The Noble Pundit

Investing Strategies - Part VIII

Bond Pricing

In my last post, I made mention of the fact that many bond investors are not aware of how the bond market prices securities. I also noted that in my original post on the bare basics of bond investing, I did not touch on it either. But since it is important to the full understanding of the article linked in the last post, let's have a go at it.

Bond prices are essentially composed of a few different components. The first is the risk free rate of return. There is also a component of interest rate risk and a component for company specific risk. In addition there may also be components of currency risk, political risk, or key persons risk. But that's not all.

There is also a question of how do you actually price a bond? To a point, it depends on what your goal in investing in that bond is. In other words, are you investing for the long term or are you simply speculating?

All these factors together make understand bond pricing and price dynamics one of the most complex areas in the market. So let's break them down one by one and see if we can't get a better understanding of how they all work and interrelate.

As I said, the first - and most important - component of bond pricing is the risk free rate of return. This number is essentially the fed funds rate, that magical number set by Greenspan and Federal Reserve. Often times, you'll hear the risk free rate described as being the return on Treasuries. Treasuries are often used as a rule of thumb proxy for comparison purposes (mainly because they are government backed), but they are not completely accurate because of interest rate risk, our second component.

Interest rate risk is how the bond market takes into account future expectations of either a rate cut or increase. It is often said in the industry that the bond market leads Greenspan, not the other way around. Treasuries are susceptible to interest rate risk just like every other bond, which is why they are not truly a risk free rate of return. Treasury risk ends (theoretically) at interest rate risk. Most bonds, including munis include a component of company risk.

Company risk is how the market accounts for risks unique to the issuer. In a way, this is a bit of a misnomer as issuers of muni bonds also have differing degrees of risk. For instance, right now it would be a greater risk to invest in a State of California muni than it would to buy one issued by, say, the State of Virginia. This is partially offset by the fact that virtually every muni is insured, but then the financial strength of the insurer comes into play in determining the company risk component. The degree of company risk will almost always be reported by either Moody's or S & P, using a variation of the AAA (or 3a), AA (or 2a) through D (which stands for in Default). AAA bonds will be priced very close to, and sometimes even at, the yield of a similar Treasury. CCC bonds will be priced to have a much higher yield, reflecting their higher company risk component.

Those are the three most common components used in determining bond prices. However, when you have a bond payable in a foreign currency (Euro denominated bonds are becoming more prevalent), you introduce the currency exchange rate risk. If a issuer is a foreign company, or the bond is secured by overseas assets, you now introduce the political risk, which is mainly concerned with nationalization or currency export restrictions. And with some, usually smaller, companies if one person is perceived as being key to the viability of the company, there may be a key person risk factor that comes into play.

So once you've determined all the various risks, do you have a useful price? Probably. The tricky part is in identifying it.

Most bonds are quoted two ways: by yield to maturity (YTM) and by the actual trading price. The YTM will be a percentage, such as 5 3/4%. The actual trading price will be quoted as say 90 3/4 (which should be read as $907.50 per $1000 par value - multiply by 100 to get the actual price). Treasuries are an exception, they're priced in 32nds, i.e. 98:15 or 98 and 15/32.

So which is the right number for you? Depends on what you're looking to achieve. If you're investing for the long term, the YTM will be the more important number for you. YTMs are relatively low right now because of the low Fed funds rate. So, as a result, people are taking more risk (investing in lower grade bonds, generally) in order to get a YTM that is acceptable. If you're looking for a short term trade, you'll be more concerned with the actual trading price of the bond as your goal will to make money on the capital gain rather than through the accumulation of interest.

So how do bond pricing and YTM work in relation to interest rates?

Let's assume that interest rates are going up. The YTM will also go up, as the risk free rate base will be rising. But since the coupon rate will not change, the only way to push up the YTM is for the price to go down.

On the other hand, if interest rates are going down, YTM will follow suit and the price will rise, as again, the coupon rate is fixed by the bond covenant.

This is where the real risk in investing in bonds right now comes in. Interest rates are virtually at zero as it is. There is really no place for them to go but up, which in turn will push down bond prices. Speculating in bonds right now may be profitable, but if you're buying for the long term you had best be planning to hold to maturity and had better be happy with the YTM as it is unlikely that you'll be selling a bond at a capital gain in the intermediate term.

But all is not lost in the bond market, if you're willing to be patient and intelligent in your investing.

If you need to put money into bonds for allocation reasons, or because you feel it is more safe than putting money in the stock market, investigate your choices. This is probably a very good time to be looking at short term bond mutual funds. Why?

As bonds get closer to maturity the risk components move towards zero and the prices become less volatile. Returns will be small, whether they be positive or negative. In a market where prices are likely to be falling, capital preservation becomes the name of the game (unless you're trying to short the market, but that's a whole 'nother story).

How can you compare different mutual funds to see which may be more appropriate for you? Look for the statistic labeled "duration." It is a measure of the average time to maturity for the fund's bond investments. The smaller the number, the closer to maturity the average bond is, the less volatile the fund will be, and the lower the potential return will be.

As always, talk things over with your broker before making any investment decisions. Everything here is for educational purposes only and is not intended to be, nor should it be construed as, a specific recommendation. All investments carry a degree of risk.

Is The Credit Bubble Beginning To Burst?

Fredrick Sheehan has an interesting article over at PrudentBear.com in which he asks (and answers to a degree) if the actions of the Federal Reserve are impoverishing the American people.

I'm not going to try to deconstruct his case as, while it is very dark in its outlook, I believe it has some merit. It may be a bit too pessimistic, but I can't say absolutely that it's wrong or going off in the wrong direction. I would recommend reading it and forming your own judgment about its validity.

I will say that his characterization of the average new bond investor as uninformed is absolutely accurate. In my post about the basics of bonds one topic I did not go into was how bond pricing is derived from the relation of perceived risk to interest rates. That is quite possibly the hardest part of bond investing to grasp - and is absolutely the most misunderstood part (I'll write a detailed post on bond pricing later tonight or tomorrow).

But if I've expressed concern in the past about the possibility that we may be heading towards a deflationary cycle, how could I possibly agree with the statement that it is being caused by the Fed printing too much money, as that would normally lead to inflationary pressures?

Eventually it will, but right now the hyperactive printing of money is leading to the current housing bubble we're seeing:

From the fall of 1997 to the fall of 2002, the average house price rose in the U.S. rose 42%. In New York City, they rose 67%; in Jersey City, 75%; in Boston, 69%, and in San Francisco, 88%.

Those are unsustainable price growth rates. Yet, there are lenders still making 125% loans based on the idea that housing prices are incapable of falling and that the inexorable rise in prices will protect their irrational lending practices.

The refinanced mortgage that squeezes an extra $30,000 of money is not a risk, because everyone knows that house prices always go up. If one were to point out that real estate prices have fallen 70% in Hong Kong since 1997 and by an equal percentage in Japan since 1991, the reply would be: "But, this is America."

As a result of these types of loans we've been keeping our economy afloat with a giant national credit binge. But what happens when the mortgage lenders become unwilling to lend any more? There is already some concern that this may be beginning to happen:

...mortgages are pre-paying so fast that bankers may be reluctant to make loans - Brian Wesbury, June 23rd Wall Street Journal editorial

Why would the lenders be reluctant to make new loans? They are beginning to believe that they will get more for their money tomorrow than they can today. As a result, they are willing to sit on it. This is deflation at its basic. There is no sense in spending a dollar on a 2% return today, when you can 2.1%, or more, tomorrow.

And as the access to easy money dries up, so will consumer spending. As consumer spending dries up so will the ability of companies, like GM in the article, to repay their debt obligations. As the bankruptcies mount, so will the real losses sustained by investors and the banks. This will painfully wipe out most of the money printing going on by today's Fed. In the end, we will end up in just about the same place as we were prior to the credit binge.

The problem is that the solvent banks and people who live on a cash basis, rather than in debt, will be sitting on a huge pile of cash when the economy does start to turn around, which will happen once the oversupply problems are worked out of the system. And just as the supply and demand equation comes back in balance, most all of that cash will be spent or lent. And as it chases around the limited supply of goods and services available at that point, we will be hit with some pretty severe inflationary pressures, which will serve to cause even more pain.

I think that we are going to suffer from this to one degree or another. Right now our economy is surviving going from bubble to bubble, but we're starting to run out of non-leveraged assets. Housing was one of the last. When the housing credit bubble bursts, I think it's over.

The lesson to take away from this is that, in the Nineties, when we said "this time is different," we were as wrong then as they were in early 1929. The marketplace still punishes excesses. This time is no different than any other.

During the Nineties we experienced a boom of incredible proportions. It's almost time to pay up. Hopefully we can still afford the bill.

The Value Of Life In The Middle East

In the latest of the incredibly long string of terrorist attacks, a Palestinian terrorist has gone and killed a 28 year old man and a two month old baby during Rosh Hashana.

Imagine, if you will for a moment, the screams of religious intolerance that would be coming out from all the anti-Israel groups (like the EU) if Israel waited until the feast to mark the end of Ramadan to go out and start assassinating terrorists in their homes, using the holiday as tool for increasing their odds of success.

Is that really different from what happened here, outside of the fact that toddler hadn't built a single bomb, fired a single gun, or even thrown a single rock?

Tolerance is a two way street. If the Palestinians expect tolerance and respect for their holidays and high holy days, they had best start respecting those of the Israelis. Unless of course they are not truly interested in tolerance or peace, but merely in driving the Jews back into the sea (oops, were we not supposed to say that?).

The pictures in the linked article are misleading, but this statement towards the end is not:

Israeli newspapers reported Friday that several Iranian and Lebanese prisoners held in England and Germany might be traded for information on missing Israeli airman Ron Arad, who Israel says is held by Iran after being shot down over Lebanon in 1986.

As part of the emerging deal, Israel would free several hundred Arab prisoners, many of them Palestinians terrorists, in exchange for Israeli businessman Elhanan Tannenbaum and the bodies of three soldiers kidnapped by Hezbollah in 2000.

Concern for their citizens. Israel is discussing turning over hundreds of terrorists for 1 live man, 3 bodies and some information about a single soldier.

That has got to be just about one of the most lopsided deals since the Indians sold Manhattan for some beads. But it is demonstrative of just how important each and every Israeli citizen is to their government. Undoubtedly, they will have to deal with more than a few of these terrorists again and yet they consider a deal that will bring back one man and will bring closure for four families.

Too bad the Palestinians don't have a similar respect for the sanctity of human life. If so, there would most likely be nice peaceful negotiations instead of the violent, suicidal Intifada.

A Few Personal People Observations

So, last night I'm sitting in the parking lot of the local Winn-Dixie waiting for my other half to pick up some necessities and while mulling things over in my mind, I found myself watching the various people coming and going. And I noticed a few things that I thought were interesting.

Two of the teenaged cashiers came out to put something in their car. Now realize, that I'm maybe a bit sensitive to swearing right now as it has caused a great deal of grief in the household, but these two walk by and just about every other word was f**k, d**n, or s**t. My car window was down while I waiting and their conversation carried very well.

As I started thinking back to conversations I've had with other teens lately, this seems to be a growing trend. Many of them are unable to put together a coherent sentence without using some curse. I'm not trying to say that my generation was perfect, God only knows that there were enough kids in my school who did the same, but they were the minority. Now they seem to be becoming the majority. There are exceptions, of course, but by and large kids are losing their ability to communicate except in vulgar terms.

If this trend doesn't change, we're eventually going to end up with an elitist society, which is separated along communication lines. Those who can effectively communicate will prosper while those who cannot will become an underclass. This has always been true to an extent, but there were also always enough effective communicators across all lines to minimize the effects. Now it seems like there is becoming a very distinct line being drawn.

I also noticed one other odd and useless thing. You can identify former marching band members by the way they walk. Their upper bodies are almost always absolutely still because they roll their feet. I was watching people walking through the parking lot and most were bouncing all over the place. But there were two or three couples who walked perfectly in step with their feet rolling, just like they were marching in a halftime show.

I've got to get back to normal so I can quit noticing these kind of things. I liked being so wrapped up in useless stuff as to be unobservant - it's so much easier.

I Am Learning Way Too Much About The Law

OK, so the last few days I've been relatively quiet due to my small little family emergency. Essentially, someone forgot to think and decided it would be fun to run their mouth. As a result, they will be learning all about our justice system from the inside, which is not exactly the way that I would have liked it to happen, but no matter, we have to deal with the situation at hand.

Now the offense itself is not a big deal, well it is to us, but not to the system. We're not talking about murder or theft or anything severe like that. It's basically a serious traffic offense (in which there was only property damage). In fact, had the newly minted defendant kept their mouth shut this probably wouldn't have even gotten this far. But, as usual with most teenagers, their mouth was their worst enemy.

So, for the last couple of days, my other half and I have been trying to figure out how to approach the criminal trial coming in mid-October. Along the way, we have been debating the reason for needing a lawyer. And it has, for me at least, become an intellectual exercise in figuring out exactly what the teen's rights are in court.

My other half believes that the Miranda Rights "You have the right to remain silent" section indicates that the defendant can use a lawyer to respond to every single question, i.e. that they would never have to open their mouth for anything (which would probably be good in this case, since one of the comments to a cop was along the lines of "I ain't f**king stupid." Lucky for the kid that the cop threatened an immediate arrest before I could get on a roll about how stupid it was to say that. But I'm digressing.).

I agree that having counsel is probably going to be necessary, but I have been taking the position that he would be there for, well, counsel. Ultimately, the kid is going to have to talk to the judge, there is just no way around it.

But my other half did bring up an interesting intellectual question for me: are the Miranda Rights absolute? Do you, in fact, have a true right to remain silent, or is there an implicit assumption of guilt in Miranda?

Now I'm sure that every lawyer (VK?) is asking themselves how I could be so dense as to not know the answer, but this is something that has never been an issue before in my life (and had better not ever be again). But maybe someone out there would be interested in how I come up with my conclusion that the Miranda Rights are not really well constructed.

First, I looked at the Fourth, Fifth, and Sixth Amendments to the Constitution, as they seemed to be the ones that are the most relevant to criminal matters:

Amendment IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Amendment VI

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

OK, so the Fourth and Fifth Amendments seem to be the basis for the Miranda Right to remain silent. But they don't really seem to provide a basis for completely refusing to cooperate in an investigation (like these people did with their cards invoking Miranda). You are not required to provide testimony against yourself and there needs to be some reason for the questioning, but asking basic factual non-incriminating questions would appear to be legit.

Basic identifying information like name, address, date of birth are all legit (noted on the About.com page on Miranda Rights - no link provided because the page crashes my computer every time). Questions that elicit only facts or information about others should also be legal. So a question along the lines of "Are you aware of anything that would indicate that Joe did X?" should also be good as it is a simple yes or no question that inquires about someone else. The follow-on of "What would that be and how did you come about this information?" may be a question on which your 5th Amendment protection against self-incrimination could be invoked.

But at no point should the Miranda Right protections be able to be used to completely hamper, shut down or otherwise obstruct an investigation. Even the suspect or defendant has a basic level of required cooperation - so long as it doesn't violate the 4th or 5th Amendments.

I believe that this is why the 6th Amendment provides for counsel. The counsel is there to advise their client on when it would be wise to invoke the protection against self-incrimination. But that does not release them from the obligation to assist, as much as possible, in the conduct of the investigation or trial.

The purpose of our judicial system is to find truth. Anything that detracts from that is only going to make things worse. The blanket Miranda Right to remain silent is used more and more to hamper and impede the search for the truth and in that regards it is ill-conceived. It assumes that the person being interrogated is guilty (the only Constitutionally legitimate reason for being uncooperative with certain aspects of an investigation) and essentially gives them a free pass on their duty as a citizen to cooperate with an investigation - even if they did nothing wrong and may have information that could assist in finding the truth.

I think that, as they usually did, the Founders got it right with the Fifth Amendment.

The Fifth does not release anyone from cooperating with the quest for truth. It only allows them to force the burden of proof on the State - where it should be.

If the State believes that a person committed a crime, the State has a responsibility to find evidence, to build a case and to present it to a jury without forcing the accused to get on the stand and say "Yes. I did it."

The Fifth does not prevent someone from waiving their right against self-incrimination (hence, confessions are legal), but it also does not grant them a right to completely shut up. The ultimate goal of the system is still truth and everyone has an obligation to work towards it.

In one sentence, the Fifth Amendment recognizes the importance of the burden of proof being on the State with what it says and recognizes the importance of the search for truth with what it does not say.

Interesting intellectual exercise, but it really isn't too useful given my current practical problem.

But I think it's time to get a lawyer on board. If I spend one more night researching the Florida State Statutes online, I'm going to scream.

All because someone couldn't keep their mouth shut.

Quick Links

Not quite done with the emergency stuff yet.

French prostitutes take to the streets over new vice law - Gee, Jacques must be really upset if he's taking to the streets. Oh wait, wrong prostitute.....

Border Patrol Stops 'Freedom Riders' Buses - How many "Freedom Rider" buses will be coming north now?

Protest sale offered cookies at different prices, depending on race - Old trick, but still effective. I kind of surprised that they only raised $1.50 before getting shut down. But nonetheless the article is worth reading just for the quote from Matt Houston: "They were arguing that affirmative action was solely based on race. It's not based on race. It's based on bringing a diverse community to a certain organization." Sounds like institutionalized racism to me.

Discovered: Europe's biggest amphitheatre after the Coliseum - I'm going to venture a guess and say it was commissioned by either Trajan or Hadrian, but no matter why it came about, it is still an impressive find.

Quick Links

Posting has been light yesterday and today due to a small family emergency (I only wish it was small!), but I think it might have been resolved this evening, so things should be back to "normal" tomorrow and over the weekend.

Here are tonight's quick links:

German States Move To Enact Headscarf Bans - a brilliant populist move, but not the kind that you really want to see happen here. Sometimes freedom of religion involves accepting customs that are objectionable to the majority. As much as I dislike the idea of Islamic fundamentalism running rampant across America, banning headscarfs would not be a solution I would support.

The international decentralisation of US commercial aircraft production: implications for US employment and trade - another essay on the loss of high quality jobs to low cost nations.

Israel grounds pilots who refused missions in Palestinian territories - "One has to realise that this is not a democratic organisation." And a military should not be. It's good to see the Israeli Air Force taking a stand for discipline.

The Caligulization of the Democratic Party - An interesting comparison of some of the current political players to various Roman emperors or institutions.

Spherewide Short Story Symposium Is Up

Michael Williams over at Master of None has done a wonderful job of putting together the first ever symposium. There are 18 outstanding literary works - and my two entries, for a total of 20.

Take some time out of your day today to go take and a look. It is well worth the time.

Quick Links

Actually, there are no quick links tonight as I only found a couple of interesting news articles out there today. The only other newsy/political thing I want to comment on is the Court deciding that the California recall should go on as scheduled. My only comment is that it's about time someone interjected some rationality into the whole argument.

I have some other thoughts, but we'll leave them for another night.

Oh, and Curt, I understand the feeling completely. I get it everytime, too.

Home

A short fiction about returning home through memory.

"Seaboard train number 8 for Ocala, Jacksonville, Washington DC and points north now ready for departure. All aboard!"

Jack heard the announcement of station agent as he sat on the back platform of the parlor car. He had boarded the train after finishing his business down in Miami and was on his way back to his new wife in New York.

But for now, sitting there on the back of the train in Winter Haven, he was almost home.

Jack had grown up just a little east of here, right in the heart of citrus country. He always loved this time of the year. The memories of sitting in the classroom, with the windows open. The temperature during the day was just right for doing that. But it wasn't the comfort he remembered.

It was the smell.

Ah, that sweet, unique smell. So fragrant and so strong, yet so fleeting. It was one of those rare smells that he could actually taste - kind of like how the smell of cinnamon would get his mouth to watering. Of all the smells he had ever smelled, it was by far his favorite.

It was the smell that for a couple of weeks every year would lure Jack and his friends to go home a different way. They'd head out the back of the school so that they could walk home past the orange groves. Nearly every day, they would end playing all afternoon in the grove. Hide and seek, tag - the game didn't matter. It was only an excuse to revel in and enjoy that smell.

For the last three hours, the train had been coming north through the sugarcane and cattle of the interior of southern Florida. Jack had watched the scenery going by with little interest. Scrub pine and cane fields did nothing for him.

As he looked south from the platform, he noticed that a light rain had fallen earlier in the day. As the train slowly began to pull away from the station, Jack knew he was in for a special treat.

The rain had suppressed most all of the normal day to day smells. As the train gathered speed heading towards Auburndale and Ocala, all the Jack could smell on the platform was the acrid scent of the coal the locomotive was burning.

Ten minutes out of Winter Haven, Jack decided to get up from his chair on the platform. He offered the chair to an older gentleman who had just stepped out of the parlor, but that wasn't Jack's real reason for getting up. He walked over to the railing and looked at what was coming.

And there, in the setting sun, were the groves of white flowers.

Moments later, he was enveloped by the sweet smell of the orange blossoms.

All those childhood memories: tag, hide and seek, smelling the blossoms through the open windows, they all came back full force. Memories of going to sleep with the smell of the blossoms and of waking up the next morning with the smell still there. Memories of playing ball in the field next to the grove. Memories of Jim, Frank, Mike - all of his friends. All those memories all came back in a flood of emotion.

The porter came out to the platform to announce that dinner was being served in the dining car. Quickly, everyone on the platform gathered their belongings and retreated to the air conditioning and the dining car. Everyone that is, except Jack.

Jack sat back down in the chair he had surrendered to the old man and let the feelings and emotions of the orange blossoms take him over.

In twenty hours the Orange Blossom Special would have Jack back home in New York.

But for the next two hours as it raced through citrus country, the Orange Blossom Special had already brought Jack home.

So What's Happeniing In Iran?

Well, most importantly, today is the first day of school.

Apparently, there are already some incidents of dissent and protest taking part throughout the country. If this is true, this is great news as it would mean that the students haven't lost their nerve since the end of the last term, when the government started really cracking down on them.

So now the question becomes: is Iran ready for another revolution?

This last article gives a pretty good recap of the similarities between the current situation in Iran and the Iran of 1979. The author loses some of his credibility with statements like "The Islamic Republic was voted for by an enormous majority of the people after the revolution in 1979, and this gives it a certain legitimacy no other Iranian rulers have had before." But so were Stalin, Castro and every other oppressive dictator who has learned to exploit "democracy" as a means of sating the masses.

But again: is Iran ready for another revolution, whether peaceful or violent? I think the answer is yes.

The students certainly are. And what about their parents - the children of the revolution? I am starting to sense (I have no proof that this is true, it is only my opinion) that their parents are doubting the value of the Islamic Republic. Why would they doubt it?

Because the revolution has not delivered. The Iranian people traded a single oppressor in the Shah for a board of oppressors. Things have not improved in Iran since 1979. If anything it can be argued that things are worse due to the fact that the people are now subject to the edicts and interpretations of the theothugs, which are not necessarily grounded in either precedent or reality.

If the parents truly believed in and bought into the revolution and its good, do you think that they would be tacitly allowing their children to risk themselves to effect change? I don't think they would.

Having the US military stationed in Iraq may hamper the maneuvering room of the reformists within the Iranian regime, but does that really matter? Have they truly "reformed" anything, other than cosmetically?

I think that the US military being so close both emboldens the student reformers and constrains the Iranian regime for fear of provoking us into an invasion. It may make the endgame of the thugocracy more violent, but I think it will also expedite the change that is so very necessary for the well-being and advancement of the Iranian people.

School's in session. This year's lesson should be interesting.

Residency For Illegal Aliens?

The U.S.A. Family Act, proposed by Rep. Luis V. Guiterrez (D-Il), is proposing to give illegal immigrants legal US resident status because they "take part in the economic development of the country."

According to the National Immigration Law Center, legal-illegal immigrants comprised 12.4 percent of the U.S labor force in 2000.

First question is: what exactly is a legal-illegal immigrant? If they're legal, they cannot be illegal and if they're illegal, they cannot be legal.

But ignoring a suspect statistic whether the immigrant is legal or illegal, why exactly are we going to grant illegals US residency?

Is it because they have violated the law for a minimum of five years? Or is it because they are contributing to the welfare state by taking jobs that would otherwise be held by legal US residents?

OK, I'll give you that there are probably a few farms that would fold without access to illegals. But economically, are those good business ventures?

Pure economics says no. A business that cannot cover expenses at market rates is not an efficient use of capital. Which would mean that that capital would be better and more productively (to the overall economy) used if it were directed elsewhere.

In other words, a farm that cannot survive using market rate labor should fail.

Now I'll also give you that our current labor markets are not truly efficient as the minimum wage laws put an artificial restriction on the true "market rate" for labor.

But stop and look at the effects of this U.S.A Family Act for a moment. If all these illegals become legal US residents then their employers can no longer exploit them at substandard wage rates. They can no longer hold up the threat of deportation over an incorrigible worker who is demanding the federally assured minimum wage.

This bill would have the effect of imposing a minimum wage on the current crop of illegals, giving them the same employability issues as our existing involuntary welfare class. We would create about eight million new public dependents who would then be replaced in the labor market by a new crop of illegal workers.

But if immigrants are so dastardly with their taking jobs from American citizens, why would the unions be putting in such a massive effort such as the Immigrant Workers Freedom Ride?

It's actually pretty simple. The average American citizen has figured out that the union doesn't really give a damn about them. The unions only care about money, perceived importance and its attendant political clout. This is part of the reason why union membership has been declining over the last few decades, even as businesses become more ruthless in their efficiency.

The unions view the legalization of illegals as an opportunity to try to boost their flagging membership and to create a new class of European or South American type of union militants. If the U.S.A Family Act passes there becomes a small window of opportunity for the unions to organize the newly recognized US residents.

The unions would undoubtedly push for higher wages, benefits, and most importantly more job security than the market would dictate that these workers were worth. If they could succeed in their organization drives before the business community could react and bring in the new illegals, then the unions could push themselves back into the forefront and could possible regain some of the luster they had lost.

I don't think that the timing here is much of a coincidence. On a purely political level, this has the potential of being a masterstroke. As these folks joined the union, their union dues would undoubtedly be used to fund political campaigns. And as they obtained their citizenship, it would be almost eight million new Democratic voters.

But on an economic level, it would be nearly disaster. The farms and businesses that currently employ these people would almost certainly go out of business - or would move (anyone hear the giant sucking sound again?). There might be a temporary boost to the employment figures (measured in tenth or hundreds of a percent, but no mind there!), but ultimately it would lead to higher unemployment and consequent higher social spending.

This bill, the U.S.A. Family Act, is not the bright idea that it appears to be on the surface. The only right illegal immigrants should have is the right to leave. If they want to be here, they need to play by the rules and that includes coming to the country legally (and doing what is necessary to maintain their legal status).

This bill would promote equality only in that it would make more people equally miserable and unemployed.

American residency and citizenship are not concepts to be tossed around like party beads during Mardi Gras in New Orleans. They are rights and privileges - rights and privileges which entail responsibility also.

One of the key responsibilities of American residency or citizenship is a respect for the laws of the land. A general amnesty for lawbreakers undermines that responsibility.

The U.S.A. Family Act would do nothing more than to hasten the demise of the American Family.

Why Gay Marriage Cannot Exist In Its Current Form

A few weeks back, I expressed support for the idea of gay marriage, if it was legalized along with stiffer divorce laws for both hetero- and homo-sexual marriages. I also expressed concern about the irresponsible actions of a homosexual gentleman (I use that term very loosely in this case - he is a gentleman only in the physical sense, other than that he is as close to pure evil as I have ever met) with whom I work. I held him up as my example of why I thought that the divorce laws needed to be strengthened first.

Today, my new gay coworker absolutely reinforced that idea and almost managed to turn me against the whole gay marriage movement.

To give the quick version of the story: he was in a gay "marriage" complete with rings, living together, and all that good stuff. He went into the Army, got kicked out (he claims because he violated "Don't ask, don't tell," which I can completely believe) and came home to find his husband's home up for sale. His "in-laws" told him that his hubby was dead. So in response he became, essentially, a male bimbo.

Last night, while grocery shopping, he ran into his "dead" husband. Turns out he was just in jail in the UK for drug trafficking.

OK, so they were separated for three years due to a lie on the part of his "in-laws." So they were separated for three years because the hubby was in the pokey for being a doper. My coworker never bothered to go to public records to find out why his beloved hubby died. He showed a complete and utter lack of commitment to the his husband. He simply shrugged off his "death" and moved on to "take advantage of his freedom."

Tonight, they were supposed to be going out on a date during which my coworker was going to inform his husband that they were no longer married. He no longer wants to be married, so he no longer will be. Simple for him.

This is exactly what I was concerned about when I talked about the people who have no real commitment to their marriage. Marriage is nothing but a word to him. By his action, he cheapens the very meaning of the word to those around him.

In his own little way, in his own little world, he is working to tear down the institution of marriage simply because it is no longer convenient for him to be married anymore.

His problem isn't limited solely to homosexuals. There are many heterosexuals that suffer from the same lack of commitment. But a hetero does not the option of simply declaring themselves divorced.

I realize that there are a great many homosexuals that want to play by the rules, just like everyone else. They don't want anything other than equality. And that's fine; that's a fair request of society.

But society is also within its rights in demanding that the responsible homosexuals apply pressure to the irresponsible in their community. It may not change things right away, but the pressure will eventually help. And that is the best we can work for right now.

Quick Links

Sorry about the light posting this weekend. I was out of town yesterday and was out doing stuff today. Should be back to "normal" by tomorrow.

Incumbent protection racket? - I hope that the Supreme Court strikes down all the campaign finance reforms. No one has more of a right to free speech than anyone else.

Poor urged to go to polls - I don't agree with Belafonte's politics, but if he's encouraging people to participate in the political system, then good for him.

Pity the French, but they deserve their miseries - A harsh, but hard to disagree with, slam of the French.

Where Is The Accountibility In Education?

"There are countries which don't get the bang for the bucks, and the U.S. is one of them'

We're spending over $10,000 per student per year to educated our kids to a substandard level (14th of 25 nations studied - the 56th percentile).

And it's not as if all that money is going to pay for basic supplies like paper, pencils, crayons or stuff that kids might need. No, those costs are increasingly being shouldered by the parents - to the tune of several hundred dollars per year for stuff that their kid most likely will never be use.

And what are we getting for all this? Kids that have trouble reading and writing? Kids that can't handle basic algebra or geometry? Or how about kids that identify even the most basic of our foundational documents like the Constitution or the Declaration of Independence?

But they do understand the mechanics of mother government: confiscation of personal property so that it can be redistributed as the powers see fit. They understand the importance of cultural relevancy. They know all about Kwanzaa, but have no clue about the origins of Christmas or Hanukkah. They know more about the history of tribal Africa than they do about the history of their own state or nation.

They know that competition is bad. They know that "they are all winners."

They come out of the system completely ill-equipped to deal with the real world where there is competition, complete with winners and losers. They are unable to cope with our political system, which is vastly more complex than the tribal utopias they studied in school. They are unable to fathom that obtaining something requires more than asking an authority figure for it. At no point have they ever had to concepts of personal responsibility or the value of hard work reinforced.

It really ticks me off when the schools and educrats turn and blame the parents for failing to "teach these important concepts" as they build a system that undermines those very concepts. I try to teach my kids the importance of reading and studying so that they truly know the material only to have the school undermine my efforts by making it entirely possible to not only pass, but to thrive, by simply doing homework. There is no need to expend the effort to read or to learn when you can simply fill in the blanks on a homework sheet, claim testing problems, and get out of the class with an "A". Where's the need for personal responsibility for learning when learning isn't even being required for an education any more?

So what are we getting for our $10,000+ per year? Kids without classrooms (my kids each shared their "pods" or room with four other classes)? Education without learning? Kids that can't read, write, or doing basic arithmetic, but that buy into the concept of moral and cultural relevancy? Kids that are afraid to make basic judgments about right and wrong for fear of offending?

$10,000+ per year and we're getting kids that have to be reeducated if they are to succeed in becoming anything other than functional wards of the state. When are we as parents and taxpayers going to stand up and demand some sort of accountability on the part of the educrats? They are failing us and failing our kids while hiding behind the "for the children" mantra, all while promoting a new social agenda based around a statist approach to society.

Our schools are there to educate our children, not to indoctrinate them. Our schools need to spend more time teaching the basics needed for success rather than the virtues of relevetism.

Ten thousand a year for what we get now is a rip-off.