On the Use of Strength

O, it is excellent To have a giant’s strength! But it is tyrannous To use it like a giant.
- "Measure for Measure," Act II, Scn. ii, William Shakespeare

Private Equity and Hedge Fund Returns

"If you went back and looked at all the leveraged buyouts over between 1981 and 2003, according to researchers from Harvard and Stanford, you'd find that the buying firms were almost always harmed by the transaction. Last year, KKR raised $5.1 billion from the public for a company that invests (funds) KKR deals. Despite the biggest bubble in private equity ever, the shares now sell for about 10% less than the IPO price. And over the long sweep, KKR's track record is no better than an index-following mutual fund; it is just more highly leveraged.

A conceit of the private equity industry is that taking companies out of the public markets allows managers to focus on longer-term strategies. But on Tuesday, a Moody's report contradicted that claim too. Private equity "does not really invest over a longer term horizon than public companies…" said the report. "They're taking capital out over a short period of time, providing themselves with a dividend in the first three years…"

Meanwhile, according to figures from Credit Suisse Tremont, the data provider, the average hedge fund across all strategies has returned 7.86% over the year to date - almost exactly the same as the performance of the S&P 500 index.

And a recent S&P study of Absolute Return Funds - funds designed to outperform the benchmarks - showed that none of them hit their targets, after fees. The worst in the group, Baring's Directional Global Bond fund, hoped to produce 4% over the London Inter-Bank Lending Rate, net of charges, thanks to elaborate use of derivatives. Heisenberg himself probably would have been proud to call the funds' formulae his own, so complex were they. But despite the highest rates in the business, what the fund delivered over the last 12 months was a net loss of almost 6%. Of the 21 funds tracked by S&P, only four beat the rate of return an investor could have gotten from cash - without paying any fees at all.

Both in theory and in practice, an investor would have to be a moron to want to pay a hedge fund "2 and 20" for the privilege of getting ordinary returns (actually, many funds charge an additional 1% management fee…plus an additional 10% of performance as a commission…bringing the total to '3 and 30'). But a man who was looking for idiots in the investment markets of 2007 is spoiled for choice. He might as well be trying to identify the dumbest member of the British parliament or the fattest American tourist.

But the financial world, circa 2007, is full of wonders. Who could have imagined that professional investors would buy leveraged packages of mortgages made to people who lied about their incomes and were unlikely to be able to pay the money back? Or that shareholders would allow their companies to be loaded up with debt, stripped of assets, and used to pay huge "dividends" to the private equity marauders?

And now, who would have imagined that those same public shareholders would buy shares from Henry Kravis, Stephen Schwarzman, and other private equity hustlers? What do they think, that they are going to put one over on the very geniuses who made such suckers of them?"

Bill Bonner, The Daily Reckoning 14 July 2007

Why Switch

I now use a Mac at home. Here is why I made the switch.

I had just bought a digital video-camera. Editing the digital video required us to increase the processing and storage capabilities of our home system. So I set out to investigate our options, not excluding a Mac, which I had heard was suitable for home video editing.

To purchase a bigger PC was cheaper than to buy a similar Mac. To learn to use a Mac required time and effort. To learn real time video editing on either would also require time and effort. I had not been using photo or video editing software before on the PC - too complicated for me. I had had virus problems before on the PC and so the anti-virus, anti-spyware, patch upgrade routine running on my home PC was taking boot-up times to 3 minutes every time I turned the PC on. The Mac operating system takes care of antivirus/spyware/etc. The boot-up on my Mac is 30 seconds. But what really illustrated the difference for me was the instructions for the installation and configuration for video editing software. The PC configuration instructions were 3 pages long, and required the installation of a special $300 card and software from $50- $300. The Mac instructions were 2 lines long and basically said: "it all comes standard with the Mac"!

So for me the pain of daily 5 minute machine boot-ups made me open to alternatives. The expense and effort involved in configuring a PC so it could do what a Mac did out of the box motivated me to make the change. The simplicity of using the Mac and its software made sure that I did not experience buyers remorse.

I still use a PC for work, and probably always will. But the Mac will be my Home computer system from now on.

Schopenhauer on truths revealed

There are three steps in the revelation of any truth: in the first it is ridiculed; in the second, resisted; in the third, it is considered self evident.
Arthur Schopenhauer, German philosopher, 1788-1860

God is a Republican

"God is a Republican and Santa Claus is a Democrat.

God is a stern fellow...and a great ebeliever in rules and regulations. He holds men strictly accountable for their actions.... God is difficult. God is unsentimental. IT is very hard to get into God's heavenly country club.

Santa Claus is another matter. He's cute. He's nonthreatening. He's always cheerful. And he loves animals.... He gives everyone everything they want without thought of a quid pro quo. He works hard for charities, and he's famously generous to the poor. Santa Claus is preferable to God in every way but one: There is no such thing as Santa Claus."

PJ O'Rourke, Preface to "Parliament of Whores", 1991 First Vintage

Bubble Chart

Started making a chart linking specualtive bubbles and the events leading up to them.

Does mass speculation cause recessions?

I'm reading Edward Chancellor right now - his book "Devil Take the Hindmost" chronicles events of mass speculation in history, starting with the Tulip mania in the Netherlands and ending with unregulated Hedge Funds in the 2000s.

The question for economists is whether speculation should be regulated or not. Friedman and his kind (Reagan, Greenspan) are for deregulation on the basis that if people lose enough money they will stop speculating, whereas Keynes and his kind (Volcker, many Democrats) are for regulation to prevent mass speculation. They need to decide on what policy the Central Bank will take to prevent recessions. In light of the worsening economic conditions in the United States (the crash of the subprime market, the continued depreciation of the US dollar, the billions of dollars the US Tresury needs to print in order to pay foreign debts, and the trillions of dollars being speculated in hedge funds and private equity), the likelihood of a selloff of US Currency and Bonds, and a spike in interest rates is increasing.

Why should the man on the street care? The question for us non-insiders is will "MY FAMILY'S ECONOMY SUFFER?". The solution for the regular joe making $130,000 instead of a million a year is simple: STOP USING SPECULATIVE INSTRUMENTS TO FUND YOUR RETIREMENT. ONLY INSIDERS TRULY BENEFIT FROM SPECULATION.

Store quotes and charts in blog

Just post one quotation or one chart per day. don't comment on it - just post them for later use in a public blog.

Advocacy for 1035s in canada

Need to get involved with a life insurance advocacy group allowing 1035 transfers of insurance cash values from one policy carrier to another carrier.

find out status of 1035 transfer equivalent in Canada
Find an advocacy/lobby group try Dan Ouimet, Frank Viti or Dennis Fotinos
Talk to lobbyist on how to do this.

Business Planning

Seminar Marketing

NWF will do a seminar in the middle of each quarter (This is to avoid quarter ends and beginnings, at which time people are busy. We need to take care to avoid the weeks of long weekends too.) Tentative dates are first Tuesday of Feb, first Tuesday of May, fourth Tuesday of July and fourth Tuesday of November.

This will be a paid seminar to Business Owners earning > $1m per year. Source list is the million dollar list of dun and bradstreet (check with Alvaro from deloitte).

Content is 1) Gold Beginner Level- quick start infinite banking 2) Platinum Advanced Level - Turnkey Lending to your own corporation 3) Diamond Expert level - Turnkey Lending to your own customers

We want 100 people to attend each quarterly session., so we invite 5,000 ( use email to reduce costs). We charge $100 online the first time. This entitles them to a gold membership, which has the following benefits:

- Welcome package with 3 months free gold membership, and a package containing a name badge (member since 20__), a free book, a free monthly newsletter, 4 free in-person consultations for the first 4 quarters, 3 hours/month calling consultation. We will charge the same card starting the 3rd month a monthly fee of $18.88 unless they cancel.

After they establish their first bank, we invite them to the Platinum Level membership which gives all Gold Benefits plus
-a special newsletter insert for lending to your own corporation,
-access to the list of knowledgeable tax accountants and lawyers trained to use the IBC for lending to one's own corporation.
- 5 hours / month calling consultation
- 1 hour/month personal with the head of education
This costs $188/mo

After they get their first loan, we invite them to The Diamond Level membership gives all Platinum benefits plus
- a special newsletter insert for lending to your own customers,
- free tuition including spouse at the annual IBC seminar with Nelson Nash key note speaker, (a group of business owners, accountants and lawyers who share experiences on how to use infinite banking), gala dinner.
- limited to 20 members only for augusto's group, then other staff are the group leaders
- 1 hour per month personal consultation with Augusto
this costs $488 per month


This should bring in 400 prospects per year and a monthly revenue