August 2005 Newsletter
Issue Eight, Volume Six

IN DEFENSE OF AMERICA

By Mike Gasior

As another summer draws to a close, and children begin their transition back to school, the year 2010 has already been a busy year even though four months remain till the New Year.

Despite the promises of many world leaders, individuals and businesses around the globe continue to struggle with the continuous shortage of oil. Although auto manufacturers are finally beginning to respond with more fuel-efficient cars, the other transportation industries are still stuck with older, less desirable trucks, trains and airplanes. Americans haven't seen gasoline at the pump under $5.00 for almost two years now, and many people in Europe are paying nearly $10 USD for a gallon of petrol. I was just in Bermuda where I saw a pump price of $4.87 USD per liter. The result of the chronic shortage of oil has been a burden shared by every industrialized country, but it has been the developing nations that have been the hardest hit.

President Clinton had promised she would move the United States aggressively toward alternative and renewable energy sources while campaigning in 2008, but now, after being in office nearly 20 months she is finding it a daunting task. Her predecessor had proposed more nuclear power plants and oil refineries, but it remains a fact that 1976 is still the year America last saw a brand-new oil refinery. While the majority of Americans are in favor of anything that would help reduce the simmering energy crisis, no one seems to want one of these facilities built in their backyard.

The competition for imported oil has also intensified the growing tension between the United States and its largest trading partner, China. The President has already sent Secretary of State Bill Clinton to Beijing on two occasions to try to keep the world's two biggest oil importers on speaking terms.

It has also been a challenge for the United States and Europe to cope with the economic challenge given the continued threat of fanatic terrorism. England, Germany and Spain have been suffering nearly annual attacks, although nothing of the scale of the crude nuclear device that detonated in New York City just days after Hillary Clinton was sworn into office. It was fortunate that the device was only a "dirty bomb", which killed just under 200 people, but the resulting radioactive contamination that was scattered over half a square mile cost billions to clean up and continues still in September of 2010. Luckily, the response to the attack was immediate and efficient thanks to vast improvements to Homeland Security and FEMA after the debacle and embarrassment of Hurricane Katrina in 2005.

President Clinton has recently promised that the final 10,000 troops stationed in Iraq should be able to be withdrawn no later that 2012, although the United States should be prepared to have at least a minor presence there for the foreseeable future. Although there is still some insurgent activity and bickering between religious factions, the democracy in Iraq continues to hold on and evolve, but is by no means a Jeffersonian model.

Another initiative of President Clinton, where she is encountering various pockets of resistance, is the rollout of the new "National Identification Smart Card". While this technology has already been implemented in several smaller countries, Mrs. Clinton feels strongly that the United States should be a leader in advancing any technology, which will make it easier to do everything from slow down illegal immigration to making identity theft effectively impossible. Barely larger than a credit card, this "Smart Card" contains a microprocessor that carries a digital photo of the person, Social Security number, a retinal scan and even their DNA coding. Even more impressive is its capacity to also carry literally every other piece of data that a person would ever need access to, including all credit card numbers, bank information, medical records, digital cash, passport, drivers license and more. And if the card is presented by anyone other than the person belonging to it, all the data contained on it is instantly erased, while a new one is generated for the legitimate owner. It would literally be the only thing a person would ever have to carry with them. Of course the prospect of such a powerful informational tool has troubled many privacy advocates and for others smacks of an "Orwellian", big brother society.

All things considered, the U.S. and other major world economies are doing fairly well, but are by no means robust. Since so many of the negative economic factors that exist are global problems, there is no shining star for money to flow to, and it seems we continue to draw closer to a true "world economy".

The U.S. markets have begun inching back upward after the implosion of its residential real estate market during 2006 and 2007, and the subsequent stock market crash in 2007. With the Dow back above 10,000 as of August 31st, 2010, stocks have now rallied nearly 38% since the lows of January 2008. The Asian markets, lead by Japan and Hong Kong, have been the most rewarding for the past few years and the major European stock markets have fared worse than the U.S.

One fact that continues to baffle and befuddle economists is the continuous low level of interest rates in most of the industrial countries. While it is true that rates did begin a slow climb beginning in 2005 and throughout most of 2006, the increase was relatively minor by historic terms. Since 2007, rates have crept downward, and the end of 2010 should show them near 45 year lows. With the various pockets of considerable inflation evident in the economy, the conventional wisdom would be pressure on rates to go up. The only plausible explanation is vast sums of money around the world looking for a safe port in the storm, and the bond market has become that port.

Although the commercial real estate market followed residential properties downward, the damage was much less extensive and the recovery is nearly complete already. The same cannot be said for homeowners across the country who are still waiting for property values to begin approaching their 2005 highs.

Technology continues to dramatically alter the daily life of most people for better and for worse. On a bright note, the era of affordable and readily assessable HDTV (high definition television) is finally upon us and programmers are responding with an extensive array of things to watch. There is also an increasing number or virtual reality technologies, which are greatly enhancing the home theater and gaming experiences.

One of the coolest products to be rolled out in years is the first "wrist watch" cellular telephone. Those of us old enough to remember the Dick Tracy radio wrist watches can't help but wonder why it took so long, but the age of true miniaturization of electronics is here. The more traditional palm-sized cell phone now features not just a digital camera, but also a full-fledged computer processor, video camera, high-speed Internet capability, personal organizer and calendar and enough storage for over 1,000 MP3 music files.

The downside to this "always connected" world has been a slowly increasing workweek for so many workers around the world. Many thought the information revolution would bring the advent of a utopian 15-hour workweek, but many surveys in the U.S., Europe and Asia vividly show exactly the opposite. Workers at all levels of companies are finding themselves working not only in their offices, but in their cars and homes as well. Worst off have been managers, and the more senior the manager, the longer the hours spent focusing on the job. With it possible to be connected to email and phone literally 24/7 people now find it increasingly difficult to actually be "away".

Improvements in healthcare, drugs and nutrition continue to expand the lifespan of humans in 2010 with seemingly one major breakthrough every year. Prior to the year 2000, young people outnumbered old people in the world's population. In 2010 old people now outnumber younger people and that trend is one that should continue now for many decades. One of the most fascinating is the looming introduction of "nanomachines". These microscopic machines are so tiny that they are measured by how many atoms wide they are instead of millimeters. Producers of these new "nanomachines" promise they will soon have versions that can be injected into the human body and will hunt down and kill cancer cells, while leaving healthy cells alone.

The world of sports is once again focusing on Tiger Woods, and his quest to surpass Jack Nicklaus as the holder of the most career Major Championship titles. Having won his sixth Masters this year, as well as the U.S. Open in 2010, Tiger is now only two behind Nicklaus with 16 Majors. With Tiger turning 35 years old this December all eyes will be on the 2011 season to see if he can match or surpass the record next year.

In summary, heading into the autumn and winter of 2010, while there are plenty of clouds on the horizon, the view of many people is one of hope and optimism about the future. Perhaps it is all the shared problems and improvements that have made the world a smaller, more unified and more peaceful place.

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BACK TO 2005

UPCOMING HEDGE FUND PROGRAMS IN CAYMAN AND NEW YORK

I want to just take a minute to remind you that I will be presenting an extremely timely and important session in both New York and in Grand Cayman during October. Our "Providing Services to the Hedge Fund Industry" seminar has been very popular offshore and we are excited to be offering it in the U.S. for the first time.

You can view a complete course description and register for either class by visiting the following links.

New York Session:

http://www.afs-seminars.com/services-hedge-fund.html

Grand Cayman Session:

http://www.afs-seminars.com/cayman.html

I look forward to seeing you at one of these programs.

THE NEW VIDEO CLIP IS UP

Many people have been waiting for me to get to the topic of derivatives, and finally this is the subject for my new commentary. I focus this month on defining what makes something a derivative, what sorts of products are available, and most importantly, what hedging is.

You can view both high-speed and low-speed versions of the clip by visiting the video commentary page. Also remember, you can download the clip for future viewing by right-clicking the icon and choosing "Save Target As..".

The link for the video commentary page is:

http://www.afs-seminars.com/v-commentary.html

A GREAT RADIO SHOW WITH ROGER LOWENSTEIN

I've really been enjoying doing my radio show on the VoiceAmerica network every Wednesday night more than I expected to. There have been some terrific guests who have appeared and it has been my personal pleasure to speak to all of them.

Two weeks ago I had on former Wall Street Journal columnist and author of several books, Roger Lowenstein. His book, "When Genius Failed", chronicled the rise and fall of the hedge fund, Long Term Capital Management, and is a book I strongly recommend to anyone interested in the capital markets. I consider Roger one of the best financial journalists of his generation and you will really enjoy him telling some of the biggest stories of the past 20 years. You can click on the following link to either listen to the show, or right-click on it to save the show for later. The link for this particular show is:

http://www.afs-seminars.com/MP3/Gasior081705.mp3

The archive page that contains links for all past radio shows is up-to-date and you can listen to any radio show by visiting the following page:

http://www.afs-seminars.com/radio.html

FINALLY SOME USEFUL AND ACCURATE RESEARCH

According to a recent survey, men say the first thing they notice about a woman is her eyes, and women say the first thing they notice about men is they're a bunch of liars.

BRAINTEASER

This month finds me in a musical mood again and it was nice to receive so many compliments about my question last month, which managed to combine music and finance. With the end of the summer season, you have plenty of work to do already so I decided to make your question a fun one, but also a witty musical history fact that might make you appear actually witty and interesting at your next happy hour.

This month's question is:

"Who is the only musical artist who can make the claim that both the Beatles and Rolling Stones have served as their opening act and that Jimi Hendrix was their guitar player?"

At least try to figure out or research the answer before turning into a weasel and clicking the following link for the answer:

http://www.afs-seminars.com/brainteaser_Aug2005.html

And the answer to LAST month's brainteaser is: "In 1997 David Bowie issued asset-backed securities backed by the royalties of his music catalog. They paid 7.9%, were rate "A" by Moody's and were nicknames the "Bowie Bonds".

http://www.afs-seminars.com

Copyright 2005, Michael Gasior. All Rights Reserved.

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