Was the Fed duped?

Early last week it seemed as though the world, or the financial world at least, was coming to an end rather quickly. Global markets sold off heavily and for no apparent reason other than concerns of the US recession. In response to this the US Federal Reserve cut interest rates by 75 basis points- the biggest cut in 30 years.

Then it was revealed that a rogue trader had caused the market shock by making bogus trades. The resulting market forces of his company unwinding those trades led to the market sell off.

Now if you are like me, there is some serious injustice here. First, where are the repurcussions to Societe Generale, the firm he worked for? Other than losing £3.5 billion, there needs to be something. Second, what about the Fed? Were they duped into action by this? They say in the press that they stand by their decision but they still look a little foolish. Why was such a huge cut needed? In order to restore confidence- the very confidence they undermined, they should begin raising rates again. Ben Bernake has to understand that his stakeholder base extends far beyond wall st to middle america. The amount of the rate cut is not commensurate with the other rhetoric about the state of the US economy overall. The economy is just not as bad as a 75 point cut would lead you to believe.

Nammie visits London

How lucky we were to have Nammie visit London two weeks ago (11-20 January). She had the wonderful experience of seeing our flat, seeing Hampstead Hill School, and seeing the sights in London including Buckingham Pallace and tea at the Ritz.

Plans for the move

Just wanted to keep everyone up to date on the move plans. Jennifer and the kids fly out on Monday, 11 February for Miami. They will stay at nammies house for a week in an effort for us to skip the temporary accomodation step in our transfer. Our previous experience with this is that they are not very kid friendly. The movers arrive on the 11th as well and begin packing. We officially vacate the flat on the 15th of February. I fly to the Washington DC area on the 16th. On the 18th we have our storage shipment set to arrive. Then later that week the air shipment from London (the air shipment is being picked up on the 8th). Eventually, our sea shipment will arrive in mid March.

Jen is already hard at work on getting the kids sorted out. She is looking into schools for the kids. Also, in addition to continuing her Masters, Jen has two job offers to consider. Super-woman!

I'll keep you all posted through the blog as time permits.

We have a house

Late last week we signed on a house in the Northern Virginia area. We will be living on Tamarack Drive in Vienna. We are all very excited, especially the girls who will get their own rooms again.

How I save money on everyday purchases

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NPR Cancels Michigan debate for Republicans

A small article in USA Today reported that NPR has cancelled a debate amongst Republican candidates due to lack of overall interest by the candidates. I think that this speaks volumes. Firstly, I think there is the thought that people are too busy tuning into the Democrats to be bothered to watch a Republican debate. Perhaps it was also lack of overall interest by voters?What is there not to like about watching Democrats beat each other to a pulp? It is uncanny how democrats can use up all of their energy beating each other up that they have no fight left in them when it comes to the real fight in November. Also reported in USA today was John Kerry’s endorsement of Barack Obama. Apparently John Edwards was suitable to be VP four years ago but is no longer on his Christmas card list.

And now the hard part

When we talk to people about moving back they all feel that this move will be easier on the kids. Hannah, our vibrant, intelligent, artistic, and very articulate daughter is already expressing anxiety over the move. There has been more than one night where bed time was met with tears over moving back to the USA and missing her friends. That is the hardest thing for me. We recognize that this is the right thing to do but taking Jen and the girls away from their close friends is tearing my heart out.

Finding a Home

Jennifer and I have decided to look for homes in the Washington DC metro area. There are a number of reasons for this but they all boil down to familiarity. I’ll be in the area this week to look at Rentals in a few different areas: Ashburn, Oakton, Vienna in Virginia and Potomac and Bethesda in Maryland. These areas provide us a chance to get re-established in the USA in place where we have family and friends, and jobs that we are familiar with. We will rent for a year before we decide to buy a home.

How to screw up royally

The key lesson learned from the recent credit debalcle is that if you are going to screw up, screw up in a big way. You need to ensure that a lot of people do the same thing. This in turn triggers the government to think bailout. The problem with this is that it obviously rewards all of the wrong behaviours. In each case in the last decade, those who really screw up the financial markets typically get assistance to make it right so the wider market does not get impacted. The right way to handle the credit crisis is to allow the free market economy punish the ones that have over speculated and reward those that have managed prudently. All we have done now is artifically propped up an already weakened market. This will only prolong the amount of time until a real correction can take place. The problem in keeping people in homes they know they can't afford is that it prolongs the time until they are sold. The housing market is stagnant right now. So until those homes begin to hit the market, nothing will really move. It sounds harsh but some kind of correction is in order. The problem with a housing correction is that since houses are so heavily leveraged, even a small change in value can wipe out all of your equity. Since home equity has fueled the economy for the last five years, losing home equity would suck all the wind out of the US economy. So what we really have here is the perfect storm of economic situations. Weak dollar, high oil, housing crisis, threat of inflation, gold soaring.

The good news is usually when you can't find a single thing to feel good about, real change starts to happen.

Paris

I woke up on Saturday morning facing the cold hard reality that we just have five weeks left in London. That is very little time to do all the things Jennifer and I discussed doing when we came here two years ago but did find the time to do. So we looked on line and found reasonable priced train and hotel and went to Paris for the weekend. The whole thing is handled in a very simple way when you have access to the Eurostar from King's Cross.

Our main objective was to see two sights and we were able to achieve both despite tired legs and tired dispositions. Early on sunday we took the girls to the top of the Eiffel Tower. In the afternoon we went to the Louvre.

Despite being to Paris numerous times for business, I have never been to the Louvre. Seeing the Mona Lisa was worth the trip. Trying to explain its significance to Hannah was a touch harder. I think both girls absorbed about as much as they could in 36 hours.

This trip reminded me of a movie quote. Now both Jen and I have forgotten the movie so if you know it please let us know. A father takes his daughter to Paris and explains, "I wanted to make sure that the first time my daughter saw Paris it was with a man that really loved her. " I feel blessed to have been able to do this with all three of my women.

The only pitfall was that Abby took a nap at the Louvre. Officially she was at the Mona Lisa but did not have a chance to see it. Waking her was ill advised.

Now I am back to the cold hard reality of work.

Bitter Cold rips London

By all measures it is cold in London today and the threat of snow has most people in a jolly, playful mood. I think that mood has more to do with the fact that people in general are slow to return to work after the holidays. The office was empty yesterday and while more populated today, the feeling is that people are content doing heads down, quiet work and not quite ready to engage fully.

London has a very moderate climate and temperature extremes like this are rare. The thing on everyone’s mind today is the idea that it may snow. Snow in London is very bad. Even the smallest amount can cripple the transportation infrastructure. Yesterday warnings were issued to all travellers to be cautious of travelling as you may not get back to your homes. When this happened last year, the city was paralyzed for days.

The smell of snow in the air, and yes, there is a very distinct smell that it has makes me think of my days at Binghamton. PJ and I took one of our many road trips to Buffalo. You want to experience snow- that is the place to go. They have ‘lake effect snow’ which is a heavy, wet, billowy tupe of snow that is generated when the warm lakes pump moisture up into the air and it moves over the much colder land mass. Buffalo is perfectly positioned for lake effect snow and when it comes down it does in feet at a time. I recall on of our trips to visit Tina and looking out the window to a complete white out. When the snow stopped, you can just make out the fine silhouettes of car tops in the streets below. That type of snow takes days to deal with even with heavy equipment. None of that type of equipment even exists here in London.

$100 Oil

So how will $100 oil impact your decision making today. Doubt it will although if you read the paper, you’d imagine the world is about to end. It makes me wonder how high oil process will need to go before people make the radical shifts in their lifestyle that is needed to lessen the blow of this type of economic event.

The price of oil is an interesting things and one can argue that the price can only go up from here. If you think of the basic macroeconomic forces that are at work here: There is a very limited supply and it is getting more limited by the day. There is very high demand and it is growing by the day. Therefore even by simple terms the price of oil must go up. The only way for it to go down is to impact one of those two metrics.

To increase oil supply you have to expend a significant amount of money. You need to explore to new places and then you have to drill for it. Then you have to refine it, then you have to ship it to places where people actually need it.

To decrease demand on oil you need to invest a significant amount of money. You need to find alternatives to the combustion engine that is run on gasoline. You need to mass produce it and you need to convince people to buy it.

Neither one is an easy option. If you add into the picture that world is becoming a warmer place due to fossil fuels being burned and releasing carbon dioxide, then the strongest argument goes to the creation of alternative fuels and removel of dependence on oil.

When you leave the macro principles and you get to more socio economic theory, high oil costs impacts the lower classes much more than the upper classes. Further, the political issues that are created when the world economic forces move away from supporting oil producing economies is significant.

So going back to the main question, how will you change the way you live today due to the price of oil? The answer is probably not much. Real change will occur when we all make the small decisions in our daily lives that can help drive the larger macro economic decision making.

I don’t see much happening over the course of the next few years that will lead the price of oil to fall. The BRIC (Brazil, Russia, India, China) are continuing to grow their economies through use of oil. The supply continues to fall. So maybe this is a no-brainer.

Adding fuel to the fire (excuse the play on words here) is the role that speculation plays in the market place. The price of oil is set on the NYMEX and is subject to enormous amounts of speculation by traders. Many of the people that buy and sell contracts for oil have nothing to do with the oil industry at all. They are just people that see it as an investing opportunity and a way to make money. So there is some aspect of the price of oil that has very little to do with supply and demand at all and has purely to do with speculation. During the last decade, the price of oil rose ten-fold from $10 to $100. Clearly much of this rise has been fuelled by natural rises in demand and natural restrictions on supply. How much of the price increase going forward can be allocated to natural forces or speculation is obviously unknown. Clearly, this is a market that is ripe for profit making as all the forces seem to point in one single direction.

Iowa Caucus

It has been fascinating to watch the democratic process work from abroad. If anything that I have learned is that there is really nothing fair and balanced about Fox news at all. They report it, we decide if it is true.

Similarly, watching the BBC report on our presidential race, a few truths come out clearly. There is nobody better at fighting off the Democrats than the Democrats themselves. And as a democrat this is somewhat hard to watch.

I am concerned about how early this race has begun and who will have the energy and resources to actually take it to the end and then fight the republicans for the White House. Not to mention the energy, but who will possibly have the money to do so?

It must be fun to be Republican and watch the Democrats bludgeon themselves before the real fight takes place.

It is good to see that the race is heating up and that America is now turned onto politics and electing people. One can only hope that this increased interest turns into much higher voter turn out in November.

Jennifer and I were speaking last night about politics, as we often do, and she commented on how good it was that there were no questions being raised about Hill’s ability to lead as a woman. I personally think this is due to a variety of reasons. First, I think people are just ready for a Woman president and welcome that as a change from what we have now. Secondly, the rest of the world has experienced powerful leadership from Women before so it is really natural for the US to do this now.

I am not sure what the Democratic ticket will be. I think we have good people to choose from. On New Year’s Eve, we had dinner with the Newton’s and discussed a similar issue. Peter raised a good point on the Republican side. He is very astute and watches this closely. As a Canadian he is more aware than many Americans I know. Anyway, he raised the spectre of a McCain / Lieberman ticket. And to be honest, I think that would be a hard ticket for anyone to beat. Nope, have not voted yet, but that seems like a potent combination.