I participated in Freedom

Vogons

Here's a prime example of "Men Are from Mars, Women Are from Venus"... offered by an English professor from the University of Colorado for an actual class assignment:

The professor told his class one day: "Today we will experiment with a new form called the tandem story.

The process is simple. Each person will pair off with the person sitting to his or her immediate right or left. As homework tonight, one of you will write the first paragraph of a short story. You will e-mail your partner that paragraph and send another copy to me.

The partner will read the first paragraph, and then add another paragraph to the story and send it back, also sending another copy to me. The first person will then add a third paragraph, and so on, back-and-forth.

Remember to re-read what has been written each time in order to keep the story coherent. There is to be absolutely NO talking outside of the e-mails, and anything you wish to say must be written in the e-mail. The story is over when both agree a conclusion has been reached."

The following was actually turned in by two of his English students, Rebecca and Gary:

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THE STORY:

(first paragraph by Rebecca)

"At first, Laurie couldn't decide which kind of tea she wanted. The chamomile, which used to be her favorite for lazy evenings at home, now reminded her too much of Carl, who once said, in happier times, that he liked chamomile. But she felt she must now, at all costs, keep her mind off Carl. His possessiveness was suffocating, and if she thought about him too much her asthma started acting up again. So chamomile was out of the question."

(Second paragraph by Gary )

"Meanwhile, Advance Sergeant Carl Harris, leader of the attack squadron now in orbit over Skylon 4, had more important things to think about than the neuroses of an air-headed asthmatic bimbo named Laurie with whom he had spent one sweaty night over a year ago. "A.S. Harris to Geostation 17," he said, into his transgalactic communicator. "Polar orbit established. No sign of resistance so far." But before he could sign off, a bluish particle beam flashed out of nowhere and blasted a hole through his ship's cargo bay. The jolt from the direct hit sent him flying out of his seat and across the cockpit."

(Rebecca):

"He bumped his head and died almost immediately, but not before he felt one last pang of regret for psychically brutalizing the one woman who had ever had feelings for him. Soon afterwards, Earth stopped its pointless hostilities towards the peaceful farmers of Skylon 4. "Congress Passes Law Permanently Abolishing War and Space Travel", Laurie read in her newspaper one morning. The news simultaneously excited her and bored her. She stared out the window, dreaming of her youth, when the days had passed unhurriedly and carefree, with no newspaper to read, no television to distract her from her sense of innocent wonder at all the beautiful things around her. "Why must one lose one's innocence to become a woman?" she pondered wistfully."

(Gary):

"Little did she know, but she had less than 10 seconds to live. Thousands of miles above the city, the Anudrian mother ship launched the first of its lithium fusion missiles. The dimwitted wimpy peaceniks that pushed the Unilateral Aerospace Disarmament Treaty through the Congress, had left Earth a defenseless target for the hostile alien empires that were determined to destroy the human race. Within two hours after the passage of the treaty, the Anudrian ships were on course for Earth, carrying enough firepower to pulverize the entire planet. With no one to stop them, they swiftly initiated their diabolical plan. The lithium fusion missile entered the atmosphere unimpeded. The President, in his top-secret mobile submarine headquarters on the ocean floor off the coast of Guam, felt the inconceivably massive explosion, which vaporized poor, stupid Laurie.

(Rebecca):

This is absurd. I refuse to continue this mockery of literature. My writing partner is a violent, chauvinistic semi-literate adolescent.

(Gary):

Yeah? Well, my writing partner is a self-centered tedious neurotic whose attempts at writing are the literary equivalent of Valium. "Oh, shall I have chamomile tea? Or shall I have some other sort of F**KING TEA??? Oh no, what am I to do? I'm such an air-headed bimbo who reads too many Danielle Steele novels!"

(Rebecca):
As*h@le.

(Gary):
B*tch!

(Rebecca):
F**K YOU - YOU NEANDERTHAL!!

(Gary):
In your dreams, Ho. Go drink some tea.

(TEACHER):
A+ . I really liked this one!

Meow

Vote!

Preferably for Ron Paul 2008

What a Bohr

Some time ago I received a call from a colleague. He was about to give a student a zero for his answer to a physics question, while the student claimed a perfect score. The instructor and the student agreed to an impartial arbiter, and I was selected.I read the examination question:

"SHOW HOW IT IS POSSIBLE TO DETERMINE THE HEIGHT OF A TALL BUILDING WITH THE AID OF A BAROMETER."

The student had answered, "Take the barometer to the top of the building, attach a long rope to it,lower it to the street, and then bring it up, measuring the length of the rope. The length of the rope is the height of the building."

The student really had a strong case for full credit since he had really answered the question completely and correctly! On the other hand, if full credit were given, it could well contribute to a high grade in his physics course and to certify competence in physics, but the answer did not confirm this. I suggested that the student have another try. I gave the student six minutes to answer the question with the warning that the answer should show some knowledge of physics. At the end of five minutes, he had not written anything.

I asked if he wished to give up, but he said he had many answers to this problem; he was just thinking of the best one. I excused myself for interrupting him and asked him to please go on. In the next minute, he dashed off his answer which read: "Take the barometer to the top of the building and lean over the edge of the roof. Drop the barometer, timing its fall with a stopwatch.Then, using the formula x=0.5*a*t^^2, calculate the height of the building." At this point, I asked my colleague if he would give up. He conceded,and gave the student almost full credit.

While leaving my colleague's office, I recalled that the student had said that he had other answers to the problem,so I asked him what they were. "Well," said the student, "there are many ways of getting the height of a tall building with the aid of a barometer. For example, you could take the barometer out on a sunny day and measure the height of the barometer, the length of its shadow, and the length of the shadow of the building,and by the use of simple proportion, determine the height of the building." "Fine," I said, "and others?" "Yes," said the student, "there is a very basic measurement method you will like. In this method, you take the barometer and begin to walk up the stairs. As you climb the stairs, you mark off the length of the barometer along the wall. You then count the number of marks, and this will give you the height of the building in barometer units." "A very direct method." "Of course. If you want a more sophisticated method, you can tie the barometer to the end of a string, swing it as a pendulum, and determine the value of g at the street level and at the top of the building. From the difference between the two values of g, the height of the building,in principle, can be calculated." "On this same tact, you could take the barometer to the top of the building,attach a long rope to it, lower it to just above the street, and then swing it as a pendulum. You could then calculate the height of the building by the period of the precession". "Finally," he concluded, "there are many other ways of solving the problem.Probably the best," he said, "is to take the barometer to the basement and knock on the superintendent's door. When the superintendent answers, you speak to him as follows: 'Mr. Superintendent, here is a fine barometer. If you will tell me the height of the building, I will give you this barometer."

At this point, I asked the student if he really did not know the conventional answer to this question. He admitted that he did, but said that he was fed up with high school and college instructors trying to teach him how to think. The student was Neils Bohr.

Hungry?

Economics 101+

Here are a couple of interesting pieces on economics.

First, Economics in One Lesson explains capitalism and the typical mistakes a government will make when they intercede.

Next, Money as Debt (47 min) gives a somewhat grimmer (and perhaps more realistic) view of the state of the economic society.

I often wonder what the right kind of investments are if the doomsayers are to be believed - that the US economy and currency will collapse under the weight of its own debt. I got the following good advice from Wendy over at the Fool Message Boards on this subject.

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Because this is such an important question, I have been thinking about it carefully, rather than writing a "snap" response.

In all cases, your actions must follow your personal timeline (short/ long term) and personal risk tolerance.

Since you are new, to the METAR board, you may not be aware that I am one of the most risk-averse board members. Everything I write will be colored by my personal need to reduce risk. A risk-reducing attitude is quite different than a market-playing attitude (where maximizing return may outweigh risk considerations).

The nature of your question implies that you are already keenly aware of risk. You appear to be trying to reduce the risk of the danger of a falling dollar.

The question, "What is the danger to me of a falling dollar," requires careful thought. A falling dollar means "A falling dollar against one or more other currencies."

In the U.S., we purchase many goods and services that are produced locally. The cost of these won't be directly impacted by the relative value of the dollar to, say, the euro or the yen. Many of the household's largest expenses -- the cost of borrowed money (mortgage and credit payments), insurance, medical costs, food -- are not directly impacted by the relative value of U.S. currency.

The CPI-U (the rate of inflation, including food and energy) reflects the increased cost of living in the U.S. It is calculated by the government (Bureau of Labor Statistics).

The risk of a falling dollar impacts inflation by increasing the cost of imported goods, both manufactured goods, and raw materials that we compete for, on international markets (e.g. oil). Producers in (say) China or Saudi Arabia will demand higher dollar prices, to maintain their purchasing power, in the global economy.

Another risk of a falling dollar is that foreign lenders (who buy 40% of Treasury debt) may demand higher interest rates, to compensate them for the loss of their interest payments, which must be converted from dollars into their local currency.

When you consider investments that will reduce the risk of a falling dollar, you should consider the inherent risk of the investment itself. It won't help to "protect" yourself from the risk of a falling dollar, if you choose a risky investment that loses money.

Several of the investments that you mentioned are quite risky, since they attract speculators. For example, currencies are frequently manipulated by central banks and other large players. Commodities, such as oil and gold, are also subject to wide swings, due to manipulation.

You asked about hedge funds. These are highly risky, for two glaring reasons. First, the managers take 20% of the profits, right off the top. This means that the fund is forced to take high risks, in order to provide the investor with a greater yield than he could get by investing in a 0.2% expense Vanguard index fund. Hedge funds often use leverage, and speculate heavily.

Buying foreign stocks is risky, for the many reasons that any prospectus for a foreign stock mutual fund will list. It really is worth reading the prospectus! You ask about the specifics of different funds. Each will be different. It is your responsibility to read the fine print, and make a judgment call.

One risk that the prospectus doesn't mention is that it's almost impossible to calculate whether you are getting a good value on foreign stocks (based on fundamentals), or whether the prices are speculative.

This is my advice, which is designed to reduce risk. This advice will not maximize returns, but it will minimize losses and fluctuations.

1. CPI-U inflation risk can be mitigated by investing in individual Treasury Inflation Protected Securities (TIPS bonds). TIPS pay a fixed interest rate, and the principal is adjusted upward by the CPI-U inflation rate. This maintains the value of your dollar, based on its average U.S. purchasing power. This is the most direct way to address the impact of the falling dollar's impact on your household.

Today is the 10-year TIPS auction (twice-yearly). Get more details on the Bonds & Fixed Income board.

2. Dividend-yielding stocks of U.S. companies with significant exports help protect against a falling dollar. A falling dollar makes U.S. goods more competitive overseas, so exports will rise. Foreign sales will be converted into higher dollars, so the dollar profits will rise. Fundamentals of U.S. companies are much more transparent than foreign companies, and many pay decent dividends.

The safest way to invest in U.S. companies is to dollar cost average into a low-cost index fund (such as Vanguard's VTSMX). If you want to buy individual stocks, take a look at the BMW Board, which uses an excellent statistical analysis system, for determining when stocks are undervalued (plus, they are strong on fundamentals, which are important).

Stocks and bonds should be the backbone of your portfolio.

To jazz things up a little (add risk, but also add the potential for reward), you can add a small proportion of currencies, precious metals, foreign exposure, and commodities.

You can buy currency-denominated bonds at www.everbank.com. Remember that currencies are manipulated six ways from Sunday! This is riskier than they will tell you.

You can buy several different flavors of international funds at both Fidelity and Vanguard.

I have small amounts invested in Vanguard's Precious Metals Fund (VGPMX), Energy Fund (VGENX), and Developed Markets Index Fund (VDMIX) and also in U.S. Global Investors Global Resources fund (PSPFX), which sonnypage recommended. You could invest in the corresponding ETFs, and/or in GLD and SLV, the precious metals ETFs. One problem with owning precious metals outright is that they don't pay dividends.

The METAR Board hosts members across the spectrum of risk tolerance. I may sprinkle a little of sonnypage's advice into my portfolio, as "spice," but his concentration of assets is extremely risky. It will only work for him if his evaluation of future events is exactly right. I am, personally, too humble to believe that I'm always right, so I diversify.

Going back to your original topic:

Discussion of risk in future scenarios isn't "fearmongering." The best way for a small investor to avoid loss is to be avoid the potential danger. Each scenario has a profile of risk and opportunity, and a probability of occurrence. Personally, I allocate my resources to reduce my risk, given my evaluation of the probability of the scenario. This may mean that I bypass opportunities, by reducing my exposure to higher-risk investments.

I suggest that you write a list of your expected scenarios. Some will be benign. Others will have lurking dangers. Assign a probability to each. Assign the expected return, for each. Assign your tolerance to risk, for each. Allocate your assets based on your combination of risk and reward, given your time frame.

Do not risk any money that you will need in the near term. Always keep at least 3 to 6 months of living expenses, in liquid form (money markets and a short-term CD ladder), as an emergency fund. If funding your e-fund doesn't leave any investable capital, don't invest.


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I Barf'd Wine

Call me Ishmael

First post! What do I win?