It's newly good to live in places like Williston, North Dakota. About one homeowner a day in such places is becoming a millionaire at current oil hyper-prices. They are, of course, the people whose houses sit over the newly economically viable Bakken shale formation.

The number of taxpayers reporting adjusted gross income of more than $1 million in North Dakota rose from 266 in 2005 to 388 in 2006, [tax analyst] Strombeck said. The 2007 numbers won't be known until October, she said.

Bruce Gjovig, director of the University of North Dakota's Center for Innovation, said his informal survey estimates the number of new millionaires in Mountrail County, one of the biggest drilling areas of the Bakken, may be as many as 2,000 — or nearly a third of the county's population — in the next three to five years.

[via AP]

Congress has a mind to save us all from speculators and their evil-doing ways in commodities markets. Trouble is, as the following Bloomberg figure shows, oil prices have ramped hugely over the last year despite the number of open contracts having peaked almost twelve months ago. In other words, by at least one measure the influence of speculators in commodities futures markets is down, not up.

If Congress is set to save us from speculators, who will save us from Congress?

[via Bloomberg]

I have various proprietary tools I have created to track layoffs, and they are all through the roof right now. Admittedly the tools have only been around for one economic cycle, but the explosion in layoffs I've been observing over the last ten days is like nothing in recent memory.

Remarkable stuff, and it shows up in Google Trends.

So, the venture capital "asset class" is in crisis. Or at least that's what the NVCA is saying today as it rings the alarm bell asking for politicians, regulators, venture capitalists, entrepreneurs, dogcatchers, presidential candidates, philatelists, etc., to do something -- anything! -- about it.

Of course, readers of this blog won't be surprised at news that this is the first quarter in recent history in which there have been zero, zip, nada VC-backed IPOs. I wrote about that fact here last week, and the story was picked up over the weekend by the good folks at the NY Times. So, no surprise.

Anyway, some quick points on the crisis claim:

• Venture capital is not in crisis. It is a cyclical, bubble-driven business, and it is between bubbles.
• Sarbanes-Oxley hasn't helped, admittedly, but that is not the core issue. Among other things, the industry hasn't been able to find enough companies about which Wall Street can get excited.
• Venture capital still has too much money under management.
• Average fund size remains too large. Adjusted for inflation, and based on pre-bubble 1994 figures, the median VC fund size in 2008 would be $100m, not the current $200m figure.

As an aside, I'm fond of the claim from entrepreneurs cited in the release saying that they don't want to go public anyway. Damn straight! That'll teach those Wall Street bastards! We don't want your million of dollars. We don't want to be rich. We don't want ... wait, maybe we do.

I like this quote from Andy Rappaport of August Capital about social investing -- the idea that you can do good via investing in social funds:

A lot of socially responsible funds have this idea that they’ll provide a social return, but you’ll have to accept a below-average financial return. I disagree. Once you give a business an opportunity to make a below-average return, you make it more likely it will.

Right on.

[via VCJ]

Many moons ago I wrote a piece for Men's Journal -- yes, that's just the kind of renaissance guy I am -- on the joys of cycle-climbing. I had originally planned on chronicling my effort to do the equivalent of the Seven Summits of biking; that is, chronicling summiting on bicycle the highest road on all seven continents.  (Yes, there is a road on Antarctica.) That didn't work out, so I wrote a general thing about anaerobic hill-climbing efforts instead.

Anyway, I got to thinking about cycle-climbing today when reading the excellent NYT "The Climb" blog about one journo's training to do L'Etape du Tour. I am so-oooooo envious.

More here and here and here.

According to the WSJ tonight -- and I can almost not bear to type these irritating words -- Microsoft is messing with Yahoo again. The story says that Microsoft is working at pulling together a consortium of folks who might buy the pieces of a broken-up Yahoo, the search part of which would go to Microsoft.

Showing how boring this story has become even to professional journalists, that news plays second fiddle, at least in terms of word count, to a tick-tock about how the Microsoft/Yahoo deal fell apart last time around. It is replete with golf games, giggles, and a woman with a red umbrella. Nuttiness.

[via WSJ]

On a plane yesterday I read Dan Ariely's bestselling behavioral economics book Predictably Irrational. It is Yet Another Humans Don't Act Like Economists Think They Should (YAHDALETTS)book, up there with Freakonomics, Undercover Economist, and the rest of that sort of thing.

Was Ariely's book any good? It was fine. There were a few decent examples, and one or two things that got me going "huh" for a minute or so, but I found it more irritating than anything else. For starters, it was poorly written, like an editor had told Ariely to write informally, and the tenured MIT prof couldn't figure out what that meant, so he just tossed off mixed metaphors and dated colloquialisms as if that would get him street cred.

More broadly, however, I had a deeper problem, and it has to do with the whole subject. Because I just don't care anymore. I'm not interested in more freakonomo-clones about those nutty human satisficers. I've heard the stories. Over and over. And I've heard enough to make me wonder how all we supposedly idiotic humans manage to step off sidewalks without being killed if we're so dumb.

I'm really, really tired of carnie cognitive sideshows about stupid mind tricks. I get it. We're dumb. We're flawed. We take mental shortcuts. I get it. Really. Now stop telling me that, and tell me something how we idiots survive in our chaotic world.

What price will cause global oil demand to finally fall? While OECD demand looks set to drop, according to the latest IEA report, demand elsewhere is another story.

Because in a sense, oil markets can be thought of as trying to break the back/bank of countries with subsidy-driven demand growth for transportation. And, as the following IEA slideshow shows, that may happen sooner rather than later.

| View | Upload your own

Some new data out from Hitwise showing the traffic patterns that Google/Yahoo are having during the current market misadventures. Turns out that panicky investors are compulsively checking out what's up in markets via their favorite money & finance sites, like Google and Yahoo Finance.

As a related aside, searches for "recession" are on the rise, as we have talked about here. But what's particularly interesting is that most searches for "recession" end up at the Wikipedia definition thereof. It strikes me that people in the U.S. uncertain about the subject will soon be able to draw on personal experience for an answer.

In 1971 the city of Bolinas, California, stopped growing. Why? Because that was the year the city decided to stop allowing new water meters to connect to the city supply. And no new water meters means, for practical purposes, no new houses -- ergo, no more growth. You can see that in graphical terms via Trulia, with the city's growth essentially hitting a wall in 1971.

For practical purposes, the city hit a resource wall. No more water. Granted, that wall was externally created -- via legislation -- but the effect was the same: a resource constraint changed the evolving nature of a city.

Something similar has to happen with $5/gallon oil across the U.S., and it has to become even more pronounced at $7 oil, etc. Cities' structures will change, with most hitting an "exurbification" wall in 2008. Just look graphically at the evolution of cities like San Diego or Atlanta to see a pattern that will not be repeated in future.

----------------------------

More here on Bolinas and its "no mo' meters" decision from a 2005 piece in the NYT.

A laugh is good on a day like today, so here is writer Michael Lewis on how Wall Street-ers can survive the current market mess:

Rule No. 3: Hide your motives. Or, specifically, minimize the appearance of financial interest.

Don't tell anyone how well you're doing for yourself, for example, not even women you have just met. Recessions blow in with them a general backlash against worldly pleasures and material obsessions.

You must reckon with this shift in public values, for it will occur even on Wall Street, and threaten to expose your ambition as freakish. A lot of people you thought you knew are about to rediscover what's important in life: wife, kids, the love of one's fellow man. But you are not.

Don't worry: it's temporary. This is still America.

But people are going to be watching you closely for any sign that you fail to grasp the relative unimportance of money. Mollify them. Acquire some painless habits, for instance, to suggest that you, too, have found meaning in something other than your success.

Sell the Mayback and buy a Prius. Have the gardener plant tomatoes in your yard -- but make sure he knows to put them in the front yard, where they can be seen.

More here.

This quote from a Deutsche Bank report on the differing approaches to rate-setting in the EU and in the U.S. is fascinating and instructive:

Recent and prospective differences between the Fed and the ECB in the conduct of monetary policy have been striking. The ECB has launched a Martian frontal assault on inflation while the Fed has opted for a more cautious and patient Venusian approach.''

The historical experience of deflation and depression in the U.S., and of German hyperinflation and currency reform in Europe, plays a key role in shaping different responses.

I hadn't thought of it that way, but it strikes me as correct. Both regions see the current market problems through the prism of their most traumatic similar economic experience -- and in the U.S. that's the Great Depression, and in the EU that is German hyperinflation. It is a lovely example of path dependency in the economy, with policy approaches differing not on where we're going, but on how we got here.

[DB via Bloomberg]

Having said a few unhappy things about Predictably Irrational earlier this week, here are notes on a few books, new and old, I've liked recently:

• Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. Despite a bad and breathless title, it's worth a read. Surprisingly interesting.
• The Forgotten Man: A New History of the Great Depression. Excellent. A must-read and a fascinating and fresh take on the Great Depression.
• A Liar's Autobiography, by Graham Chapman. One of my favorite made-up autobiographies ever.
• Meditations, by Marcus Aurelius. A classic that I reread on a regular basis, especially when I'm feeling at odds with the world.
• Creative Capital: Georges Doriot and the Birth of Venture Capital. A great and overdue history of the early venture capital industry.
• Where are the Customers' Yachts? The best and most timeless book ever written about Wall Street, with particular resonance today.

I've also just finished reading a pre-release version of Robert Shiller's new book, The Subprime Solution, and I enjoyed it. More on that one closer to the launch.

People seem to be in a historical frame of market mind this weekend, so here is a chart of Dow Jones index returns by U.S. president since Herbert Hoover obtained office in 1929. Note that I have given this result in compound annual terms to compensate for the differing lengths of presidential terms over the period.

As an aside, while President Bush is currently running neck-and-neck with Jimmy Carter for the third-worst presidential market returns in history, President Bush is the leader of the pack as far as worst market returns go for two-term U.S. presidents.

It's currently better to be a toy car maker than a real car maker: Mattel's market cap just surpassed that of GM. The maker of Hot Wheels and Matchbox now has a market cap of $6.22B versus the $5.76b cap of the maker of non-toy cars GM.

[via Bloomberg]

Here is a sneak peek at some links from my weekly Weekend Reading column over at TheStreet.com.

• More than 40% of investors in structured products don't understand them (Risk)
• Credit default swaps suggest both Ford and GM will declare Chapter 11 (IDD)
• Louis Vuitton CEO says sales don't suffer in downturn (S.F. Chronicle)
• Top 100's Ad-Spend Growth Grinds to Halt (Advertising Age)
• Federal Reserve Board launches new data feeds (Federal Reserve)
• Las Vegas economy spiraling downward (Independent)
• Chinese professor loses home price bet (China Daily)

Great 10,000-word read in the August Vanity Fair from Bryan "Barbarians at the Gate" Burrough about the collapse of Bear Stearns.

On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.

Read it here.

According to a Bridgewater study leaked by a Swiss paper today, total financial losses from the the current credit crisis will hit $1.6-trillion, well above most current estimates.

Here is the German/English translation:

Explosive Study: The banking crisis will be much worse

Westport (USA) - The expected losses from the financial crisis will reach $1600 billion. To-date financial institutions have so far announced only $400 billion. The pessimistic forecast comes from a confidential study by Bridgewater Associates, the second largest hedge fund in the world.

"We are facing an avalanche of bad assets," says the study. The biggest losses were the U.S. credit banks before. "We have big doubts that the financial institutions will be able to have enough new capital in order to cover the losses," the authors write.

Bridgewater Associates in financial circles enjoy a first-class reputation, several central banks are among its customers. "Bridgewater are on the pessimistic side," says George Magnus, Senior Economic Adviser at UBS in London, "but they have absolutely right."

Lots of people, myself included, arguing that speculation -- at least in the sense in which we understand that sort of thing -- in commodities markets is playing only a minor role in the run-up in oil prices. That, of course, won't stop this week's House Agriculture Committee meeting on whether the Commodities Futures Trading Commission (CFTC) is doing its job.

A more interesting discussion is the role of swaps, those off-exchange trades among large institutional investors, a class of commodities investing that has ballooned from less than $6-billion to $260-billion over the last decade. The allegation is that swaps are largely invisible, and they are larger commodities bets, so they have the capacity to move markets in a more savage way than larger markets of smaller traders can.

Swaps aside, so far there has been little light on this subject, but lots of heat. A new paper, however, tries to help out. It seems to show that for short-term contract supply dictates prices, but for longer-term futures contracts, like outside of a year, that price trumps supply. While that's Interesting stuff, and it should be a reading assignment for both sides of this debate, from Paul Krugman to politicians, the real news comes in the second-last sentence of the abstract: The authors argue that hoarding is going on in oil markets, which is something that many have alleged but no-one has shown to-date.

Speculation, Futures Prices, and the U.S. Real Price of Crude Oil

Abstract:
In this study, we examine the relationship between the U.S. real price of oil and factors that affect its movement over time: futures prices, the value of the dollar, exploration, demand, and supply. All of these variables are treated as jointly endogenous and a reduced form vector error correction model, testing for cointegration amongst the variables, is estimated. We find that for model specifications with short-term futures contracts, supply does indeed dominate price movements in the crude oil market. However, for specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price. Moreover, there is empirical evidence of hoarding in the crude oil market: both oil stocks/inventories and futures prices are found to be positively cointegrated/correlated with each other. From a policy perspective, the results of this analysis indicate that if regulators really wanted to limit speculation in the oil market, it should keep the shorter-term futures contracts and eliminate the more speculative six months futures contracts.

Full paper here, and WSJ discussion of House meetings on CFTC here.

----------------------------

As an aside, there is a Here Comes $200 Oil! article on the front page of Monday's WSJ. Among other things, it contains this interesting comment:

...financial players continue to bid up oil on the futures market, said Larry Goldstein, an economist at the Energy Policy Research Foundation. "The problem is that the natural hedgers, the producers themselves, are shying away, while the buyers get bolder," Mr. Goldstein said.

Ted Forstmann says we're all going to hell. That's the message I got from a cheerfully apocalyptic interview with financier Forstmann that appears in Monday's WSJ. Granted, Fortsmann's never been a fan of current financial markets, right back to the sort of things he put up with during the RJR-Nabisco takeover battle, so it's not necessarily news to find out he thinks credit markets are screwed and we're all going to suffer for it.

Nevertheless, he does have a way of getting the point across:

Once upon a time, when credit conditions and the costs of borrowing money were normal, the bank opened at 9:00 a.m. and closed at 5:00 p.m. For eight hours a day, bankers made loans and took deposits, and then they went home.

But after 9/11, the Fed opened the spigot. Short-term interest rates went to zero in real terms and then into negative territory. When real interest rates are negative, borrowing money is effectively free – the debt loses value faster than the interest adds up. This led to a series of distortions in the financial sector that are only now coming to light. The children's story continues: "Now they [the banks] have all this excess money. And they open at nine, and from nine to noon or so, they're doing all the same kind of basically legitimate things with it that they did before."

So far, so good. "But at noon, they have tons of money left. They have all this supply, and the, what I would call 'legitimate' demand – it's probably not a good word – but where risk and reward are still in balance, has been satisfied. But they're still open until five. And around 3:30 in the afternoon they get to such things as subprime mortgages, OK? And what you guys haven't seen yet is what happened between noon and 3:30."

It's a cute story. And he has another cute story about Warren Buffett and the three "I"s of innovation. Nevertheless, there is no doubt credit markets remain in worse shape than most observers think, and oil hasn't helped their recuperation.

Then again, I remain somewhat baffled by the following Forstmann quote:

The credit problems in this country are considerably worse than people have said or know. I didn't even know subprime mortgages existed and I was worried about the credit crisis.

I know what he is trying to say -- there was a credit crisis ex-subprime -- but I have to confess that were I him I wouldn't confess that I didn't know what subprime mortgages were. For a guy who operates in the debt-driven world of private equity that seems a little .... nutty. Maybe's he just pissed that Forstmann-supported Vijay Singh is falling out of the PGA top ten.

[via WSJ]

Chief: Now listen carefully: [gives a series of complex instructions] Did you get that?
Max: Not all of it.
Chief: Which part didn't you get?
Max: The part after 'Now listen carefully'.
         From Get Smart (1965-1970)

You had to know hedge funds would find a way to mess up complying to new U.K. rules requiring more disclosure of short-sale positions. After all, reporting that sort of thing is so darn tricky, what with hedge funds not recording the positions in-house .... err... not using standard formats ... err ... not understanding written English .... err, nevermind. They're just up their usual tricks.

Rules introduced by the UK’s financial watchdog that force hedge funds to disclose short positions in companies holding rights issues have caused confusion among investors.

Nearly half the disclosures made by hedge funds since the Financial Services Authority announced the changes have contained errors as the funds struggle to get to grips with complex calculations.

According to analysis by the Financial Times, 20 of the 41 disclosures so far have missed filing deadlines, contained the wrong calculations or not been required.

[via FT]

Downbeat story in the WSJ & Reuters tonight on GM's plans for massive layoffs, etc. And not to diminish the awfulness of GM's plight -- okay, to diminish it a little -- I was struck by the story plopped adjacent to that story by a Reuters keyword algorithm. Check the first headline under "Related News":

Gosh, how rough can it be for General Motors that people are now not just after it for its manufacturing plants, but even for the fields containing those plants?

Oh, wait ... GM. You mean that GM, not that GM. Ooooooh. I hate when that happens.

[via Reuters]

My favorite part of the latest Carl Icahn love letter to Yahoo shareholders comes early in the note. Here are the first two sentences:

Dear Yahoo! Shareholders:

During the past week I have spoken frequently with Steve Ballmer, CEO of Microsoft. Several of our conversations have lasted as long as an hour.

{Emphasis added]

Oooh, Steve speaks! I'm assuming that Carl is trying to show how tight he is with Steve Ballmer, and how the two of them are planning a Yang-free  future for Yahoo, but it comes across more like an advertisement for Ballmer's speech pathologist.

[via WSJ]

There is little question one of the driving forces behind the rise in commodities prices has been the Swensification of the stuff. After the dot-com crash investors began looking everywhere for uncorrelated asset classes -- stuff that didn't go down when everything else went down -- and they didn't have to go much further than Yale's David Swensen and his standout performance embracing commodities, hedge funds, real estate, etc.  (Read Swensen's classic Pioneering Portfolio Management for full details.)

As a piece in today's Washington Post makes clear, a host of endowment and pension funds have now followed Swensen into commodities -- uncorrelated asset classes! -- most of them a) late, and b) less nuanced than Mr S. in their embrace of the previously heretical asset class.

While Swensen can't be blamed for the sins of his followers, some of their comment are striking, like this one from a pension director from Fairfax County, Virginia whose returns from commodities investing essentially drove his whole $5-billion fund's returns:

Our job is to minimize our risks on the taxpayer. If you can do that, why wouldn't you?

Indeed. Why didn't I think of that sooner?

The Starbucks boom across the U.S. (and worldwide) has added hugely to the list of public restrooms. With cities building fewer of the things, and even closing some, and with many restaurants making it only slightly less difficult finding them than finding your average absentee hedge fund manager, Starbucks' buildout has been a boon to joggers, tourists, businesspeople and anyone who sometimes, you know, just has to go.

But as a friend reminded me over the weekend, there is newly a problem. With the announcement that 600 Starbucks are being closed across the U.S., that works out to somewhere between 600 and 1,200 public restrooms being taken out of circulation, so to speak. As opposed to the earlier buildout bubble, we now have a restroom anti-bubble.

What will it mean? Will people be more reluctant to leave the house? Will they consume less fluid when outside, thus leading to more dehydration? These are important questions.

Now I've got that feeling once again
I can't explain, you would not understand
This is not how I am
I have become comfortably numb

    -- "Comfortably Numb," by Pink Floyd

Media entrepreneur Felix Dennis's new book How to Get Rich sounds like good fun, so I may have to pick up a copy. I was tickled by these clips in a Time review, especially the comment about being "comfortably poor":

• "Ownership isn't the important thing--it's the only thing ... You must strive with every fiber of your being, while recognizing the idiocy of your behavior, to own and retain control of as near to 100% of any company as you can."
• "It's quite obvious that only a small number of people are actually going to become even the comfortably poor." And how much do the comfortably poor have? "Four or five million bucks," he replies.

In looking at the wall-to-wall sell-off in financials today it feels like the market is essentially saying "More than one of you major banks and brokers is going under, so until we know which one, you're all being sold".

How else to explain the undiscerning, heavy selling going on in all of these names on little more than some some Lehman musing about a Freddie/Fannie-related proposed new accounting rule that won't likely come into affect anyway?

[via Finviz]

Leave it to a San Diego paper to find a connection between high oil prices and surfing. Higher prices are apparently raising resin costs, thus hurting surfboard makers, and gas prices are keeping some people from making long drives to the beach to check conditions -- but surf webcam traffic is up 10% y-o-y.

[via SD U-T]

I had an interesting conversation with an executive yesterday. We got talking about his stock options, and when he should sell them.

I started in the usual place, talking about time value and strike value of the things, with the usual volatility/cliff issues. He kept coming up with reasons why he should sell, despite the stock trending up, despite good numbers, etc. I said, fine, then sell. But, he said, then I miss the time-related upside in the options.

Sigh. You can't have it both ways, I pointed out. And if you really like the stock, then hold the stock after exercising rather than immediately selling it.

But that would be risky, he said, neatly ignoring that he should be indifferent about the risk if he is willing to hold the unexercised options.

Anyone else run into people like his? I'm always amazed at how emotionally messed up some people -- including executives -- get about stock options.

A question for people to ponder: Say you were 22-years-old, unattached, and recently graduated and looking for your first job. You want to be part of something big and dynamic, a truly dynamic economy where you're going to be able to rise up with it.

The U.S. has long been that place, and maybe you think it no longer is -- or maybe you do. Whatever. Where in the world -- visas aside -- would you go?

I got that question the other day from a recent graduate, and I surprised myself with how quickly I could answer it. I knew immediately where I would go, hands down, with hardly a moment thinking about it. But how about you? Any city, any country, anywhere in the world. You're 22. Where would you go?

In the spirit of full disclosure, where would I go? Brazil. While I'm painfully aware of the many problems -- infrastructure, crime, capital, corruption, etc. -- that the country still has, I love the dynamism, growth, optimism (mostly -- see my trip notes for more), etc. And it doesn't hurt that the economic numbers are generally good too, with some exceptions.

How about you? Where would you go, from San Francisco to Sao Paulo, from Singapore to Shanghai, from Sydney to Slovenia to Saskatoon. The world is changing rapidly, and the "right" answer from 1998 isn't likely the right answer in 2008.

Make your call in comments below.

Tech's two big hitters -- the NYT's David Pogue and the WSJ's Walt Mossberg -- have out their reviews for the new iPhone 3G, and they're surprisingly so-so about Apple's upgrade. To be released Friday, the iPhone 3G is supposed to drive massive upgrades and new unit sales, but in reading Pogue/Mossberg you get the distinct impression that it could be more of a fizzle than Apple investors are hoping for.

The gist:

• Both like the improved 3G performance
• The improved system software comes in for plaudits, but both point out that's available to both old and new iPhone users
• Battery life is unimpressive in 3G mode, according to Mossberg, wiping out the iPhone battery by mid-afternoon. While 3G battery life issues are not unique to iPhone, Mossberg's battery comments are going to put some buyers on the fence.
• Both Pogue and Mossberg point chidingly to the increased cost of the new AT&T contract, with 200 SMS messages now costing an extra $5/month, and the underlying data plan another $10 /month, which wipes out the lower $199 price of the the device

Full text below:

- For 'Phone the 'New' is Relative, David Pogue, NYT July 9, 2008

- Newer, Faster, Cheaper iPhone 3G: Wider Versatility but Hidden Costs, Walt Mossberg, July 9, 2008

Must watch: Charlie Rose in an hour-long discussion with JPMorgan CEO Jamie Dimon.

After watching it, go read selectively from the viewer posts -- including some scathing stuff from at least one ex-JPM employee -- on the Charlie Rose site. For his part, and to his credit, Dimon explicitly takes on his critics, explaining why he thinks claims of "moral hazard" are wrong-headed and stupid, like refusing to save a drunk who was drowning. He also has a nice line justifying the $2 original Bear share price, saying that "buying a house and buying a house on fire" are different things.

Somewhat surprisingly, Dimon gives considerable credence to rumors that the downfall of Bear Stearns was orchestrated. He says "Where there's smoke, there's fire", calls for an SEC investigation, and says it wouldn't surprise him if there was more to Bear's collapse than mere leverage.

Today's chart of the day shows how loan standards and costs have climbed together over the last 2.5 years, making it tougher to get credit than it has been in a decade. Apparently Earth loans aren't easy.

[via Bloomberg]

I'm a big fan of those trading days, like today, when the only things that do well are the drug stocks. So deliriously self-reinforcing.

You have to love the three-day adventure in Freddie Mac stock this week. The federal financier is getting alternately hugged and kicked by the markets. Today it was kicked. Hard. There are a lot of people out there who simply no longer believe in a standalone Freddie Mac.

As a related aside, for those of you who -- quite rightly -- regularly find yourself saying, What the f**k is Freddie Mac (or Fannie Mae) anyway, here is a good NPR overview of the two.

Anyway, more here from Bloomberg on how traders are just not buying any upbeat talk about Freddie. Essentially, people are arguing the two need to raise buckets more money -- you know, the housing collapse and all -- and it is going to be difficult and highly expensive.

Some interesting results in a new study into how people behave in the presence of money. The gist: When money is visible and supervision intermittent, people change their participation for the worst in a hurry.

The Abundance Effect: Unethical Behavior in the Presence of Wealth

Abstract:    
Three laboratory studies investigate the hypothesis that the presence of wealth may influence people's propensity to engage in unethical behavior. In the experiments, participants are given the opportunity to cheat by overstating their performance or by stealing money. In each study, one group is stimulated by the visible proximity of wealth. We find that the presence of abundant wealth leads to more frequent cheating than an environment of scarcity. Our third experiment also investigates the potential mechanisms behind this effect. Our results show that feelings of envy towards wealthy others lead to unethical behavior. Our findings offer insights into when and why people engage in unethical behavior.

More here.

Anyone who has ever worked on a trading floor won't be surprised. Part of the cause of rogue traders is abundant visible wealth, and only on-again, off-again supervision.

First Apple 3G iPhone teardown has been done already. Someone flew to New Zealand to do it ... tomorrow, sort of.

More here.

This is staggeringly typical stuff in one homeowner's home equity line of credit abuses related to a now foreclosed SoCal home:

• On 1/8/2004 the property was purchased for $465,000 with a $372,000 first mortgage, a $46,500 second mortgage and a $46,500 downpayment.
• On 3/11/2004 the owners opened a HELOC for $92,000 and withdrew all their downpayment plus another $45,500.
• On 9/20/2004 they refinanced with a $552,000 first mortgage. 
• On 8/16/2005 they opened a HELOC for $38,000.
• On 12/8/2005 they opened a HELOC for $150,000.
• On 6/8/2006 they refinanced with an Option ARM for $650,000 and a second mortgage of $115,000.
• Total property debt of $765,000.
• Total mortgage equity withdrawal of $393,000 over a 2 1/2 year period.

[via IHB]

As I have said before, [Fannie and Freddie] are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums.

-- Jim Lockhart, OFHEO, July 10/08

I love the expression "adequately capitalized". It's one of those magnificent sweet nothings that regulators and investors say in defense of a credit-troubled company. It is popping up all the time in discussion of the current troubles with mortgage finance cesspools Freddie Mac and Fannie Mae. But what does it really mean?

It is also an expression you can trace through history, right back through the S&L crisis through the wonders of Google News. You'd be amazed at how many companies were adequately capitalized, right before they were not.

Here is a timeline of "adequately capitalized" in the news over the last 28 years. It's goes in and out of vogue at some entertaining times, as you'll see if you click on the figure.

I don't know if it's the $5/gallon gas prices, but freeway life here in southern California has become more surreal of late. Granted, traffic volumes are down, at least a little, so freeways are no longer in that perpetual state of criticality where a butterfly crossing through the 3 lane causes a 4-mile backup.

But that said, stranger things are going on. Yesterday I saw no less than three warnings about people walking on the I-5 freeway -- which is a 10-lane high-speed monstrosity -- and just now I saw this in a live CHP incident report near me here in La Jolla:

Incident:     0912    Type:    Traffic Hazard    Location:    SB I5 AT LA JOLLA VILLAGE
info as of:    7/10/2008 8:21:01 PM

ADDITIONAL DETAILS
7:57PM    MAN A RIDING BIKE IN THE FAST LANE

Someone is bicycling in the dark in the fast lane of a freeway? Dear God, people. I know gas prices are high, but this is getting deranged.

I have of late,—but wherefore I know not,—lost all my mirth, forgone all custom of exercises; and indeed, it goes so heavily with my disposition that this goodly frame, the earth, seems to me a sterile promontory
          -- Hamlet, Act II, scene ii (287-290)

A few people I talk to, myself included (and I talk to myself on a regular basis), have been feeling off lately. Blame markets. Blame a persistent feeling that the planet is running down, like an old watch. Blame too much iPhone news. Go with whatever explanation works for you. I'm fine with it.

Anyway, I felt much better tonight after watching a stranger dance badly with other strangers all around the world. See if it cures what ails you. And be sure to watch it in high quality.

Huge props, Matt. Very nicely done.