Population Growth Trends of Countries and Global Investing Strategy

“Demographics is destiny,” is a phrase that is way overused and abused. Demographics isn’t necessarily destiny, but it does play a major role in the rise and fall of civilizations. For example Rome the city at its height of power had over a million residents and controlled 100 million subjects. When Rome fell to the Germanic raiders it had only 50,000 residents left and its control did not extend much outside the city. Demographics is important, which in turn may influence where you choose to invest. So we thought it would be interesting to see how the populations represented by some of the international ETFs we follow stack up against the U.S. in terms of demographics.

Using estimates from the U.S. Census Bureau, we calculated the expected population growth over the next 25 years—roughly a generation—as well as the percentage of the population 65 years of age or older, both now and in 2032. For single country ETFs this was easy; for the regional funds we used a weighted average of the constituent countries.

What we found was in some cases surprising. The biggest surprise was that the market with the fastest overall population growth between now and 2032 is not in the emerging markets but rather it is the United States, which is expected to grow 23% from 301 million now to 357 million in the next quarter century.

The population represented by the MSCI Emerging Market index (EEM) is expected to grow 18% over the same period, dragged down by double-digit population declines South Africa (about 8% of EEM assets) and Russia (8%), as well as virtual stagnation in Korea, which is about 14% of the index. This is partially offset by a population explosion in India, but Indian companies are only about 6% of index assets. Meanwhile the one-child policy for urban couples in China (FXI)—adopted in an era of scarcity when few were thinking about having the manpower necessary to sustain growth—has resulted in a relatively slow-growing population, along with a host of other unintended consequences (too many baby boys).

Japan is facing substantial population declines over the coming quarter century and the country also drags down the overall population growth of countries in the MSCI EAFE index (EFA) of developed-markets, since Japanese companies account for nearly 21%. The U.K. (EWU) is preferential to continental Europe, where population declines in Germany, Spain, Italy and Finland are expected to decrease the overall population growth rates for the S&P Europe 350 (IEV), even though U.K. companies represent almost a third of that index.

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Figure 3 illustrates that a graying population is something which all markets have in common. Japan has the largest percentage of people over 65, with European economies (EFA and IEV) not far behind. And Japan’s “elderly burden” will get worse, although Canada (EWC) is likely to eclipse Japan as the country with the biggest imbalance by 2032.

The U.S. (SPY) has the youngest average population of any developed market, and is expected to keep that designation in the future, but Latin America (ILF) and Brazil (EWZ) take the overall prize for the youngest populations, both now and in 2032.

China may be the first country in history to grow old before it gets rich: by 2032 its elderly burden will be nearly as high as it is in the U.S., but the country won’t have nearly the same resources on a per capita basis to deal with the challenges (then again, its government has not made the same promises).

What does all this mean? Unfortunately it isn’t likely to generate any short-term trading ideas, but it does provide some perspective for a thematic approach to international investing:

• The U.S. is relatively well-off compared with other developed markets. It will be better able to grow its way out of its problems, and its companies could see faster earnings growth, which in turn would justify the slight premium U.S. companies get over European firms (Japanese companies are still more expensive).
• China-hype may be misplaced. China is older than the other emerging markets overall, and is likely to see much slower population growth as well. Twenty-five years from now India will have the world’s largest population, about 100 million ahead of China—and they’ll be much younger too.
• The question of whether Japan is emerging from a roughly 15-year economic slump is academic; in the long run—there is no diplomatic way to say this—the country is dying. Global winners like Toyota (TM) are relatively immune and may thrive regardless, but the fortunes of most of companies in EWJ are undeniably linked to the vanishing Japanese consumer.
• Canada is getting older quickly but it may not matter. Exploitation of the oil sands could turn the country into a nation of wealthy pensioners. Similarly, Australia is getting much older, but will exhibit decent overall population growth and is rich in natural resources that could have a bigger impact than demographics.

To be sure, there are shortcomings in this analysis. First, estimates could be wrong. Societies can undergo significant changes in a quarter century that could alter birth rates, death rates, and immigration, and as a result, demographics. And as alluded to in reference to Toyota, in our global economy it probably makes less difference where a company is headquartered today than it did a generation ago.

But perhaps the biggest shortcoming is the extremely long-term nature of the analysis itself. Because while we pride ourselves on being long-term investors, demographics isn’t destiny, and as the famous economist John Maynard Keynes said, “In the long run, we’re all dead.”

Six Winners with Oil at $100

As oil flirts with $100, there are certain sectors that will benefit while others cringe at the thought of a triple-digit price per barrel.Some of the winners may be obvious while a few are secondary, less popular ideas.

Winners

• Suncor Energy (SU) is a Canadian oil and gas company that was the first to produce commercial crude oil from the Canadian oil sands. The company is currently producing 284,000 barrels per day of oil equivalent. What I like about SU is the exposure to the oil sands and the proximity to the US. With oil at $100 the government will be pressured to lessen our dependence on oil from the Middle East. With Canada to our north, why not increase the amount of oil derived from the oil sands?
• FMC Technologies (FTI) supplies subsea drilling and systems that are used for the production of oil and gas. The company is also involved in the high pressure fluid control products used in the energy industry. With oil at $100 it will result in hordes of cash on the books of the large energy companies. To appease the government and its shareholders, the companies will be forced to spend money on equipment and services. FTI will likely be one of the beneficiaries of the spending.
• Petrobras (PBR) is Brazil's largest industrial company and one of the largest oil companies in the world. PBR makes the list for two reasons. The demand for oil from emerging countries such as itself and China will continue with oil above $100 and PBR is positioned to remain a major supplier. In recent news the company announced a possible new oil discovery that could boost the country's oil reserves by as much as 50%. If it turns out the discovery can be drilled, PBR will quickly move up the ranks of top oil companies.
• The PowerShares Global Clean Energy ETF (PBD) is composed of a basket of alternative energy stocks that always find the spotlight when oil rises. Because many of the clean energy alternatives are expensive to implement, when oil rises to $100 they suddenly become more attractive. Add in the "green movement" around the globe and it is a no-brainer that money will be flowing into the clean energy stocks.
• The Market Vectors Nuclear Energy ETF (NLR) might be a controversial investment for some, but the bottom line is that if the US wants to lessen its dependence on fossil fuels, more nuclear power plants must be built. Not only is nuclear power prevalent throughout the world, it has been proven to be safe and less harmful to the environment. NLR gives investors exposure to the nuclear energy industry through mining, infrastructure, and power generation stocks.
• Monsanto (MON) is an agriculture company whose products help farmers grow bigger and better crops. Through biotechnology the firm focuses on improving crops with seeds and herbicides. With oil at lofty levels it increases the demand for ethanol that requires big crops of corn. The farmers will look to companies such as MON to provide them with the products needed to produce large amount of corn and other crops.

Top 20 VIX Correlated ETFs: All ProShares

I've covered the VIX and the best way to own a pseudo "VIX ETF" in the past, and given the high-volatility regime we've seen over the past few months, I figured it would be a good time to update this data.

I've calculated the daily log-return correlation of the closing prices of the VIX and 1100 ETFs and CEFs, and the top 20 are shown below. The results are dramatic, as literally every fund is a ProShares fund, and 14 of 20 are UltraShort funds.

As the ProShares Ultra ETFs are based on futures, they tend to need an above-average allocation of risk-free assets (e.g. bonds or money market holdings) to achieve the prescribed double-leverage. I think the results here indicate that either the underlying futures markets are being used as a volatility hedge, or that ProShares themselves are putting some of that unused risk-free capital to invest in long-volatility contracts.

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I've additionally included a few other interesting pieces. Below is the cumulative log-return of the VIX and the top 10 of the above 20 funds. Note that although they are all very directionally correlated, the nonlinear magnitude changes of the VIX results in dramatic differences in accumulated returns. This demonstrates that although these funds may provide effective short-term proxies, there is no substitute for a long-term long-volatility contract in the current ETF market.

For those interested in the distribution of VIX correlation across the entire ETF market, here is the probability density of correlation against the VIX for 1,100 ETFs and CEFs. Note its bimodal nature, with a large number of strongly negatively correlated funds and a large number of mildly negatively correlated funds. Only 8% of all funds are non-negatively correlated with the VIX.

China Automotive Systems: Revving Up For Growth

China Automotive Systems (CAAS) has posted a couple of strong quarters lately, but the stock price has been inconsistent.

In Q2 of 2007, China Automotive Systems reported revenue of 36.31 million and earnings per diluted share of 0.10. CAAS’s revenue and earnings in Q2 were considerable improvements both sequentially and year over year.

In Q3 of 2007, China Automotive Systems reported revenue of 31.20 million and earnings per diluted share of 0.11. Revenues were up year over year but down sequentially due to seasonality of the Chinese passenger vehicle market. Earnings per share, however, improved both sequentially and year over year.

The fundamentals of CAAS have been improving but the stock price of China Automotive Systems has been behaving erratically. In September and October, the stock price of CAAS was trading above nine dollars and briefly traded over ten dollars. I don’t think the upward movement in CAAS’s stock price had much to do with Q2 earnings. The stock price barely reacted to this news. However, I think some of the big institutions shifted money into Chinese stocks due to the falling dollar (a lot of Chinese companies went up around this time).

The stock price of CAAS has been drifting down since its peak in October. The main reason for this is the CEO and COO sold some shares early in October. The stock price of CAAS has continued to go down since that time but I think now is a good time to pick up some shares.

China Automotive System’s stock price is currently trading near its support and I don’t think the stock price will go much lower. The fundamentals of China Automotive Systems are improving and the stock price will reflect this over time. Also, the Chinese automotive market continues to show strong growth. The CEO of CAAS stated the “Chinese domestic auto industry grew by 27% in the first nine months of 2007.”

CAAS is also trading at a nice valuation. At yesterday’s closing price of $6.40, it has a trailing PE of 19. That is very reasonable for a growing company.

I am going to reiterate my buy recommendation at yesterday’s closing price.

Disclosure: none

Back to school

I look, charmed, as a fragile girl in pink is writing her name on ablackboard in three different alphabets: Latin, Arabic and Sanskrit. I am in a two-storied building surrounding a courtyard, full of chicken and strings with drying clothes. In the middle of this mess there are dozen of fragile young Sikh girls, busy with their lessons.
It is my third day in Jalalabad. I am here because I promised to Inger from Save the Children Norway-Sweden to collect the material for a presentation of their job. For the organisation focusing on rights of children in Afghanistan, it is unavoidable to handle education problems. Because of this I have visited different schools around Jalalabad.
Sometimes I compare Estonia to Afghanistan; my homeland is more or less agricultural country as well. But there is at least one big difference: almost all our ancestors were already literate by the end of 19^th of century. It seems for me that the most important is general literacy: to read the text and to basic calculus. My grandmother managed to get through her life with only four years of village schooling in her tiny home island.
Literacy is not something self-evident in Afghanistan. For example, my husband’s project employs a friendly and hard-working cleaner, Muhammad Zaher. One of my his colleagues had an idea to send this nice guy to an English language course in order for him to have the better job possibilities in the future. But there is one obstacle: Muhammad is not literate.
PS. The PDF of brochure Fighting for Children's Rights in Afghanistan for Save the Children Sweden-Norway is available in internet: www.reddbarna.no/default.asp?HMFILE=103012

Solar stocks no longer the favorite of the people

Solar stocks have been hit Monday by news that Senate and House Democratic leaders are considering a plan to leave renewable energy out of a pending U.S. energy bill. An alert posted Friday by the Solar Energy Industries Association on its web site says that “there are widespread reports that a decision has been made, at least provisionally, to move energy legislation without a tax title that extends the Solar Investment Tax Credits.”

The notice asserts that “a bill without the solar ITC provisions would be a tremendous lost opportunity for our industry and our country.”

Stephen Chin, an analyst at UBS, this morning asserted that removal of the tax credits from the energy bill “increases the likelihood that the credits could expire in 2008.” He writes that “an orphaned solar ITC may not find bipartisan support during an election year, increasing the likelihood of expiration.”

Chin says that the current tax credit allows commercial system owners a 30% tax credit against total system costs. Expiration of the tax credit, he says, would likely reduce solar system demand among commercial customers, which accounted for 41% of 2006 solar installations. He adds that utilities may be slow to embrace solar if a provision allowing them to take the 30% tax credit isn’t passed.

Chin notes that Applied Materials (AMAT) could see decreased demand for solar-related equipment without the tax credit, and that there also could be a negative impact on solar-wafer producer MEMC Electronic Materials (WFR), pointing out that its largest customer, Suntech (STP), is “increasingly exposed” to the U.S. solar market.

Solar stocks are suffering significant losses Monday:

• First Solar (FSLR) is down $22.11, or 10.7%, to $184.74.
• Suntech (STP) is down $5.22, or 8.5%, to $56.33.
• SunPower (SPWR) is down $15.57, or 12.1%, to $113.13.
• MEMC (WFR) is down $3.04, or 4.3%, to $68.12.
• Applied Materials (AMAT) is down 28 cents, or 1.5%, at $18.43.
• JA Solar (JASO) is down $3.84, or 7%, at $50.67.
• Evergreen Solar (ESLR) is down $1.28, or 9.1%, at $12.80.
• Canadian Solar (CSIQ) is down 75 cents, or 6.7%, at $10.37.
• LDK Solar (LDK) is down $2.35, or 5.8%, at $38.07.
• Yingli Green Energy (YGE) is down $4.05, or 12.7%, at $27.80.

Housing Bubble and Real Estate Market Tracker

Here's our summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day- "From the House's Mouth"

"Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city" - Jim Rokakis, County Treasurer for Cleveland's Cuyahoga County, on the foreclosure crisis in Cleveland. (BBC.com, Nov. 5th)

Real Estate Sales and House Prices

• Otteau Valuation Group November Newsletter (NJ Report, Nov. 6th): "New Jersey home purchase activity in September, as measured by signed contracts, declined 23% from August and was 17% below the year-ago level in September 2006... In New Jersey, sub-prime mortgage originations occurred at modest levels relative to the rest of the nation and foreclosure activity is only slightly elevated from last year’s pace, [yet] potential home buyers continue to hold off which is causing further erosion of market dynamics... Unsold Inventory of homes for sale in New Jersey... represents a 13-month supply on the market, up from 7 months in March and 10 months in August."

• Housing Glut Hits Home (Journal Gazette, Nov. 4th) Indiana: "Fort Wayne Area Association of Realtors' Multiple Listing Service: Allen County homes are taking an average of 96 days to sell... [That's] 13 days longer than five years ago... Multiple Listing Service: Inventory hit a high of 3,329 houses in August... nearly 22% higher than in August 2005 when 2,739 Allen County residential properties were up for sale... Three hundred more workers lost their jobs Monday when Kitty Hawk Inc. shut down its Fort Wayne sorting operation, possibly increasing the pressure on the local housing market... RealtyTrac: Indiana had 9,087 properties with foreclosure filings in Q3, 10% higher than Q3'06."

Mortgages and Real Estate Lending

• Radian Declares Regular Quarterly Dividend on Common Stock (CNN News, Nov. 6th): "Radian Group Inc. (RDN) announced today a regular quarterly dividend on its common stock in the amount of $0.02/share, payable on December 18, 2007, to stockholders of record as of November 16, 2007. Radian is a global credit risk management company... Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, public finance, corporations and consumers."

Global Housing Slump?

• Bovis Gives Warning On Profits As Volumes Fall (Times Online, Nov. 6th) UK: "Bovis, the top 10 UK housebuilder, has given warning that faltering consumer confidence [and the credit crunch] has hit sales during the key autumn period... Malcolm Harris, CEO of Bovis: Profits for the full year would now be "slightly below" previous forecasts. Bovis has refused to cut the underlying prices of its properties in an effort to maintain margins but fewer sales this year will translate into a fall in profits. City analysts sliced £10 million off their 2007 pre-tax profit forecasts for Bovis from £139 million to £129M. Profits last year were 13.7% higher at £132M."

Subprime Fallout

• Bonus Pain Is Dish Still Served Bold (Wall St. Journal, Nov. 7th): "Executive-search company Options Group projects Wall St. bonuses will decrease 5%-10% from last year, the first overall drop in five years. Compensation consultant Johnson Associates: Bonuses will be flat, thanks to a relatively strong stock market and big profit gains in H1'07... Companies that have taken significant hits recently, such as Merrill Lynch & Co. and Citigroup Inc., could give smaller bonuses than those by more-successful rivals... Options Group projects an average 15%-20% decline in bonuses for people in bond and currency departments and a 10% rise for those in stocks. Those working in mortgages could see a 30% decline."

• Bonus Pool Springs Leak (Crain's NY Business, Nov. 3rd): "State Comptroller's Office: Bonus checks, which account for the lion's share of bankers', brokers' and traders' annual pay, will be 10% smaller this year. That would mark the first drop since the technology stock meltdown early in the decade... Gustavo Dolfino, president of recruiter WhiteRock Group: In the past four months, close to 12,000 bond bankers and traders have lost their jobs... Most [of the following previously] announced layoffs are believed to be of NYC-based employees: BEAR STEARNS August 240; October 300. J.P. MORGAN CHASE October 2,500. MORGAN STANLEY October 200. CREDIT SUISSE October 170. BANK OF AMERICA October 3,000."

• Avoid the U.S. Until the Subprime Mess Really Hits the Fan (Enzio Von Pfeil in Seeking Alpha, Nov. 6th): "My guess is that Q1'08 will be particularly messy. Once we get the first wounded companies reporting the extent of their damages, Wall Street will go wildly bearish... Lighten-up on your US exposure, except for tech stocks... [as] these are like "consumer staples" - people need tech such as search engines, regardless of what the economy does. We keep advising to avoid banks. Also add to this: mortgage-related finance companies. While we do maintain that America will fall strongly, buy on dips in China, Hong Kong, India and Malaysia."

• ResMae Stops Funding Loans (OC Register, Nov. 6th): "ResMae Mortgage Corp. in Brea, California announced Tuesday: "Effective immediately we are temporarily suspending new loan originations... Our National Operations Center in Brea, CA will continue to support existing loans in the ResMAE pipeline and will continue to fund loans through their commitment expiration dates... Despite the suspension of loan originations, ResMAE will continue to operate its fully staffed loan servicing operation in Brea, CA." ResMae is a subprime lender that was scheduled to emerge from bankruptcy in June, after being acquired by Citadel Investment Group."

• IndyMac’s Q3 Losses Surge (Roy Mehta in Seeking Alpha, Nov. 6th): "Alt-A Mortgage lender IndyMac Bancorp's first loss since 1999 [reached] $202.7 million ($-2.77/share) compared to a gain of $86.2M ($1.19/share) last year. Analysts had been expecting a $0.46/share loss. IndyMac took a $575 million credit-related charge, and halved its quartely dividend to $0.25/share. The company noted it held only $112 million in subprime, second-mortgages and home equity lines of credit as of Sept. 30 -- 0.3% of its total assets. Mortgage loan production fell 30% to $16.82 billion... The wider loss was a result of increasing loan losses and severance costs. IndyMac increased its credit reserves 47% to $1.39B."

• MBIA, Ambac Losses Will Be `Massive,' Egan Jones Says (Bloomberg, Nov. 6th): " Egan-Jones Ratings Co.: Bond insurers including MBIA Inc. (MBI), Ambac Financial Group Inc. (ABK) and ACA Capital Holdings Inc. face "massive losses'' over the next few quarters that could test their ability to raise new capital. MBIA may lose $20.2 billion on guarantees and securities holdings. ACA Capital may [lose] $10B; Ambac may reach $4.3B; mortgage insurers MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN) may see losses of $7.25B and $7.2B, respectively... Fitch Ratings said yesterday it [is] reviewing the capital of Ambac, MBIA, Financial Guaranty Insurance Co. and CIFG Guaranty to ensure they have enough capital to warrant an AAA rating."

• GM Taking $39 Bln Non-Cash Charge In Third Quarter (MarketWatch, Nov. 6th): "General Motors Corp. (GM) said late Tuesday it will record a third-quarter non-cash charge of $39 billion because of accounting standards related to its deferred tax assets in the U.S., Canada and Germany. The company said the money is needed to establish a valuation allowance in part to compensate for unanticipated losses at GMAC Financial Services. GM is scheduled to report its third-quarter results on Wednesday."

• Fitch Cuts Rating Outlook Of Wells Fargo, Wamu, Capital One (MarketWatch, Nov. 6th): "Fitch Ratings said Tuesday it revised rating outlooks for several major banks: Wells Fargo Co. (WFC) and Capital One Financial Corp.'s (COF) [were revised] to stable from positive, and Washington Mutual Inc.'s (WM) [went to] negative from stable. Fitch removed Countrywide Financial Corp. (CFC) from ratings watch and assigned it a negative outlook. Wells' Fitch debt is currently rated AA and Capital One Financial is A-. WaMu's rating is A and Countrywide's is at BBB+. The agency also cut National City Corp.'s (NCC) issuer default rating to A+ from AA- with a negative outlook and revised down KeyCorp (KEY)... to stable versus positive."

• IndyMac Posts Loss, Morgan Stanley Writedown May Loom (Bloomberg, Nov. 6th): "Morgan Stanley, based in New York and the second-biggest U.S. securities firm, may write down $6 billion on the value of mortgages and related securities, Fox-Pitt Kelton analyst David Trone said in a note to clients... Bank of America and Wachovia, both based in Charlotte, North Carolina, may be forced to write down more mortgage-related assets in Q4, Friedman Billings Ramsey Group Inc. analyst Gary Townsend told investors."

• Analyst Sees More Q4 Subprime Write-Downs (Yahoo! Finance, Nov. 5th): "Charles Peabody, partner at research firm Portales Partners LLC expects more write-downs from Citigroup [beyond the] $8B-$11 billion writedowns for subprime mortgages... Peabody also said there may be write-downs at Goldman Sachs Group Inc (GS)... and Lehman Brothers Holdings Inc (LEH): "I really don't believe those two organizations have come clean." Merrill Lynch & Co Inc (MER) was the only big Wall Street firm to post a third-quarter loss after writing down $8.4B on investments linked to subprime mortgages... Goldman, Bear Stearns Cos Inc (BSC), Morgan Stanley (MS.N) and Lehman have collectively written down $3.6 billion so far."

Foreclosure Data

• Cities Battle Default Wave (Sacramento Bee, Nov. 6th): "DataQuick Information Systems: More than 6,500 homeowners have lost houses this year to foreclosure in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Three of every four are in Sacramento County... The nation's cities are taking numerous approaches as the foreclosure problem rolls from East to West. Jacksonville is offering no-interest $5,000 loans to help people with short-term mortgage problems. Chicago and Baltimore advertise a "311" telephone number for people behind on mortgage payments to call. Cleveland's suburban officials are fixing broken windows, mowing lawns and installing alarms in empty houses to keep neighborhoods stable."

• Michael Jackson Neverland Ranch Appears in Foreclosure Report (Mortgage Lender Implode-o-Meter, Nov. 6th): "Michael Jackson's Neverland Ranch has appeared in the November 5th, 2007 Foreclosure Detail Report for Santa Barbara county. While the looming foreclosure of Neverland Ranch has received some coverage, this would appear to be hard confirmation of the event... and indication that it is still underway."

• Foreclosure Wave Sweeps America (BBC News, Nov. 5th): "One in ten homes in Cleveland, Ohio is now vacant, and whole neighbourhoods have been blighted by foreclosed, vandalized and boarded-up homes... Many of these homes are now owned by the banks and investment pools owning the mortgages, and the company making the most foreclosures in Cleveland is Deutsche Bank Trust, acting on behalf of those pools... Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland: Over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year - and the number is expected to rise."

Macro Impact, And Will The Housing Slump Cause A Recession?

• Schwarzenegger Orders State Agencies To Prepare For 10 Percent Cut As Budget Slides (My Desert.com, Nov. 6th) California: "Gov. Arnold Schwarzenegger has ordered state agencies to prepare a plan to cut 10% from their budgets as preliminary reports indicate that the subprime housing crunch will hit the California state budget harder than expected. The order, issued Monday, could affect agencies from education to healthcare to transportation. Reports indicate that the tax revenue fallout from the slump in the California housing market could push the governor's balanced budget into a $10 billion deficit."

• Why the Fed Continues To Cut Rates (Tim Iacono in Seeking Alpha, Nov. 6th): "The government's inflation statistics do not track home prices directly. Instead, they use an estimate of what homes would rent for... What would the consumer price index look like if real home prices were used instead of owners' equivalent rent? The last couple months of plunging home prices would take the annual rate of inflation to zero (actually, it's still positive at 0.01%)... a big reason why we are in the mess we are in today is that inflation, with real home prices included, was much, much higher than inflation with OER back in 2003, 2004, and 2005 when interest rates and lending standards were at multi-generational lows."

• Furniture Sales In Flux (Press Democrat, Nov. 4th) California: "The housing downturn and subprime mortgage meltdown are [hurting] many Sonoma County furniture retailers already reeling from competition from cheaper imports... Fewer home sales [and] sliding home values make it more difficult for consumers to tap evaporating equity. The slump that last year sank R.S. Basso in Sebastopol, and Colburn's Wood Furniture and Greenwood Home Furnishings in Santa Rosa has deepened... In addition to Bare Woods and Santa Rosa Bedding & Furniture, stores that have closed or are planning to close include Furniture 101, Black Sea Gallery and Red Tag Furniture in Santa Rosa, Furniture Solutions in Rohnert Park and Couches, Etc. in Petaluma."

Homebuilders, Housing Stocks and Housing-Related Stocks

• Questions Swirl on Levitt Unit (Wall St. Journal, Nov. 7th): "Shareholders: Levitt Corp. (LEV) could be on the verge of unloading its home-building unit, Levitt & Sons... Levitt would be getting rid of a troubled unit amid a crisis for home builders, [and] it would be [liable] for little of the subsidiary's debt... Parent company Levitt would be free to focus on its other ventures, such as its land-development unit, Core Communities LLC, and Bluegreen Corp., a developer of vacation resorts in which it has a 31% stake... Eric Landry, Morningstar analyst, [cited] roughly $400 million of $654M in debt the parent company could eliminate or restructure through a bankruptcy."

• Ryland: Charlotte 'Reasonably OK' Right Now (CNN Money, Nov. 6th) North Carolina: "[Since] Charlotte is doing "reasonably OK" in this crumbling housing market - it is excluded from Ryland Group Inc.'s (RYL) " Savings Spectacular" deal this weekend... Ryland is offering savings as high as 25% from Friday through Sunday. Sale markets include Las Vegas, Phoenix, Baltimore, Northern and Southern California, Denver, and Chicago. In Las Vegas, the three-bedroom " Shasta" model is now $368,823, down from $533,823, Ryland said. Ryland is the latest to try a fire sale. Hovnanian Enterprises Inc. (HOV), Standard Pacific Corp. (SPF) and Pulte Homes Inc. (PHM) have all said their similar deals were successful."

• Shareholder Group Calls for Beazer Chief's Ouster (Builder Online, Nov. 6th): "Citing a lack of leadership, federal investigations, and a downward spiral of stock value, the CtW Investment Group [a major Beazer shareholder] wants... the immediate removal of CEO Ian J. McCarthy... CtW: "Mr. McCarthy was paid over $57 million in total compensation over the past five years, including $22M in 2006 alone... among the very highest for similarly sized firms. On top of that, Mr. McCarthy executed his largest ever sale of company stock - 179.535 shares at $43.07 each, totaling $7.7M- last November, less than two months before the stock began its steady collapse to its current $9.52/share."

• A Home Builder That Saves Your Hand From Scalding (Mercury News, Square Feet Blog, Nov. 6th): "At least one builder is targeting consumers at a crucial source -- our point of caffeine acquisition. I ordered tea at Mission City Coffee Roasting Co. in Santa Clara this morning and the little jacket around the paper cup featured a full-color ad for 51, a condo and loft development from Centex Homes (CTX) near downtown San Jose. The web site for the housing development has no pricing information on it that I could find, which is a bit annoying, seeing as the anti-hand-burning jacket actually lured me to the web site. Maybe the prices are changing too fast?"

• Screaming Values Are Out There (Motley Fool, Nov. 6th): "MGIC Investment (MTG) is expecting negative earnings in 2007 and 2008. Mortgage losses and loss reserves are already three times the five-year average level, and I expect them to go higher during 2008. Oddly enough, the tightening credit crunch actually plays to the company's advantage, since many avoided mortgage insurance (insurance is generally needed when the loan-to-home-value ratio is greater than 80%) by using piggyback (second) mortgages. Second mortgages are the first to go as house prices fall and borrowers default. [Now] lenders will insist on mortgage insurance instead of encouraging piggyback mortgages... MGIC is selling at around half its intrinsic value."

• HouseValues Reports $900,000 Net Loss In Q3 (Inman News, Nov. 6th): "SEC filing: Online real estate marketing and lead-generation company HouseValues Inc. (SOLD) this week announced a $900,000 net loss for Q3'07, vs. a $500,000 net loss for Q3'06... HouseValues closed its Washington facility and laid off 100 workers, about 30% of its workforce... to reduce operating expenses...HouseValues [also] acquired Realty Generator LLC, a technology company that offers lead-generation services to real estate brokerage companies, and a related company, Blackwater Realty LLC, on Nov. 1... HouseValues: "Agents reduced their investments in marketing as transaction volumes continued to slow in many major markets." The company acquired 250,000 shares of its common stock during Q3'06."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• Financial Ground Has Shifted Under a Record Deal (NY Times, Nov. 7th): "Robert M. White Jr., president, Real Capital Analytics: Kushner Companies $1.8 billion purchase of 666 Fifth Avenue in January commanded the highest price ever paid for a single building... [but] the financing raised eyebrows: A Barclays-led group of lenders... provided an interest-only first mortgage of $1.215B based on an annual cash flow of $114 million, or 1.5 times the debt service, according to SEC documents. But... the cash flow from existing rents would actually cover only 0.65% of the debt service. Robert White: The building’s shortfall amounts to $5M a month. A $100M reserve fund was included in the debt package to cover the shortfall."

• Times Square Comfort Inn Sells for $31M (The Real Deal, Nov. 6th): "The Times Square Comfort Inn has sold to Gemini Real Estate Advisors for $31.7 million. The 78-room hotel at 42 West 35th Street, between Fifth and Sixth avenues, is near the new New York Times building. Hotels are booming in Times Square."

• Special Report: Real Estate's Biggest Deals (Daily Business Review, Nov. 5th): "Commercial real estate lenders in South Florida... are demanding more cash at closings and expecting healthy cash flow on commercial properties, leaving it to deep-pocket pension funds, hedge funds and institutional investors to seal most of the big deals... Gone are the days when investors would use bridge loans and interest-only 10-year loans for their office, warehouse and shopping center purchases with little money down... Lenders now want 25%-35% equity to finance a deal, brokers say... University of California economist Kenneth Rosen: REITs are expected to plummet about 20% in the next year... [they] are overvalued by 25%-40% relative to stocks and bonds."

Two Reasons To Buy Sallie Mae Before Everybody Else Does

Two reasons to buy Sallie Mae ((SLM) $42.86):

First, the odds on your money are pretty good here in the low forties $42.86; Stop loss at 40.50, and upside as much as 15% to 20% through next July. You may get it a dollar or two cheaper, but don’t wait since the short covering rally in financials has begun in earnest, and all boats will be lifted once Citigroup ((C): $35.00) makes a definitive bottom this week (see my post on short covering in financials from Tuesday).

Second, the chance that a bid for the company will be resuscitated would make purchasing this stock worthwhile, even if the deal was priced well below the original offer.

Sallie Mae, a favorite short of mine (2003 through 2005) seems like a low risk call option, with downside protection in the way of a multi-year low, and plenty of support provided by the two factors mentioned above. Of course, you could always pair this long with a short on First Marblehead ((FMD): $34.99), which offers little upside (lot of stock overhang up here), and, from my perch, a stock worth something in the ballpark of mid to low 20's.

Current Dollar Decline Longer, More Severe Than Historical Declines

With the US Dollar index falling even lower today, below we highlight the historical bull and bear markets of the currency.

As shown, market cycles for the currency are longer than some of the other asset classes that we have looked at. The average bull market for the US Dollar is 1,710 days long for an average gain of 48.90%. The average bear market is 1,610 days for an average decline of 31.84%.

Based on these averages, the current bear market is both longer in duration and more extreme in its decline. Since the current bear market in the US Dollar started in July 2001, currency has declined 37.69%.

click to enlarge

Below we highlight a historical price chart of the US Dollar index. As shown, we're currently at record lows. However, the currency isn't nearly as oversold as it has been in the past based on its distance from its 50-day moving average. Currently, the US Dollar is 2.25% below the bottom of it trading range.

As highlighted in the second chart below, the Dollar has reached oversold levels of 3% to 4% quite frequently.

Comparing Bubbles: China vs. Nasdaq and Homebuilders

On Monday we compared the rises and crashes of the Nasdaq and the Homebuilders during their respective bubbles. A Bespoke reader asked if we could overlay the current rise in China's Shanghai Composite on the chart to see where its bull run currently stands in comparison.

The Nasdaq and Homebuilders rallied for around 2,000 calendar days, while the Shanghai has currently only been in rally mode for 560 days. However, the gains in China of 488% are fast approaching the max gains that the Nasdaq saw of 639% at its peak.

The most interesting data points here are the starting dates of the bubbles. The Homebuilders began their enormous rise on March 14, 2000, just four days after the Nasdaq peaked. Interestingly, the Shanghai started its meteoric rise on July 11, 2005 -- just nine days before the Homebuilders peaked. Investors have seemingly flocked from one bubble to the next.

Kite runners of Kabul

There is a unique sound without it I cannot imagine our home in Afghanistan. When I close my eyes and think about Kabul, it is always the sound of flying kites what comes to my mind.
As we just moved to Afghanistan, I used to climb on the roof of our guesthouse: it was then the only possibility to see around. My favorite memory is about boys who just started to practice as kite runners with their primitive self-made plastic kites.
As winter is closing more and more kites flutter in the sky. The top event is Kite Festival that takes place around New Year, i.e. in March. My husband’s driver Massoud offered us to see the festival. There were thousands of men and boys – flying their kites over Kabul Stadium. We were greenhorns in Afghanistan, so we were afraid of the crowd. We preferred to stay in the car and looked at the kite runners from distance.
As a matter of fact, the string of the kite can be dangerous. Najeeb, colleague from Pakistan, tell us that Pakistanis use the small bits of glass to make the string sharper. It is a really nasty idea: those dangerous strings have caused fatal accidents.
Late Friday afternoon young relatives are visiting our landlord and trying to fly their colourful kites in our yard. The first attempt on the ground is not successful, so they move on to the balcony. I join them as an observer.
Youngsters need just one minute to send the kite up in the sky. After some time I can only see a small dot and five minutes later it is gone. Obviously somebody cut the string…

It is a fantastic feeling to sit on the balcony and to look at all those colourful pieces of joy everywhere in the sky. There is somebody on almost every roof. I try to count, but I stop after twenty. Just before the darkness falls, the experienced looking guy on the roof of the neighbour’s house draws down the last kite. The kite fighting is over.

Airbus A380 - the complete guide and review

For Stephen Bleach, being a part of the inaugural A380 flight on Thursday was revolutionary... but not for all the right reasons

I’ve always been pretty middle of the road, politically speaking. But whenever Gordon Brown deigns to call the next election, I’m voting Socialist Worker’s Party. Eight hours on a plane has turned me into a Marxist.

Not just any plane. I’ve just stepped off the first commercial flight of the A380 superjumbo, the largest passenger aircraft ever built. Yes, it’s impressive: taller than five double-decker buses, wider than a football pitch, 37 times the length of Peter Crouch in his socks, that sort of thing. And yes, it’s an amazing piece of engineering, a staggering technical achievement: but it’s also the best advert for Bolshevism since the tsar said, “Stuff that Lenin chap, let’s build another palace.”

Never has the gap between the haves and the have-nots of the air been more evident. At the front of the plane (business is on the top level, the “super-first” Suites at the front of main deck, economy at the back on both levels), the elite have unparalleled luxury and space. Further back, the proletariat have to... well, let’s not get ahead of ourselves. I’ve just spent eight hours in the cheap seats: here’s a blow-by-blow account.

Takeoff: it just shouldn’t. It doesn’t seem credible that something this size should get into the air at all. Our takeoff weight today was 468 tonnes, which is the equivalent of 12 very surprised sperm whales. And when it finally comes, 50 minutes after we started boarding today’s 455 passengers (they’ll need to speed that up a touch), takeoff is a revelation.

Where other planes crank up the engines to a mighty howl and go for a death-or-glory charge to get airborne, the A380 feels more like an inter-city train leaving a station: silent, gentle, almost imperceptible. There’s a moment of anxiety when the lack of any roar, or bumping, makes you think something is terribly wrong. Then finally, after 40 seconds of smooth, quiet acceleration, this unlikely behemoth leaves the ground with a whisper and drifts quietly into the skies as if it were the most natural thing in the world. After a moment’s collective sigh, everyone breaks into applause. Taking to the air with the A380 does, genuinely, feel like a miracle.

One hour in: as well as kind, civilised folk who’ve bid in a charity auction to be on the first A380 flight, the plane is full of rude, selfish, jostling journalists like me, and the moment the seat-belt sign is turned off, it’s the cue for all of us to leap to our feet and interview mercilessly anyone within notebook distance. We do tend to make a bit of noise, but I didn’t realise we’d actually drown out the engines. That’s how quiet this plane is. In the momentary lulls between hacks barking questions, you can hear the gentle conversations of real people four rows back.

Two hours in: journalistic frenzy over, time for lunch. It’s terrific, produced by a couple of celebrity chefs I’ve never heard of, but will look out for in future. Sam Leong’s fillet of bass with fungi is the best economy-class food I’ve ever had on an airline.

Three hours in: distractions done with, there’s time to take in the surroundings. And when I do, a question occurs. If this is really the most luxurious plane ever built, why am I still shoehorned into a 32in seat?

Here, I have a confession to make. Last week, when the press were first allowed to see the inside of this plane at the Airbus factory, I – along with every journalist there – got a bit overexcited about the double beds in first and the huge business-class seats; all newer, bigger and swisher than anything we’d seen before. As a result, we didn’t spend too much time in the ominously familiar-looking economy area. A sin of omission, for which the hour of judgment has just come. Or rather hours: I’ve got five more to go.

Some passengers say the economy area is much lighter and airier than we’re used to. I don’t see it – though the large windows do provide a better view. The seat is pretty comfortable... for cattle class. My knees don’t touch the seat in front, and it’s an inch or so wider than a standard 747 equivalent. But it’s still not the ideal place to spend eight hours or more of your life, especially when you know that the real high rollers are just a few feet away, in the Suites. Time to see how the other half live...

Four hours in: the airline people are standing close guard on the curtain that separates economy from first, but for an instant they take their eyes off it, and bingo: an advance party of journalists plunges through the gap.

It’s another world. Hushed, spacious, all the seats are in cabins a little like those you’d find on a cruise ship, although the partitions only reach to about eye level. The champagne flows incessantly, and there are normally unobtainable bottles of Château Cos d’Estournel 1982 being poured. In a few of the 12 elite suites, the inhabitants have had their flat beds made up, and sprawl languorously under Givenchy duvets in front of their 23in TVs. Nobody sleeps, though. Having paid up to £25,000 at auction for a ticket, they want to savour every minute.

Upstairs, the improvement in business class, with its colossal 34in-wide seats, is arguably even greater. With just four abreast as opposed to economy’s 10, it feels both communal and spacious. The lucky ones try hard not to look smug. I try hard not to be jealous. We all fail. Five hours in: back in the cheap seats, I ruminate on what might have been. When we were shown the first A380 back in 2003, we were promised the following: boutiques, self-service restaurants, duty-free shops, children’s play areas, casinos, pubs, libraries, gyms (with treadmills to prevent DVT), showers, 18-hole golf courses. (Okay, I made the last one up, but it was going that way.) So why am I sitting here, unexercised, unshowered and unshopped, with the nearest pub in the outback five miles down? Why do we only have a slightly better version of what every long-haul holidaymaker knows and loathes – rank upon rank of sardine-tin seats, with no room to circulate or socialise? Only one conclusion: they were having us on.

Aviation enthusiasts make up the bulk of the clientele today, and they’re determined to enjoy themselves, so I’m in a disgruntled minority (see below). And, to be fair to Singapore Airlines, they never made any of those extravagant claims anyway. But right now I don’t want to be fair. This feels like a missed opportunity.

Six hours in: the real test of a long-haul seat is: Can you sleep in it? I try for 40 winks. Not a chance. The buzz all around means it’s not a fair trial, but I suspect that even on a calmer flight, it wouldn’t be easy. One bonus point: that dried-out, sinusy feeling is noticeably absent. Higher pressurisation is apparently the reason. Seven hours in: time to test the much-vaunted entertainment system. In a stab at egalitarianism, everybody gets the same stuff (economy has a smaller screen, but it’s still a healthy 10+ inches). It’s cracking: 100 on-demand films, 150 TV programmes, 700 CDs. New films, too. There are USB ports and laptop power to every seat. No internet access, though it might come.

Eight hours in: we’re preparing to land, so I’ll sum up. If you’re planning a trip down under when the plane starts flying from London next spring, should you choose an A380? Yes. It’s fabulous in first and business, a touch more comfy than we’re used to at the back. Revolutionary? No – not for the huddled masses, anyway. Vive la révolution. Business class

Business class

Andy Odgers, 39, and Hazel Watt, 43, bagged seats together in business class. Here they are sitting in just one of them. “It’s fantastic, far better than any business class I’ve seen in a 747,” said Andy, “right down to the picture quality on the big TV screen.” The couple, from Richmond in Surrey, paid US$14,200 (£6,922) for the trip, but reckoned it was worth it. “My parents are in Sydney,” said Andy, “and they don’t know anything about us being on this flight. We’re just going to walk into their hotel and surprise them. They’ll be so jealous.” “It’s better than a lot of first-class seats,” said Hazel. “You could argue it’s a bit hot, but it’s the best flight I’ve ever had.”

First class

Julian Hayward, 38, paid top dollar for two seats on the inaugural A380 flight – literally: the one-way trip in the first-class Singapore Suites for himself and a friend set Julian back US$100,380 (£48,936). The entrepreneur invited The Sunday Times in for a cosy chat in his bijou suite. Was it worth it? “Absolutely – all the money goes to charity, so it’s ending up in the right place. And this flight really is a piece of history, the first outing for the biggest plane ever built.” Would he do it again? “Perhaps not for quite so much money! But yes, the standard is something you won’t find elsewhere. I’m very impressed by their wine list. Would you care for a glass?”

Economy class

Richard Killip, 45, bought three tickets for the economy cabin of the A380, and brought along his daughters, Sophie, 12, and Ellie, 10. All three – who hail from Liverpool, but now live in Singapore – loved the flight. “The most impressive thing was the takeoff,” said Richard. “It was so quiet, it was almost spooky.” “I’ve already shown off a little to my schoolfriends,” admits Sophie. “They’re all dead jealous that I’m on the first flight!” Who else will fly the A380?

- PLENTY MORE airlines are queuing up to get the biggest passenger plane on earth. But will they go where you want to fly? When will they start? And – crucially – what will the experience be like on board? Anxious to keep a commercial advantage, most are being cagey with the details. But here’s what we know so far...

QANTAS

Start date: August 2008

Routes: “The US and the UK,” says the airline – which is expected to mean Sydney to London (via Singapore or Hong Kong), plus direct flights from Australia to Los Angeles.

What’s on board?Suites in first class, though not as enclosed as Singapore’s cabins, and no double beds as yet. Lounge with sofas in business. Four self-service bars in economy, and seats by Recaro (which makes seats for Aston Martin). Plus internet access for all.

EMIRATES

Start date:August 2008

Routes:Dubai-London looks certain. Dubai to New York, Australia and India also likely.

What’s on board?Top secret, but there are clues. The airline is installing first-class suites with doors on its fleet of 777s, with styling based on the Orient-Express train, and is expected to go even more luxurious with its A380s – president Tim Clark said: “You ain’t seen nothing yet.” But on flights to India, Emirates will cram in 644 passengers.

AIR FRANCE

Start date:spring 2009

Routes:Paris to New York and Japan.

What’s on board?Questions bring nothing more than a Gallic shrug.

LUFTHANSA

Start date:summer 2009

Routes:20 being considered, from Frankfurt to Asia and North America.

What’s on board?A complete redesign for all three areas, but no details as yet.

BRITISH AIRWAYS

Start date:2012

Routes:Los Angeles, Singapore, Hong Kong and Johannesburg are likely to be first. New York “would be considered if customer demand were strong enough”.

What’s on board?BA only ordered the planes a month ago, so they haven’t decided yet. Don’t expect many gimmicks, though – for that, look to...

VIRGIN ATLANTIC

Start date:2013

Routes:Los Angeles, Dubai.

What’s on board?More double beds for sure, plus a casino – chairman Richard Branson says: “There’ll be two ways to get lucky on our A380s.”

Showers and gyms have been mentioned too.

Four Problem Traders; Four Trading Strengths

A while back I posted on the topic of trader strengths, and readers offered worthwhile perspectives on some of the factors that distinguish successful from unsuccessful traders. After much consideration, I decided to approach the topic a bit differently: by outlining four kinds of problem traders I frequently encounter and by identifying the strengths that help people deal with these problems.

Problem Trader #1: The Frustrated Trader - The frustrated trader deals with frequent angry reactions during trading. Sometimes the anger may be vented outward; other times it is turned inward. For example, many rigidly perfectionistic traders are also frustrated traders, because they cannot live up to their impossible standards and thus artificially create failure experiences for themselves. Frustrated traders are often impulsive traders and will make trades to either compensate for prior losing trades or to make up for missed opportunities. Frustrated traders will often ignore position-sizing rules and undergo occasional blowup losses as a result. It's easy to identify the frustrated trader by their physical cues: yelling, cursing, complaining, and gesturing when they should be focused on the screen. The key strength that combats frustration: self-acceptance and being supportive of oneself. Key techniques for combating frustration: setting reasonable goals; using biofeedback for building self-control and calm focus; and mentally rehearsing trading plans/rules to make them more automatic during the trading day.

Problem Trader #2: The Anxious Trader - The anxious trader is consumed with fears of loss, missing out on objective opportunity either by not taking signals or by sizing positions too conservatively. In a sense, the anxious trader is more concerned about not losing than about winning. This risk aversion can lead to analysis paralysis, as the trader waits for the perfect setup that never quite materializes. Sometimes the anxious trader is one who has been traumatized by prior losses. It's too painful to relive memories of those losses, and so the anxious trader exits positions too quickly and is too reluctant to get into positions. A very common feature is cutting profits rapidly out of fear of losing those. Signs of the anxious trader include muscle tension, worry, relief over getting out of positions (or away from the screen), and inability to trade reasonable size. The key strength that combats anxiety is confidence and an ability to accept loss as a natural part of trading. The techniques most helpful in combating anxiety include cognitive methods for replacing worry talk with constructive problem solving; behavioral techniques to calm oneself and reprogram stress responses; setting process rather than outcome goals; and regaining confidence by trading successfully in simulation mode and gradually building one's size.

Problem Trader #3: The Overconfident Trader - Overconfident traders approach trading like a casino--and they're not the house! The overconfident trader typically overtrades, which means trading size too large for their account and trading more often than opportunity dictates. Very often the overconfident trader is attracted to action in markets, rather than consistent profits and sound discipline. As a result, the overconfident trader can be identified by winning periods punctuated by unusually large and damaging losses. Sometimes the overconfident trader is also a desperate trader, hoping to strike it rich. A common feature of overconfident traders is their lack of preparation: they think that anyone can make it with simple methods and a gut feel. The problem is that they never spend enough time reviewing markets and intensively watching screens to develop that feel. The key strength that combats overconfidence is humility, a respect for markets and risk, and conscientiousness in crafting and following trading rules. Techniques that combat overconfidence include mental rehearsal and self-hypnosis to instill trading rules and support rule-governance; mechanical position sizing to avoid risk of ruin; and cognitive techniques to intercept and challenge grandiose thoughts following winning periods.

Problem Trader #4: The Defeated Trader - Defeated traders are ones who, in trader parlance, have "lost their mojo". Their thought patterns are negative and this blinds them to opportunity. Very often they will be filled with shame, remorse, and guilt over past losses and very often they enter new trades expecting the worst. As a result, they don't often enter new trades and will miss out on opportunities that are genuinely present. They often stop working at their trading, as anything trading-related is associated with emotional pain. Defeatism thus becomes a self-fulfilling prophecy. It's easy to recognize defeated traders, not only by their depressed mood, low energy, and lack of enthusiasm, but also by their "yes, but" rejection at helping efforts. Very often the defeated trader will focus on losses and mistakes and gloss over progress that's been made: they see the trading cup as half empty, rather than half full. The key strength that combats defeatism is emotional resilience and the ability to use losses as learning experiences. Techniques that combat defeatism include cognitive methods for reprocessing negative thought patterns; structuring of the learning process to emphasize strengths and solutions rather than mistakes; and a focus on attainable goals and the creation of success experiences.

Most of us can identify elements of these four traders in ourselves. If I had to choose, I'd say that I am most like the Anxious Trader. I am quick to step away from markets when my setups aren't there--sometimes too quick! Many of the traders I work with fit into the Frustrated Trader category: they're aggressive, achievement-oriented, and hard on themselves.

Knowing your patterns does not, in itself, enable you to change them, but it's a necessary step. Indeed, I find that, regardless of the patterns, the first step of progress a trader makes is interrupting old patterns that aren't working and trying something different. The ability to stand outside oneself as an observer of patterns is a core self-coaching skill.

How 9 Internet Startups Lost 2 Billion Dollars

To an outsider looking in, venture capitalists may look like the cavalry of the gravy train. Images come to mind of handsome men in sharp looking suits, swooping in on helicopters with briefcases full of money for people like us to follow our dreams. But to the insider who has actually worked in those fields, venture capitalists are just that. Capitalists. They are businessmen whose jobs, just like any other businessman, are to make money. And like anyone else, they are capable of mistakes. Aggressive lending and bad management can easily destroy any business. And no where is this more famous than in the tech industry.

Webvan -- Webvan started as a reasonably sensible idea, "A Super Market that Delivers!" Unfortunately the leeway offered through $800,000,000 gave the company enough slack to hang itself with its own spending. With those kinds of funds at Webvan's disposal the company grew at such a rate that it overextended itself. Throughout a period of eighteen months, Webvan expanded its reach from San Francisco to eight other cities across the United States. At its zenith it reached a value of over 1.2 billion dollars. But supermarkets already have razor-thin profit margins. Add that with the burden of a new, untested business model, and the growing pains alone were enough to finish off the company. To this day, one may be able to find WebVan logos in the nooks and hideaways of AT&T park (then Pacific Bell), the stadium Webvan sponsored when it thought it had money to throw away.

Pets.com -- Started by Greg McLemore then bought by venture cap firm Hummer Winblad and executive Julie Wainwright, Pets.com was proof that it takes more than a "money is no object" marketing campaign to save you. The talking sock-puppet Pets.com became known for was a balloon in the Macy's Thanksgiving Day Parade and even made it into the crown jewel of all television advertising, a spot during the Super Bowl. But as popular as their mascot was, Pets.com was never able to convince its prospective customers why they should buy their pet supplies online. Ironically, it could be said that the initial investors were directly to blame for Pets.com's downfall. Investors pumped millions into the company with the predetermined knowledge that it would be thrown at marketing. Then, before any real value had been established within the company itself, Pets.com was made public. The company still could have plausibly been saved, but the investors instead allowed it to die quickly without giving it any long-term opportunity to grow. With the release of its IPO, Pets.com raised $82.5 million only to disappear less than a year later.

Kozmo.com -- A great idea poorly executed. Kozmo.com was founded by investment bankers Joseph Park and Yong Kang. The company's purpose was simple: to deliver a wide variety of small goods within an hour for no delivery charge. Wanted popcorn, soda, and a movie on your doorstep in under an hour? No problem! Unfortunately for Kozmo, the gimmick that made it famous, "Free Delivery", was also its undoing. The company claimed that the money saved by not needing rental space for store fronts would easily offset the costs of delivery. This however was not the case as the company would shut its doors after only three years of service. Kozmo raised roughly $250 million in funding including $60 million directly from Amazon.com, but one wonders what their logic was when they promised $150 million of that money to Starbucks for advertising.

Flooz.com -- Why spend dollars when you can use the internet's own new currency, "Flooz!" Why indeed? Flooz.com would go belly-up after only two and half years, but not before burning through something between $35 and $50 million in venture capital funding. With that kind of money it's obvious how Flooz.com was able to afford their spokesperson, Oscar-winner Whoopi Goldberg. Despite acquiring a well-received spokesperson, one has to question the rest of this company's logic. Namely, why would someone exchange currency backed by the United States government for currency backed by only a fledgling internet startup company in New York? At least gift cards are backed by their merchant. When Flooz.com went under, all Flooz credit became worthless.

eToys.com -- At first glance eToys.com seemed like a sound idea, "Sell toys on the internet!" However, when placed in the context of competing with an alliance between Amazon.com and Toys 'R' Us, it's obvious how bleak the picture really was. Funded by "idealab!" eToys raised $166 million with its IPO, but within 16 months its share price went from a high of $84 down to a low of 9 cents. "Idealab!" itself would be burned so badly through its tech investments that it would close a number of its offices and cancel its own IPO. Like other internet startups, eToys would burn through the bulk of its income through aggressive marketing and expensive advertisements. In the end however, its income would never exceed its spending. The company went under in less than two years after its IPO.

Go.com -- As a web portal, Go.com became definitive proof that even the "old guard" weren't safe from blowing large amounts of money by investing in the tech industry. Created by the Walt Disney Internet Group, Go.com was founded in 1995, but really began in 1998 when it merged with Infoseek. The intention was for Go.com to become a destination site, much like Yahoo, or later Google. Countless millions were spent in advertising with the site never growing popular enough to justify the costs. In the end, many people lost their jobs and Disney took a write off of $790 million. A lot of cash, even for a company like Disney. Go.com exists today but uses Yahoo as its search engine and only carries feeds from other Disney Web properties.

Boo.com -- As Go.com proved that even the "old guard" weren't safe, Boo.com showed that losing huge amounts of money through investing in the tech industry wasn't something bound solely within the United States. Based in the United Kingdom, Boo.com was an online store that specialized in brand name clothing. Setting aside "keeping it simple" the executives instead prioritized giving their web pages a sexy design steeped heavily in JavaScript and Flash technology. From a virtual sales assistant to web pages that took several minutes to load, Boo.com was a website that did not keep the customers first in mind. Its one saving grace, "free returns" where Boo.com would pay the postage for all returns, was not logistical for a company serving an international community. After two years, Boo.com folded having burned through $160 million.

GovWorks.com -- Founded by childhood friends Kaleil Tuzman and Tom Herman, GovWorks.com began as a way for people to pay their parking tickets online. But with Kaleil serving as salesman and Tom designing the technology, GovWorks.com grew into a site with the intention of allowing people to perform all necessary business with municipal governments online. Kaleil and Tom quickly found themselves hobnobbing with power players within the United States government, and were able to gather $60 million in venture capital funds. Soon afterwards however, tension grew between the two friends, and Tom was kicked out of the company. In the end, GovWorks.com was a complete flop and was taken over by a competitor.

MVP.com -- Your online sports equipment store! With John Elway as chairman, and Michael Jordan and Wayne Gretzky serving as directors, MVP.com was the veritable Planet Hollywood of the internet. But like Planet Hollywood, it took more than big names to keep the company afloat. It also took more than the mere $65 million war chest MVP.com started with. After entering into a four-year advertising deal with CBS, MVP.com promptly failed to pay the $10 million a year it had agreed to within their contract. All this despite the fact that MVP.com charged the same amount online as one would find in a retail store. The company folded soon after and was taken over by CBS's online affiliate Sportsline.com.

When companies such as these fail, it is more than just a website going down. Consumers are left with fewer choices, and today's new online companies find it that much more difficult to raise capital. Ideas that could bring fabulous new services to the marketplace will never see the light of day due to the careless failures of their predecessors. Unfortunately, the same thing is still going on today. EONS, the social network for senior citizens has had $32 million invested into it despite sporting such tasteful features as an obituary section. Although not a website, Amp'd Mobile recently went under, burning through $360 million in only two years. Often, ill-fated business decisions can be attributed to naivety, but other times it is plainly more malicious. Filmloop.com recently went under, because its primary funding venture capital firm forced it to sell for bottom dollar, despite the business doing well. In other cases, venture capital groups have made countless new companies possible through initial funding, only to then dog-ear that money for marketing to produce buzz. Once that buzz was established and the stock had raised, the venture capitalists would sell and move on, leaving the public share holders to bear the collapse of a company that could have made it had it been given a chance through patience, and better management. In this list alone, almost $2.5 billion was lost. Money that could have been better spent than in the risky world of venture capital.

Back in Kabul

Last Friday we drove to Paghman with our friend Jean. Driver Karim, the father of five, takes his oldest shy daughter with us as well. We have a wonderful walk up to Paghman River, enjoying warm sunshine and murmur of the stream. I wonder that there are almost no people in the popular picnic place; the season seems to be over. Just some jaded kebab-offers have a tedious time while some families eat their kebab, mast and chai under the trees covered with golden leaves.
We have had a long holiday – one and half month – in our home back in Estonia. I am always amazed about the metamorphosis inside myself, moving from my homeland in Northern Europe to Afghanistan. And opposite. For example, it takes some days to become used to the fact that we can buy frozen foodstuff like ice cream – because there is all-time electricity. Back in our lovely Kabul home, after one day I have already the feeling as if I lived here forever.
After one-month routine in Estonia, Kabul seems dangerous and unattractive. Especially thanks to media – there is a lot of coverage as there are more than one hundred Estonian troops in Helmand. After a while I stop reading the articles about Afghanistan written by Estonian journalists, spending one-week war-tourism-trips in south. Last one I tried to read began with sentence: ´”There is no doubt that military helicopter is the most preferred transportation in Afghanistan.” Really?!
I am the only Estonian journalist living in Afghanistan. I am not very beloved by my homeland defence forces because I have not praised the foreign forces. They dislike me so much that I was not allowed to listen to NATO conference about Afghanistan in my hometown. There is not enough room, was their answer.
Conversations in Estonia about our living here are almost always the same: how can you live in that horrible country? My replay is: it is beautiful country. I spend so much energy explaining the simplest facts. There are big differences between south and north. There is a different climate. There are different landscapes. There are different tribes and traditions. And definitely all Afghans are not interested to kidnap or kill me...
To explain my point of view I started to organize photo exhibitions in biggest cities of Estonia. The official to whome I showed my photos, seemed really confused. It can’t be Afghanistan, she just murmured. Also I decided to publish a book (in Estonian) with my own photos. In order to counterbalance fear and hatred, that is generally connected to Afghanistan-topic, the title will be Beloved Afghanistan.