, or so the inflation expectations management story goes.

Some disagree with this inflation story - for example here and here.

From the looks of its recent price movement, gold doesn't seem to have heard the story.

Conveniently omitted from the Bloomberg inflation discussion were a number of important pieces of information - inflation for all items in the CPI-U is now well over four percent, the inflation calculation is fundamentally different in 2005 than it was in 1980, and our Asian trading partners have been working day and night to keep many consumer prices low, while huge unsustainable trade deficits grow.

These differences between 2005 and 1980 might have been worth noting as possible reasons that the price of gold is rising - all the author serves up is the Washington Agreement, where some central banks have limited their gold sales in recent years. Ironically, in recent weeks, there have been more announcements of central banks buying gold than selling it.

Here's an interesting exercise involving gold and inflation - it might provide some insight into where the price of gold may be headed. If you look at the last peak in the gold price - $873 in 1980, then go and plug this number into the handy inflation calculator over at the Bureau of Labor Statistics, here's what you get:



Hmmm...

In the New York Times article, once again the acknowledgement of the rising price of gold comes first, followed by an attempt to discredit gold as an investment over the last few years - since the end of 2002 when the S&P 500 hit a multi-year low.

GOLD is in a bull market, approaching $500 an ounce for the first time since 1987, and there is talk that the move shows renewed fears about inflation. Gold bugs say it may be that people are starting to lose faith in central banks to preserve the value of paper currencies, while others see evidence of growing demand for gold jewelry as Asia grows richer.

But perhaps it shows something else entirely. For the last three years, since the world settled down from the technology stock boom and bust, gold has traded suspiciously like just another American stock. If the stock market goes up, so does gold. And ditto if the stock market goes down.

One of the accompanying charts shows the value of gold in the conventional way, measured in dollars an ounce, over the last decade. It shows a price that slipped in the late 1990's, hitting bottom at $253.70 on Aug. 25, 1999, and then a gradual bull market began, with the price almost doubling since then.

That is a reasonable way to price gold, but for those considering it as an investment, it does not show how gold has performed relative to alternatives. The other chart provides the answer. It shows the price of an ounce of gold divided by the level of the Standard & Poor's 500-stock index. If the line is falling, then stocks are doing better than gold. If it is rising, then gold is a better investment over that period.

The case is then made that there has been nothing special about gold in the last few years when compared to other investments. They're all pretty much the same - all up around 50 percent from about three years back.

So, what's the message here? You'd be better off staying away from the yellow stuff - just stick with what you know and don't ask too many questions.

One question that should have been asked as part of this analysis is about gold stocks. How would gold mining shares have fared against the S&P 500 since the end of 2002?

Using the Gold Bugs Index (HUI), an index of the largest unhedged gold mining companies, the answer is clear. Of course it's been a wild ride, and there is more in store, but look at these charts - going back three years, where would you rather have been invested?


Going back five years there is an even more dramatic difference:


It's hard to imagine what the gold stocks are going to look like if gold itself starts looking like a good investment relative to other investments, such as the S&P 500.

Of course going back ten years, the S&P500 handily outperforms both gold and gold mining stocks, but should the period 1995-2000 really affect how you invest today?

Well, that's an interesting question...

Maybe the mainstream financial media should just stop talking about gold.

[This just in - a very bullish gold story from Bloomberg - very bullish.]

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Random Items

BARBARA CORCORAN'S SUPER BOWL THEORY EXPLAINED

Alert reader John Law II (not his real name) has found a possible explanation behind Barbara Corcoran's Super Bowl Real Estate Theory mused over in this space last week. From a CNN/Money article almost a year old, we learn:

The Super Bowl may be the grand finale of football season, but in most markets it marks the beginning of prime home buying season.

Buyers usually put house hunting on hold during the holidays, and begin heading out in full force in February.

Last year, according to the National Association of Realtors, existing home sales fell 31 percent in January, reflecting that fewer buyers were out looking in late November and early December. In March, however, sales shot up 41 percent, indicating that buyers rushed back to the market in late January and early February.

Sunday's big game will have no direct impact on the housing market, of course. But real estate agents say they expect that telephone calls and e-mail inquiries will start picking up after the weekend.

"I don't mean to stereotype because there are plenty of women who love football and just as many men who love home buying," said Diane Saatchi, a vice president in the Easthampton, N.Y. office of the Corcoran Group. "But we often get calls from women who aren't interested in the Super Bowl and are instead gearing up to buy a new house."

So be careful Super Bowl watching men of America - while you are enjoying cold beer and nachos, your wife may be perusing local real estate listings, preparing to sweet talk you into upgrading to some new McMansion that you really can't afford, but which is still within your grasp due to ever creative lending practices.

The Corcoran Group is now apparently resorting to normal seasonal patterns in real estate buying to herald a resurgent boom in home sales. As can be seen in this chart for Southern California real estate sales volume, this is a pattern which is repeated year after year - do not confuse the month-to-month increase in sales during the beginning of the year with a new boom.


Click to enlarge

Don't listen to Barbara Corcoran - you'll hate yourself in 2007, maybe sooner.

COLD HEAT

Who uses this?

Despite the best efforts of Tivo DVR technology to eliminate commercials from the lives of ordinary Americans, this product continues to penetrate our collective psyche.



It looks like a neat product - from room temperature up to 800 degrees and back to room temperature in a matter of seconds, but what is everyone soldering?

THAT'S A LOT OF DRAMAMINE

Condos at sea? Preconstruction in dry-dock?

Yes, there are now three residential cruise ships selling floating real estate priced at betwen $1 million and $15 million - homeowner's association fees are extra, extra expensive that is, but the good news is that there are no property taxes.

Who is buying? Forty percent of the World's buyers come from North America, 40% from Europe and 20% from elsewhere, with a strong representation from South Africa and Australia. The median age is 52. Buyers are overwhelmingly self-made entrepreneurs as opposed to having inherited wealth.

Who they are, well, that's a secret. Buyers enjoy a level of identity protection that rivals the FBI's witness relocation program.

The ship's residents, said the World's Upshaw, made a covenant not to grant media interviews. Management discourages ownership by high-visibility celebrities, and marketing approaches are more along the lines of a discreet tap on the shoulder from a top international realty broker than a phone call interrupting dinner.

Lee Minshull, who apparently doesn't fear being voted off the ship by his fellow homeowners, just bought the first unit on the Magellan and was happy to speak about it.

A dealer in rare antiquities who lives in Palos Verdes Estates, Minshull is about to close escrow on a $3.2-million, three-bedroom suite on the Magellan. His Palos Verdes Estates house is 6,000 square feet, and he owns a second home in Hawaii.

Minshull, who is in his mid-40s, learned of condos at sea through his membership in Exclusive Resorts, a high-end vacation club with 1,700 members. He paid $400,000 to join, and the annual fees are $25,000.

"I like traveling with people of similar means," Minshull said. "Yeah, I know how that sounds. But it's true."

HOW SAFE ARE BANKS AND HOUSES?

It's natural to wonder just how safe banks are these days. This cartoon probably sumarizes the situation better than any banker or homeowner could.

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