Man Page Writing: Life/Times of Man Page Writer

Of the thousands of loose ends that we will encounter in the Sun-Oracle combination, one that is of great interest to me--regardless of whether I survive--is how we wind down the Sun 401K plan. Got to thinking about this when I noticed that Dwight Asset Management Company, the custodian of our stable value fund, began publishing monthly "Notes to Investors", after not having published such notes for a year.

It's pretty obvious what's on the minds of the folks at Dwight. Such notes to investors always contain standard text on risk. For a fixed-income vehicle like a stable value fund, the risk factors are inflation and credit risk (that a bond or wrap issuer fails). These Dwight always mentions. However, in recent months, they've highlighted a couple of additional risks:

• Plan sponsor event risk. To quote: "Plan sponsor actions that could present this risk include bankruptcy filings, plan or fund terminations (emphasis mine) and certain layoffs or early retirement programs, each of which may be paid at market value, which could be less than the book value depending on the performance of the Fund's wrapped assets."
• Cash flow risk. "...the possibility that the earnings rate on the Stable Value Fund may be impacted by the investment decisions of other plan participants." IOW, if everyone goes for the gate at once, not everyone is going to get out will all they came in with.

These make eminent sense to me, based on what Dwight is doing, which is really quite remarkable: in this multi-year, near-zero-interest-rate environment for short-term instruments, they offer a liquid (to what degree, we may test) fund that pays about five times the interest of the best, most cheaply run money market funds. (Dwight has consistently paid a shade more than two percent, while the biggest Vanguard and Fidelity MM funds pay around .2-.5 percent.) Dwight does this with lower expenses than even Vanguard pays on its Prime Money Market fund, which is something of a benchmark for low costs.

Of course, Dwight is in the position of George Bailey: the hundreds of millions they list in their fund is not really all there at the same time. If Sun/Oracle were to say: we're shutting down the Sun 401K in 90 days (for example), that would not be sufficient time for Dwight (or anyone) to unwind their various wrapped contracts without taking a big hit to the net asset value of the fund.

Sun, or Oracle/Sun, probably wants to terminate the Sun 401K as soon as possible. Why would Oracle want to pay for two 401K plans? Dwight and the holders of assets in the Dwight fund, each for their own selfish reasons, want the plan to continue to exist as long as they need to unwind (or recoup) in an orderly fashion. Beyond these obvious things lies the vast ocean of my ignorance. Does Sun, or Oracle/Sun, have any legal obligation to Sun 401K plan participants to, as far as possible, sustain the price of their stable value fund? Would the p.r. hit of a precipitous termination of the Sun 401K plan be a sufficient incentive to Oracle to go slow? Do our (Sun) executives have sufficient funds with Dwight that they might be inspired to some innovative solution?

Incidentally, I don't see an abrupt shutdown being a big problem with any of the other funds in Sun's 401K. With the possible exception of one Goldman fund, they are all giant, big-name funds. For all the funds but the stable-value, a large, one-time requirement to raise cash would probably not force them to make moves that would deviate hugely from their fund strategies.

I was going to title this "paradox of thrift" , alluding to Keynes' description of how a set of actions undertaken by inviduals can, in aggregate, redound to negative consequences. But I decided not to participate in "Keynes abuse", wherein partly educated persons like me dress their opinions in the garment of the Keynesian lexicon.

But I do want to write about a paradox. I'll call it a casual form of the prisoner's dilemma . The paradox is that when each firm in my industry (information technology) is laying off hundreds or thousands of employees--a seemingly good move for individual companies--the cumulative effect of these layoffs is bad for the economy and, ultimately, the individual firms.

I've written before of a possible means of reducing or avoiding layoffs. I'm encouraged to read about proposals for pay cuts for State of California employees as one step in addressing our truly dire budget situation here in California. (Disclosure: my wife is a public school teacher and thus would be [or should be] subject to such cuts.) But I'm beginning to bore myself when I write of pay cuts.

What can companies do to benefit the greater economy while not harming themselves? Are individual firms doomed to lock up in a fight to the death, then, together, fall into the abyss? Wrong questions, you might say. A corporation's only obligation is to do the right thing for its own financial health. The weak firms will disappear, while the strong, after sustaining some wounds, survive and prosper.

I can imagine a scenario wherein, per the rule above, Google, Microsoft, Intel, and other cash-rich, wide-moat or monopolistic companies survive and return to growth, while a number of now-familiar names disappear. I can also imagine a lot of paths between here and that point of eventual equilibrium and most of them look pretty ugly.

My father, still lucid at 88, talks about the Great Depression. (I leap in here to reassure that I don't predict an event of that magnitude.) His family suffered greatly, to the point where obtaining food was an issue. What my father recalls, in addition to the various privations, was the gnawing uncertainty. Chaos had been unleashed and there was no assurance that the republic would survive.

I think we're stumbling rapidly into a situation where chaos will be unleashed once more. Yes, we start at a "higher" (i.e., richer) point and, yes, we have unemployment insurance, Social Security, and food stamps. But to emerge from this we're going to have to take some unprecedented steps. Or, I should say, additional unprecedented steps. (As a US taxpayer, I may soon be a holder of GM preferred stock.) As distasteful as it will be to many, cooperation among private firms--whether self-initiated, government-induced, or government-mandated--will have to be among these steps.

About once a month, a former Sun director (we'll call him "Frenchy") and I distribute food to poor families in East Palo Alto and east Menlo Park. (The former is an incorporated city, the latter an area of the city of Menlo Park.) Frenchy does this every week.

Starting in the summer, Frenchy and I noted an increase in demand for food--more food sought, for more families. At the same time, on what I thought was a parallel track, the financial news was going bad but was far from today's dark and depressing numbers. Demand for food has continued to increase to the present. I now realize that, even before BLS and Commerce Dept. confirmed our worst fears, these recipient families were "living the stats", as it were.

I surmise that, at the first whiff of a downturn, restaurants and other service businesses pare their staffs. Also, the temporary work--we wealthy residents of the Peninsula hiring mostly Mexican immigrants to do our physical labor--dries up.

While Sun will embark on the just-announced layoffs within weeks, I note that our janitorial staff (services provided by a contractor) had their layoffs announced weeks ago. First hint of bad news and--boom--the hourly-rate people are gone.

There's at least the appearance of a gap between me--white, wealthy, and middle-aged--and those young families with the beautiful smiling kids to whom I dispense food. I watch in grim fascination as my financial assets drain away; the weight of bad news threatens to pierce my bubble. In East Palo Alto, with Dad out looking for work and Mom putting on a brave face, the little ones--giggling, babbling in Spanish--bounce around the feet of Frenchy and me as we unload their food.

The other day, I was complaining to a friend of mine, a resident of San Jose, about the high cost of remodeling where my wife and I live in Palo Alto. My friend suggested that my wife and I sell our house and buy in a less expensive neighborhood in San Jose. In what sounded even to me as snobbish, I said, in effect, no way. Too much congestion, too hot, too big. San Jose, not for me.

The alacrity of my response reminded me that my feelings about San Jose run deep. I spent my adolescence in that city. My parents moved there when I was about 11, when San Jose was still mostly an ag town. I left for college and then the Army at 18. I never again lived in San Jose for any extended period of time. However, my parents remained, and I've been in and around frequently. My youngest sibling, my brother Bill was born and raised in San Jose--the only one of the eight Gibson children who was born outside of Chicago.

For the young edition of me, the growth of San Jose was urban development gone insane. It was the extirpation of everything that made San Jose--the capital of the Valley of Heart's Delight--distinctive. It became (and is now) a city where the car is king. There are cities that were more clumsily developed--Houston and Miami come to mind. Going further afield...visit the suburbs of Moscow if you want to see an egregious example of bad planning.

In truth, the San Jose of 2008, is undoubtedly, still, one of the most desirable places in the country (and, therefore, the world) to live. Yet I have a hard time getting over the ruination of what was there. In the overheated climate of the early 70's (my early 20's), I viewed it as a desecration.

I understand, at least to a dilettante's level, the economics of land use. I know, too, that without the economic prosperity brought about by the development of Santa Clara Valley, I (and tens of thousands of others) would not have enjoyed the standard of living I have. But the development of San Jose could have gone along different lines than it did. We knew, in 1970, that the reign of the automobile would not be forever, that oil would become increasingly scarce, that dirty air would damage people's health.

The short-run thinking that guided the development of San Jose is no different from what one sees more often than not, and not just in the U.S. Again, though, San Jose had so much and is now so thoroughly ordinary.

Elsewhere, I've tried to make the case for flex wages. In good times, it's a harder argument to make (though I would make it, because times change). In bad times--or the about-to-be bad times economists assert we're going to have--the case for flex wages, or, more to the point, pay cuts instead of layoffs, becomes more persuasive.

To summarize what I've written elsewhere: a pay cut of even 50% is preferable to a pink slip, or: fifty percent of a salary is better than zero percent.

I've heard the argument that were Sun (or any firm) to cut salaries, it would lose workers to competitors. Please tell me: who is hiring these days? I acknowledge that stars will always be able to move. However, most people, however fully competent, are not stars. For those of us rooted in the firmament, pay cuts make sense.

I confess to doing a double take when I read the fixed rate for May-Oct 08 period for I-Bonds:

Nada. I.e., zero percent.

That means the small saver will get nothing above the rate of inflation (CPI-U) for the life of bonds purchased in May-Oct. That, I think, is truly extraordinary.

I hope anyone with money to add to the fixed income portion of their portfolio took advantage of the Nov 07-Apr 08 fixed rate.

At this point, an investor seeking inflation protection would do better to wait for the 10- or 20-year TIPS auctions, which occur in mid-year. It used to be that you had to buy such securities in increments of $1000, but I believe the Treasury has relaxed that restriction, for TIPS and for all other T-notes and bonds.

Today's bothersome usages are "absolutely" and "unacceptable", which are sometimes used together, producing, for me, an exponentially bad effect.

"Unacceptable" is usually used in the phrase, "That is unacceptable", often uttered in a stern tone of voice. As far as I can tell, the phrase has two meanings:

• "I find that unacceptable" or "That is unacceptable to me".
• "Everyone knows that this is unacceptable" or, the long-winded variation, "As one who is in conformity with and has extensive knowledge of the manners and morals of our society, I declare that this is, as something in conflict with those manners and morals, unacceptable."

If the person's meaning is the first one, they should just say that. If it's the second, they should be called on the validity of their credentials as the arbiter of ethics. A more honest usage might be, "I believe most people would find this unacceptable."

A similarly misused word is "appropriate". This word has a sexual/moral dimension that is more pronounced than "acceptable". E.g., if you walk into your boss's office with a schedule that has you taking ten weeks to write a device driver from scratch--ten weeks when he wants eight--he might respond, "That is unacceptable." If you walk in with your schedule, wearing skin-tight and/or revealing clothing (male or female; this is an equal opportunity blog), the boss might respond (nodding at your attire), "That is inappropriate."

"And I still find your schedule unacceptable."

I'm actually OK with the use of "inappropriate" to mean "what most people would say is not appropriate for this setting", even if it would be more honest to say, "Your clothing is suggestive (or too sloppy or casual or are you color blind?)" I guess my resistance is worn down.

Now "absolutely"--I can't escape my years at a Jesuit High School. I mean I had drummed into me that for absolutes you had things like God, death, the point at which all molecular activity ceases. Not, I'll absolutely get the hot peppers with my burrito.

As I write, the real interest rate on a 5-yr. TIPS is minus .14%. This is almost unfathomable. This means that the market's expectation of inflation is such that a buyer is required to pay (embedded in the price of the bond), rather than receive, a real interest rate. The return on the nominal 5-yr T-Note is 2.51%, so the market's inflation expectation over the life of these instruments is 2.65%--lower than I'd predict. Another datum: the 10-yr. TIPS is currently paying 1.04% real.

So here's my little-guy arbitrage play: I-Bonds are paying 1.2% real, through the end of April. I like to think of I-Bonds as 5-yr. TIPS, with an option to go out longer. That's because if you sell an I-Bond before you've held it for five years, you pay a 6-mo. interest penalty. (You can sell the bond after you've held it for a year.)

The Treasury recently announced a $5000/yr. limit on the purchase of Saving Bonds (I-Bonds and the not-too-rewarding EE Bonds). I believe this announcement and the divergence between the market return on 5- and 10-yr TIPS and the I-Bond fixed return is no coincidence.

The limit is actually $5000 each, for bonds purchased in electronic and paper form.

You might compare I-Bonds with a traditional IRA, with fewer encumbrances. Interest accrues on a tax-deferred basis. (You pay tax only when you cash in.) And, of course, as an instrument of the US Government, interest is state-tax-free, of great interest (pun intended) to residents of relatively high tax states, such as Calif. and NY.

Last Friday night, a friend of my son's who's a Google employee invited my wife and me to visit Google's Mt. View campus. As we drove there along Garcia Ave., I noted with a twinge the number of former Sun and Silicon Graphics buildings that are now occupied by the big G.

Our first impression: Everyone is the age of our children. Get me out of here! Just kidding, of course. My kids are welcome home anytime. But it was fun. There is an exuberance about youth that is impossible to fake. I don't care how excited you are about your job, at some level, the everyday aspect of a job can be a grind. Well, when you're young even that grind is new and it's kinda cool.

Our host, who, I must digress to say, is the foremost under-30 Argentine economist working in the Bay Area, shared a meal with us in one of the dining rooms. The food was terrific. My wife and I had a beer (free, of course), sat in a rather scary massage chair, and used the rest room. I'd ordinarily not report on such matters, but this, at least for my wife, was special. It was the first time she'd ever encountered a heated toilet seat. The device was also equipped with water jets that would cleanse a lady's "front and back seats".

Enough anatomy.

Sprinkled throughout each building are kitchen areas with high tech espresso machines and cabinets and refrigerators stocked with all manner of goodies. It was the sort of stuff you see in a fancy grocery store and consider buying but would never allow yourself to be that extravagant.

All free.

Some other impressions: Google is big, borderline huge. I think they're going to have to give up the notion of being the Peter Pan of companies and decide what kind of big company they want to be. GE? They've been very profitable for a very long time. Johnson & Johnson? They too are successful and have the reputation of treating their employees well. 3M? Another possibility. Pre-Carly HP? A worthy model. Microsoft? Please. IBM? Could happen.

I gotta wonder, too, about all the perquisites--notably the food and drink. It's gotta cost a bundle to serve all that wonderful, fresh, often organic food, three meals a day, every day. It's tough to go backwards. I wonder whether the people running Google are setting the bar too high.

What do you do when you're on top? Sun never achieved the heights achieved by Google, but at the crest of the Internet boom we rode high for a period of 2-3 years. What should we have done then to keep the party going or, at least, prevent a precipitous drop-off? We were extravagant in our spending. That's one thing I could identify even then. But that's not a completely satisfying answer. I'll leave that topic for a future note.

For now, Google looks like a fun place to work, but I expect some growing pains in the near future. That's a cultural, not a financial, prediction.

Occasionally it strikes me how much less I do on my cars than I did when I was a young man. Then and now I change bulbs, wiper blades, and, generally, reattach most things that fall off. But, then, the list would look something like:

• Change engine oil and filter.
• Change transmission oil (manual).
• Change oil in air filter (you remember VW engines, don't you?).
• Replace spark plugs and wires.
• Adjust valves.
• Set dwell (spark duration).
• Advance or retard timing (onset of spark).
• Adjust idle.
• Change brake pads.
• Rotate tires.
• Drain and flush radiator.

There were numerous one-time tasks:

• Replaced brake rotors in front.
• Replaced starter motor.
• Installed new valve cover gasket.
• Helped my son install a new flywheel pulley on a 72 El Camino with a 283 with 4B carburetor. (You could watch the gas gauge move to the left when you stomped on that thing.)

Now, I change the engine oil and filter, rotate the tires, and that's about it. The interesting thing though is how many of the tasks of my youth have gone the way of, I don't know, the Rambler. With computer controls on air and fuel intake, spark timing and dwell, and emissions, there's no more of the tune-up type tasks. The spark plugs on my 2002 Honda Civic get changed at 105,000 miles. (I'm not there yet.) There may be a few cars that use mechanical valve lifters, which could get out of adjustment, but I think 90% of cars today use hydraulic (or solenoid-type) lifters.

Mechanically, brakes are pretty similar to what was present in, say, the late 70s. The lining materials and fluid are better today. And there's the ABS stuff, but I don't think that gets in the way of a brake job. Then, it was mainly the foreign cars that had front disks; now a lot of cars have four-wheel disks.

I'm sure, on more than one occasion, I flushed a gallon or more of used antifreeze-water mixture down the drain, the thought of which makes me cringe. What can one say about the stupidities of one's youth?

It's almost too easy to pick on the financial services industry. So let me start by praising some positive trends:

• The price of buying and selling stocks has declined dramatically. I don't have precise numbers, but, in my own experience, I've paid a couple of hundred dollars on a six thousand dollar transaction (early 80s dollars). This was before Charles Schwab came along. (Though we no longer have an account with Chuck, I give them big-time props for pioneering the discount brokerage business.) Now what do you pay? Ten bucks a transaction? And it'll probably decline from there.
• I think even the full-service guys are (generally) less apt to push only individual stocks and will at least mention index funds. All the notions about efficient markets and asset allocation have become the conventional wisdom, and the big brokerage houses have adapted. Acknowledging this change, individual practitioners have changed their titles to "financial advisor", or something like that. Of course, they never were and still are not titled correctly. That would be "salesperson".
• There is a trend toward the use of fee-only (rather than commission-based) financial advisors, whose use is appropriate for people with significant tax, trust, and estate planning needs. (IOW, those prized high net worth individuals.)
• Load funds are dying out. I have no idea if this is true. If it's not, it should be.

Still, there are things like variable annuities, which might have an appropriate place in someone's portfolio. I just have a hard time conjuring up who that person might be. Also on the list of financial devices that tend toward the criminal is whole life insurance.

Even here, though, there is progress. I hear more and more about immediate annuities (a legitimate and important instrument) and term life (ditto).

But the continuing, widespread use full-service brokers (under any title) is a puzzle to me. I would not consider this an abuse, because people clearly want the service. But I don't know why people don't read one of John Bogle's many books or follow David Swenson's template and be done with it.

Even with technical, highly numerate people, I observe this reliance on full-service brokers. I understand that people are busy and are just as happy to turn things over to a man or woman who is probably pleasant and might even be knowledgeable. OTOH, such service has significant costs. Also, it's a realm where you can, if you want, maintain a bit of control over your own life, countering the trend where we are increasingly dependent on institutions (government, large corporate employers, utilities, agribusiness, etc.) beyond our control.

Though the usage is fading, it still remains almost mandatory that someone talking about a new pertubation in their corporate or civic life is "excited", or better, "really excited".

"Madam Superintendent and Distinguished board members, I'm really excited to be here as chairman of the City of Akron's Green Means Go committee."

"Thanks, Chuck. I'm really excited about the this new Trade Away HP program for our OEMs."

Now if Bob Barker, dressed in the raiment of the Archangel Gabriel, were to burst into my office and offer me a free trip to meet myself--on many levels, I'd be excited. I might say something like, "Bob, I'm really excited that you've burst into my office today." Short of that, we're talking "pleased" or "happy" or even "honored". Not excited.

To what extent does our economy benefit from (at least, statistically) more financially sophisticated, perhaps more highly educated persons taking advantage of the less sophisticated, less well-educated? Let's make a list of industries/economic activities where this dynamic is at work:

• anything sold on TV infomercials
• (related to the preceding) exercise machines (with special mention for any device that includes the word "ab")
• many financial services (a huge segment that deserves its own note)
• exotic mortgages (special subset of preceding)
• contract-based cell phones
• paycheck loans
• tax services that offer "immediate refunds"
• diet books, diet programs, anything that has "diet" in its name

Is there more of this stuff going on now than in previous periods of our history? It might be easier to conduct such a business in age of instant communication than it was before radio, TV, and the internet became common.

Maybe it's not fair to include the "diet" category, because the overeating/dieting seesaw does not discriminate by education, income, or some nebulous trait such as sophistication. But my larger point is that we, in the US, and probably in the other wealthy nations, generate a lot of money from situations where there is asymmetric information.

A number of the items above would require further qualification. E.g., cell phones are an enhancement to the lives of many, but how many people are paying more than they need to (or can afford) for such service? OTOH, some segments are pretty close to being categorical stinkers: I can't make the case for a low-income person paying to have their taxes done when there are services out there that will do it for free.

At the end of his career, veteran hockey enforcer Marty McSorley took an ill-advised swing with his stick and struck fellow enforcer (and far less illustrious player) Donald Brashear in the head. If you look at the video, it appears that McSorley might have been aiming at Brashear's shoulder, as McSorley claimed, but it was a pretty stupid act, however one looks at it. Brashear recovered and resumed playing. Fairly or not, that one impulsive act pretty much ended McSorley's career.

I think of McSorley when I, no longer young, do dumb things--do things that should be beneath my maturity. It makes me think of the question: Which is the greater contributor to maturity, age (accumulated experience) or proximity to death? More and more, I think it's the latter. For one thing, simply having maintained a metabolism for X years does not bequeath one anything. I might extend this principle to claims of having performed a certain job for a number of years, as if that lends authority to a person. It very well might, but it very much depends on the individual.

That age is not an invariable predictor of maturity is consistent with my experience of those young people who seem mature beyond their years--the "old souls".

Hundreds of millions of our fellow travelers grow up in societies in which death is an ever-present shadow. In wealthy nations, we can kind of tuck the subject away in the desk drawer. While some of us (I among them) postpone cozying up to our common destination for a pretty long time, reality inevitably intrudes. Pretty soon, you lose parents, and start losing contemporaries, maybe develop chronic health problems. The evidence achieves a weight of non-deniability.

It's at this point where courage and integrity and all those qualities you were able to name and sort of able to describe become like: "Oh. That's what courage is." I stand in utmost admiration of those persons, of any age, who can come to terms with our common fate with equanimity and maybe even a positive attitude.

A co-worker buddy is involved in his condo homeowner's association and periodically has to deal with complaints about teenagers who live in the complex. When he approaches the parents about a problem, he often finds that their first reaction, even before he finishes a sentence, is: "My kid didn't do it," or, if the evidence is incontrovertible, "My kid should not be punished, for these reasons..."

My friend asked me, "When your kids got in trouble [my three sons are now 27, 25, and 21], did you automatically take their side?". I would say, as I said to him, not just "No", but "Hell, no", and not because my boys were particularly saintly (they weren't). I had and have no problem being objective about my children. And I'm not bragging. This is about as praiseworthy as my penchant for not screaming curses at old ladies.

My wife, who teaches high school, observes the same unquestioning advocacy of children on the part of their parents. This advocacy has bequeathed to these kids a distinct sense of entitlement. Teachers at that school talk about the "B+ syndrome". Give a student a B and you'll get away with it. Give a B+ and prepare to do battle. This, at a school where one student in four is from a family in which one parent is an attorney. (Here, "lawyering up" may mean no more than speed-dialing Mommy and/or Daddy.)

Each year, my wife publishes guidelines for getting specific grades. Only the getting-an-A part is of real interest. For the college-bound, that's the only grade that matters. For the rest, their parents are probably not involved in their lives to the same degree (or in the same way) as their fast-track brothers and sisters. On several occasions, my wife and I have had to refine these guidelines, based on "cases" my wife has had to present, before parents and administrators, to make a grade stick. Sometimes it's changing an "a" to a "the". Sometimes it's adding a dependent clause, to make things even more precise or to lend emphasis. But language is inherently ambiguous and you give a smart person enough time (they certainly have the motivation), she or he will find a loose thread.

There is such a thing as unreasonable authority (isn't that what the 60's were about?). And there are condo association managers and schoolteachers of bad faith and intentions. But, I'd submit that such people are 1) a distinct minority and 2) identified very easily. It's a parent's duty to help her/his child avoid such people or, if avoidance is impossible, help the child deal with them. But when dealing with a reasonable authority, a parent does a child no favors by not allowing him/her to face the consequences of their behavior.