Migrants, country-attractors & the crash rate of civilization

Calais migrants
Migrants in Calais France jump security fence to hop tunnel train to Britain – BBC

For years the Berlin Wall and machine gun nests kept East Germans out of West Germany.  Then the Soviet Union fell.

For years the U.S. border patrol has failed to keep Mexican and other South American immigrants from illegally entering the U.S.

Now Britain is unable to keep migrants from going through the channel tunnel from France.  Are conditions really that much better in Britain?

There are two answers.  (a) Yes, the EU is failing.  (b) Britain and most British-law based countries (the U.S., Canada, Australia, etc.) have some path to citizenship for migrant workers.  The U.S. even gives automatic citizenship to any children born on U.S. soil (the only country in the world to do so).  This is a big attractor.

In the light of crash rate theory, the high value of life in the sought-after country justifies the risk, and the high individual crash rate.  But in a recent study of U.S. vs. German motorway death rates, I discovered that mixing these wealth levels affects the whole society.  Such disparities may increase the crash rate of society.  After all, the end of the Bronze Age was caused, at least in part, by Sea Peoples fleeing from Greece to other parts of the Mediterranean (speaking of deja vu!).

Science fiction came up with the ideas of the Prime Directive (Star Trek) and Non-Interference (SG-1) which hold that advanced civilizations should not give technology to developing civilizations, and in most cases should not even let their existence be known.  Can you imagine if a nearby planet has immortality and star travel and enormous prosperity, the pressure to migrate there by any means at all?  Heck, people want to go to Mars and there isn’t even anything there.

Crash rate theory implies that there may not only be risk to the more primitive civilization, but also risk to the advanced civilization.  Crime rates, for example, are higher in mixed-wealth neighborhoods than either poor or rich neighborhoods.  I suspect we may find there is a natural law that civilizations which do not adhere to the Prime Directive do not become space-faring civilizations – because they destroy themselves or regress backward from internal crashes.

Therefore efforts to contact ET are futile.  The extraterrestrials will not respond, unless they are as messed up as we are.  If you think a jet loaded with fuel causes a lot of damage, or a mere asteroid going 17,000 miles an hour, imagine the damage caused by an errant starship traveling a mere 10% of the speed of light (17,000 miles a second).  Since energy is the square of velocity, it has 13 billion times the energy of the asteroid pound for pound. (3600 seconds in an hour, 3600 squared = 12.9 billion)

So it is not necessary to develop planet-destroying battle stations to conduct interstellar war.  All you need to nix a planet is an ordinary unarmed star cruiser which can be misdirected.

In other words, anyone who seriously wants to be part of a star traveling civilization, should first leave Earth, never to come back.  Assuming that it is unpalatable to exterminate the nearly-starfaring species on Earth.  Although, given the fate of the Neanderthals, that may be what we have been doing.

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Should I sell AGNC and buy MORL?

AGNC vs MORL
Current yield AGNC 12.9% but declining, MORL around 20 or 21% – Chart from Yahoo Finance

TRADING CORRELATED EQUITIES AND FUNDS (plus LEVERAGED ETNs)

A friend asked:Should I sell AGNC even when I’m down about $20K on it? Can you only write off $3000 per year in losses of stock investments? Can you carry the loss over several years?

AGNC is a mortgage REIT which borrows money, some of it short term, to buy mortgages, profiting from the difference between short and long term interest rates, and the difference between individual and business borrowing rates.  Such REITs along with almost every other high dividend equity tend to cycle up and down together, with a few exceptions.  AGNC is very widely held.  You can just about substitute the name of any other high income equity you hold.

MORL is an ETN (exchange traded note, slightly different from an ETF), designed to yield roughly 2x the dividend rate of a basket of high dividend financial stocks, including AGNC.  ETNs are very new and some IRS tax issues associated with maturity of the notes, usually in 25 years have not been settled.  But the advantage is they don’t accrue compounded losses the way a 2x or 3x leveraged ETF does.  How this works, no one knows, or if they do they are not telling.

None of these are growth investments, and all will decline over time.  Their purpose is to generate income for

  • immediate living expenses
  • to pay margin interest, which makes the margin interest also fully deductible
  • to pay mortgage interest, which is also deductible

So I advise hold just enough of one or some of them to meet these expenses, and have the rest of your portfolio in something like the S&P 500 via an ETF (e.g. SPY).

Right now all the high yield equities are down.  You can see from the chart above, AGNC and MORL are down by about the same amount.  They are highly correlated, moving up and down more or less together.  This is not guaranteed, but typical.

We’ve discussed the ETN risk.  What about AGNC or similar individual company?  It might decline forever or even go bankrupt due to management mistakes, like Luminent Mortgage or Novastar Financial.  If you haven’t heard of these, you weren’t investing in high yield securities in the early 2000’s.  They don’t exist anymore and all shareholder equity was lost.  I prefer to take my chances with the IRS rather than management of an individual company.

Because they are correlated, you can’t sell AGNC high and buy MORL low unless you are a reliable market timer.  If you are, you know it, and you are not reading this blog.

If you buy MORL and sell whatever else you’ve got on the same day, then your position is basically unchanged.  But you may have a tax event.  This is what my friend is asking about.

If you exchange them when you have a gain, it feels good, but you pay tax on the gain, which is money you never get back.

If you exchange them when you have a loss, you get a tax deduction, even if what you exchange it for goes back up.  Since you may never sell again, it is money in your pocket.

But the question revolves around the fact you can only deduct $3000 of capital losses in any one year, which is archaic, and I want to use a stronger word, like barbaric – like the kind of barbarians that just raid the neighboring village whenever they want some more loot.  This number has not changed in 50 years of inflation.  (Write your Congressman, by all means.)

However, your tax software should automatically carry over the unused deduction year after year, whittling away at it.  My friend’s $20k paper loss will be deducted over 7 years.  Quite likely before then she’ll have a gain on something, and it’ll then be deducted all at once.

And remember, it is a paper loss.  It is only an actual loss if you sell AGNC (or whatever) and spend the money and do not buy anything else, or buy something else that is in vogue and likely to fall.  If you immediately re-invest in a correlated security, you don’t really have a loss.  The tax man just has a hard time proving they are equivalent, because they aren’t quite.  If you buy the same security or a related security in the same company (like preferred stock or something) then you are subject to the wash sale rule if you repurchase within 30 days.  So effectively a reliably correlated but not guaranteed correlated equity is a loophole in the wash sale rule.

Another advantage of the MORL ETN, as opposed to an ETF like KBWD which only yields 8.8% currently (and historically less than that) is that you can hold much less of it to meet the same expenses – exposing yourself to less capital loss as over time these kind of financial stocks often slowly decline.  For example:

  • For AGNC vs. MORL, you need only 12.9% / 21% = 61% as much MORL to produce the same income.
  • For KBWD vs. MORL you need 8.8% / 21% = 42% as much for the same income.

It might also work out to hold MORL in an IRA, without using it to meet expenses.  But remember, I am not a licensed investment adviser and I am not responsible for your losses.  : )

One more little trick you need to know.  If you look up MORL on Yahoo Finance, you will see the dividend and yield is listed as N/A (N/A).  This is not very helpful.  Click on Historical Prices on the left hand menu, check Dividends Only then click Get Prices.  You will see that the dividend varies widely each month.  Yahoo can’t make heads or tails of it, thus the N/A.  The variation is just because the ETN corresponds to many companies, and some months a bunch of them pay dividends and some months very few of them.  If you average the last 3 months, you’ll get a pretty good idea.  You can average 12 months, but then who knows whether the component companies have cut dividends during the year.

First NTSB reports from Virgin Galactic SS2 crash

Branson in SS2SS2-crash-site

An article on the first NTSB reports from investigation into the SS2 crash last fall appeared on The Daily Beast, here.  There is a similar article on ABC news here.  Below I analyze this in terms of the Crash Rate Equation.

NUMERATOR TERMS – The first and main point of the article is hidden political pressure on the FAA to grant waivers and special treatment that VG didn’t even ask for.  This is doing VG no favor, as we well saw demonstrated by the crash.  But it illustrates the extremely high value to someone of this project, i.e. very high V(f) in the numerator, increasing the crash rate.

DENOMINATOR TERMS – The other points of the article mention lack of practice and lack of fidelity in the testing.  In terms of the equation, and the Cd/D term (development costs divided by defect ratio), they were scrimping on the Cd component from testing costs, resulting in a high defect ratio D.  This term is deadly if mishandled because it is a leverage term, with D going up as Cd goes down and then the quotient of them amplifying the effect.  It’s great if you are spending enough to get D down, but horrible if you aren’t.

You CANNOT fix this term by examining specific causes and fixing only those.  If you don’t take away the general lesson to beef up Cd and get D down, then there will just be other problems that cause other crashes.  I sent Richard Branson a copy of my book, but he didn’t acknowledge it and so probably ignored it, if his staff even forwarded it to him.  Most people like this (I obviously don’t know Richard personally) think just because they succeeded at some kind of business, they “know everything already.”  They may even be able to pick good people to work for them.  But the guy in charge has to understand where not to apply too much pressure on Cd, because no one can overrule him on that.

How to stop gun violence without controlling guns!

Most of the shooters that make the national news do not have a specific reason for their actions.  Let me explain what you can deduce from this, versus other kinds of violence:

  • Shooters who make only the local news invariably have a reason.  Usually if there are multiple victims, the reason has to do with a girlfriend and frequently shared children.  If there are one or two victims, or the victims do not know the assailant, then the motive is robbery, or drug deal retribution.  I’m not talking about these.
  • If the incident is not a shooting, but a bomb or other method of large scale destruction is involved, then the motive is known and it is political.  No one blows up a Federal building because of general angst.  It requires too much careful plotting and preparation while in a rational state of mind, and usually the angst is resolved during one of these rational periods.  So this applies to Tim McVeigh, and the guy who flew a small plane into an IRS building (over tax troubles, which is political), and of course any Islamic terrorist, or any kind of terrorist at all, certainly the Boston Marathon bombers.  Almost no one ever uses a gun for something like this.
  • The only modern exception to this general rule was Nidal Hasan, who shot up Fort Hood.  But I believe that was not true terrorism since there was no plot and no conspirators, and that Nidal’s actions would be prevented by the method I’m going to suggest.  There have been in the long past isolated single-murder exceptions where an anti-abortion sharpshooter took out an abortion doctor.  None of these in the last 15 years that I know of, and it’s possible my method could prevent this also.

In other words, all of the school and theater shooters, and the terrorists acting alone from personal angst, anyone without a severely distressing actual and personal reason (and possibly even a good many of those), are suffering from general anxiety.

This is normal.  That’s right, I said normal.  Because as a species, we are not far separated from living in dangerous environments with actual omnipresent threats, and in which any encounter with an unknown stranger was very dangerous.  Consider the reaction of primitive tribes.  Usually it is shoot first and ask questions later.  To make friends, one avoids contact and lets time go by without threat, and they will see the newcomers and become curious.  But no one is curious about strangers they meet unwillingly.  So everyday life is filled with potential threats.

In addition to that, our governments, schools, employers and police attempt to coerce us constantly with threats.  One way to reduce anxiety is to drink alcohol, but billboards in Texas advertise that the costs of doing that and driving – and how can a person in modern society avoid driving? – will result in bankruptcy, complete financial ruin, perhaps a worse threat than simple, sudden death.  Even our shrinks have switched over from analysis to drugs and finally to behavioral therapy.  Behavioral therapy is nothing but the threat of punishment for bad behavior.  Behaviorists do not believe in examining internal mental states, only in achieving results.  It does get results.  In addition, it gets an agitated, resentful and anxious (about future threats) mental state, than can result in an attempt to simply slaughter all the unknown future threats … aka “random gun violence.”

In short, random mass gun violence is a consequence of civilization.  Removing access to guns will just result in the substitution of another method, such as randomly crossing lanes of traffic to ram other motorists, pedestrians, or even buildings.  Every time you plug one of these holes (we already plugged the “hijack an airliner” hole), anxious people will just find another one.  Humans are very creative and intelligent.  You cannot plug all the holes.  Someone will be hijacking delivery drones to disperse anthrax or a similar agent within the next decade, mark my words.  And like the anthrax letters of a few years back, it will be anonymous and take years, if ever, to find the culprit.

Drug companies have tried to find a solution.  But they are constrained.  It has to be a newly patented drug, and one that the user cannot “just stop taking.”  Modern anti-depressants fit this description.  Many cause serious illness or death if suddenly stopped.  Yet they are not described as addictive.  And we taxpayers pay for the prescriptions through O’bamacare.  (In case you missed a previous post, I write O’bama in the Irish form because his mother was part Irish … it is my way of respecting his entire racial heritage, not just part of it.)

There are some old drugs that work nicely.  They are very, very cheap, easy to make, and of course off-patent.  So drug companies have conspired to have them classified as addictive Class IV drugs and virtually banned.  You have to go to a shrink weekly, paying about $300 a week, probably not covered by insurance, and re-explain every week why you need it to get these drugs.

What drugs am I talking about?  They are benzodiazepenes.  The same effective molecule is present in all of them, but the time in the body varies, and some subtleties of the effect on mood.  A list of some (not all) of them:  (You can find all of them using Google)

Librium – Valium – Ativan (Lorezepam) – Clonapin – Xanax – Dalmane – etc.

I know these drugs are not seriously addictive for two reasons:

  • I have taken different ones off and on, beginning in the late 70s when I had a bout of hyperthyroidism and needed a sleeping pill, and found that after a few days, weeks or months the effect diminishes, and doesn’t come back with a larger dose.
  • I never met anyone who was addicted to them.  And I’ve met a lot of people who took them for a while and quit, some family, some strangers.  In my experience, and I’ve lived a long time, if there is a problem I’m going to eventually meet someone who has the problem.  I’ve met a lot of people who had problems with drugs, but not these drugs.

I know they are effective because a problem with anxiety, and with temper, runs in my family, and it goes away under the influence of these drugs.  I’m also less irritable because I sleep well.  And I never met anyone who did not report exactly the same effects!

By contrast, most of the modern medicines only have the intended effect in some people, and the opposite effect in others.  Tramadol, for example, can cause nervousness and sleeplessness – and did for me when prescribed as a sleep aid.  Prozac, once the most common anti-depressant, can cause violent aggressiveness.  It did for me.  And a counselor told me it is sometimes given to football linemen to make them mean.

How many of the shooters have been diagnosed with depression, and given something like Prozac that might make them more, not less, prone to violence?  I am un-surprised that antidepressants sometimes lead to suicides in teens.

But the benzodiazepenes have no such effects.  They are not a gateway to other drugs, because they are sufficient, and taking anything else with them will simply put you to sleep.  You can’t drink and drive with these drugs because you’ll fall asleep.  You can’t shoot anybody, because you don’t really want to.

Furthermore, I find that they promote productivity.  I can be stuck on a difficult intellectual problem, maybe a physics paper I’m writing, and take a low dose of valium and work for two or three hours, solving the problem and creating a feeling of accomplishment, and only then do I get sleepy.  We’d all be rested and smarter if we took these drugs.

A friend recently brought up that they are thought to cause depression.  Well, I doubt it.  Probably the person was going to get depressed anyway.  But if so the solution is simple.  Quit taking it.  There is no urgent compulsion to take another one.  More is not better.  Actually, less is better.  Very low doses are effective.

So … what is my suggestion?  Two things:

  • Phase 1 – make low doses available over-the-counter.  If you wish, make the purchaser sign for them just like to get pseudafed currently.  The infrastructure is already in place.
  • Phase 2 – after a trial period if no one is going crazy and falling asleep at the wheel, then simply add the stuff to the water supply like we do with fluoride.  Actually, it’s probably safer than fluoride.  (well, I’m mostly kidding about this, but at least make the stuff available … it is simply *not* powerfully addictive like true Class IV drugs, more like alcohol, and prohibition did nothing for that except give organized crime a big stronghold in this country).

Do this and you will see less workplace violence, the end of random mass shootings, probably less divorce, and it’s even possible that terrorist groups infiltrating our culture to commit mass violence may simply lose interest in their projects.

Will the real Clinton politico please stand up?

Fascinating interview with B.C. about his early views on H.C.’s political potential, and his strange marriage proposal to her…https://www.yahoo.com/politics/bill-clinton-says-hillary-once-told-him-shed-124838544661.html

Bill claims he envisioned Hillary as being the most important politician before they even married, and that was part of why he was attracted to her.  Of course everyone knows Bill is a political genius, regardless of what one thinks of his policies, and he could be making this up.  But if that were true, why did he give her political assignments in his first term, like healthcare?  There is at least a little something to it.

Also, he quotes Hillary as understanding full well she would be controversial because of her aggressiveness.

There is another hyper-aggressive candidate in the race, The Donald of course.  I have always hated him.  I don’t care for Hillary either.  But I was thinking, and wondered what your thoughts are on the OTHER candidates.  See any likely presidential material?
One Trump supporter, a woman, said with regard to his controversial blunders, “He is saying things that need to be said.”  He reminds me of Reagan, who first attracted my attention when he said we should send the military to re-take the Panama Canal, which the U.S. was in the process of giving to them in about 1976 or so.  Eventually Reagan became president and later his VP G.H.W. Bush did send U.S. troops to Panama, though for the purpose of seizing the leader of Panama and putting him in a U.S. jail, where he still resides.  The point being, Reagan’s comment wasn’t so radical a departure from the future history that actually happened.

An example of H. Clinton’s aggressive remarks is her serious attack on China as wanting to “hack everything” the other day.  Hot is fire compared to O’Bama’s tepid comments.  (I write O’Bama deliberately now.  His mother was, after all, part Irish, and related ethnicities.)

Did you know – I didn’t – that Panama was part of Columbia, and T. Roosevelt engineered a revolution in Panama for independence so he could conclude a canal treaty with them?  This was after the French already failed at building a canal.  But Roosevelt’s effort was government, not private, for military rather than commercial purposes.  So I suppose if Panama’s leadership got out of hand, it was indeed up to us to fix it.

Since I don’t care for any of the candidates, just from the standpoint of an interesting spectacle, and because I think a strong and unpredictable leader right now would be better than Milquetoast … I’d like to see the general election be a shouting match between Hillary and The Donald.  Our detractors would quake in fear, the markets would rally, and ISIS would probably take their slaves and melt away into the sand dunes.

Are SpaceX employees complacent – or is it Elon?

SpaceX-explosion-2015-NASA
SpaceX rocket explosion June 28, 2015 – Credit: NASA/JPL-Caltech/MSSS/Texas A&M University

Elon Musk says the reason for the recent explosion of a Falcon 9 rocket on a supply mission to the International Space Station under NASA contract may have been due to employee complacency, “resting on their laurels.”  See articles here and here.

My immediate reaction, shared by my NASA colleagues, is that employees cannot become complacent unless management is complacent.  Musk needs to own the fact that the “buck stops here” at his desk.  Does he have a desk?  Who knows about these modern CEOs, children mostly, petulant and unwilling to admit someone else might know something.

Elon says this is a valuable lesson that will benefit the company.  So, his strategy is to learn everything from scratch?  Not from other people’s mistakes?  How about learning from mistakes when he is carrying humans?  Will you be the first to ride?

Elon is unaware of the crash rate equation.  I sent him a copy of my book on the subject, developed from 42 years experience in the space business, with a simple, unified approach anyone can understand and use to decide how much resources to apply to verification and reliability efforts.  Employees judge the seriousness of their boss, and whether they should be “complacent,” by how many resources are allocated to a priority, and whether the boss is complacent about it.  No one survives who is complacent when the boss is not.  No one believes the boss is serious without application of resources.

The crash rate equation relates value of the mission and cost of the crashes to the crash rate.  Elon is minimizing the cost of this crash by his talk, which will lead to more crashes.  Perhaps delivering supplies to NASA is not really important to him?  Unless he applies resources and eliminates both in himself and his employees the idea that safety comes without cost, then someday he will be explaining that a few astronauts knew the risk, that the accident was unfortunate, but they will “learn from it” and move ahead.

Richard Branson has already had to make this sort of speech.  I sent him a copy of the book, too.  Nothing.  If any of you readers know how to reach these guys, give them a heads up.

Cost/benefit analysis of Ukraine war from Russian viewpoint

There is a mistaken notion that we should decide whether to get tough with Russia or not, as an ideological move to thwart the expansion of an aggressive regime, or not, depending on one’s political stripes.  These are not the real choices, because these are not the real motivations of the Russians.

For an example of this kind of thinking, see Leslie Gelb’s piece on Daily Beast, America’s Losing Russian Strategy.

I have traveled extensively in both western and eastern Ukraine, and also in Russia (my wife is Russian). and I’m heavily invested in Russian industry (through ETFs, just in the interest of full disclosure).  The war is over the loss of preferential inefficient trade which the Russians benefit from.  As Ukraine negotiates trade deals with other nations, Russia loses that.  Currently Moldova and other members of the CIS (the trade block of former Soviet states) are analyzing trade, and all seeing benefits from cutting trade deals that allow them to escape high priced Russian commodities.  You don’t have to take my word for it.  You can read the report of Moldovan economist Marcia Dumitrasco: Assessment of potential economic effect of free trade agreement between RM and EU in the context of the existence of other similar agreements in the area.

Putin, being the petty dictator that he is, would rather fight this with subversion than honest hard work and competition.  His idea is to extort and blackmail these former allies into continuing the preferential trade deals that benefit Russia.

Nonsense.  Russia is a resource-rich country with a highly educated and motivated population.  They can compete just fine, if the political establishment will quit throwing successful businessmen in jail.  The trick is to make the cost of subversion and extortion higher than the cost of honest competition.  It is a straight economic decision for the Russian oligarchy.  They have no territorial ambitions.  If they took over foreign territory, their population would oust them and they know that.

So the question on the table is not full scale war with Russia over the ideology of borders.  We sat across the nuclear fence from them for half a century and they always avoided a direct war with us – not because they couldn’t win, but because it was too expensive.  By supplying arms and training to Ukraine, et. al., we simply make their petty tactics too expensive, and they will adopt a more competitive economic stance as they should.