Month: February 2011

Canada’s currency manipulation: the inmates are in charge of the loonie bin (update 2)

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UPDATE 2:  I asked Denis, my economist friend, how much of the US treasuries is owned by the Canadian government and how much would be owned by the private sector, and he suggest consulting the Bank of Canada balance sheet.  It is clear that the total assets on the balance sheet are 60.8 billion, which means that there is no way that the government of Canada could have lent $134 billion to the US, and that most of the ownership of these US securities must be in the Canadian private sector and can be explained by covered interest arbitrage.  Nevertheless, the reason why this arbitrage happens is because the Bank of Canada has kept the interest rates at low levels and is therefore to blame if the loonie is inflating like crazy.  Denis provided me with the following chart of interest rates:

UPDATE:  Thanks to the comment by blogger 101 Centavos, I finally asked my local Canadian economist if he could tell me what the number $134 billion means.  He says it is not the Canadian government alone that holds this debt, but all Canadian holders both sovereign and private.  I am going to try to reach him by telephone for clarification.  Meanwhile, in the words of the ever opinionated Emily Latella of Saturday Night fame, “Never mind”.

[Please note: the updates above are intended to substantially correct  what follows, which is the original post]

I am thinking about writing a blog for the American Thinker about the announcement that China would spend another 5.4 billion in the Canadian resource sector, this time to buy 5.4 billion of Encana’s natural gas holdings.  My view is that China’s purchases of Canadian resources is more about diversifying themselves out of US treasuries.  But  I found a table updated in November 2010, which shows that the Chinese have actually increased their US treasuries by $265.3 billion since November of 2009 (the chart only goes back that far).  Meanwhile, one stat jumped off the page.  In that same period, Canada has increased its holdings of US debt by $84 billion! I am shocked.

Canadians greatly fear the death of the manufacturing sector.  So now they will tolerate this.  But I am dismayed and shocked that our government is manipulating the Canadian dollar so that it will not rise against the US.  The immorality and the bad management of this situation is beyond words.

A couple years ago, I thought that given the bad fiscal policy of the US government would lead to the loonie soaring against the US dollar.  But now I see that rather than allow that to happen, the Canadian government is subsidizing the American lifestyle and the American bubble.  So that finally explains to me why the loonie remains at par and why price inflation is slow to happen in the US–why price inflation is happening in Canada the same as elsewhere in the world.

“I never recommend a trade”, Mark D. Wolfinger

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Mark D. Wolfinger is an experienced options trader who kindly offers his expertise to others.  His blog, Options for Rookies, has excellent advice about buying and selling options, including information on doing spreads like condors and collars–strategies I don’t use because I am a seller of put options.

Recently, he has made the following comment on his blog about recommending trades, which applies not just to options but also to all trading:

As you know, I NEVER recommend a trade. That violates one of my core beliefs:

When someone sells a trade recommendation, the advice seller probably believes the trade will be profitable. However, ultimate profitability is not only dependent on the trade chose, but also depends on how it is managed. That salesman may be able to turn a profit, but that does not mean that you would. Your pain threshold is lower and there would be many instances in which you exit with a loss and he holds and earns a profit.

He claims a profit for his followers and all you see is a loss. Do you understand why that happens?

Each trader has his/her own comfort zone, trading goals and the ability to withstand a loss. Each would exit the trade at a different time. Each is at a specific point in life – perhaps raising a young family or retired. Perhaps wealthy or struggling. No one who understands trading would suggest the same trade to every person. Yet, that’s what these gurus do.

The post in which these lines are found is called, “Risk Management for the Small Trader” in which he recommends that options trader have a minimum of $10,000 trading cash and preferably twice that amount because the newbie with $5000 or less will have just enough cash to enter positions but insufficient cash to manage them well.

His advice about the management of trades applies also to stocks.  If new traders, who enter a stock with the hope that it goes up quickly, sell  it when it goes down 15%, they will likely lose that cash forever.  If they average down, and I believe in such a strategy, then they will be much less likely to lose money as a trader–even the black swan event of the market drop of 2008-2009 could have been overcome with a strategy of averaging down on losing positions.  But alas, if you have only a limited amount of cash, then that strategy won’t work, because you shoot your wad in the first instance, and there’s nothing left with which to average down.

Answering Questions about selling puts and revealing a strategy

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An investor friend has asked me some questions about the selling of put options.  His questions are in bold italics.

When you sell puts, do you have to cover the dividend distribution for the buyer? No.  You don’t own the stock.  You have sold an obligation to buy the stock at the strike price –at a random buyer’s discretion–the contracts are fungible, so assignment is an entirely random process (especially early assignment, which is very rare).  The dividend belongs to those who have open contracts on the other end (they bought the put as an insurance and they are holding the underlying).  If I am assigned the stock before the ex-dividend date the dividend is mine.  If it is after, the dividend belongs to the buyer of the put.  Regular dividends are calculated into the price of the premium, according to the experts.  But extraordinary dividends are considered part of the strike price (i.e., a $3 dividend for Microsoft, would mean that on the day of expiry if Microsoft was $25 and the strike price was 29, the $3 extraordinary dividend would be added to the 25 and the contract would expire in the money.  If assigned, the buyer would relinquish 100 shares and $300.

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Theological education bubble VI: blowing bubbles overseas

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Theological education overseas is a marvelous idea.  Basically it goes like this:  rather than send people overseas to do mission work, why not train the native leaders in local schools of theology and they will do the mission work in their own countries?  My experience is that these schools are expensive, rarely self-sustaining but in need of constant  stream of revenue from the West in order to survive.  Furthermore, the leadership is often compromised by the strings that control the foreign money.  But this is just the beginning of the woes.

The problem is even more profound in that the product of such schools is dubiously qualified to serve the church.   Why?  Because the focus is too often head knowledge and not issues of character.  Who is promoted in theological education, the most virtuous person or the most clever?

My own experience as an instructor is to try to teach people to be clever because I don’t know, especially in cross cultural context, how to teach virtue in a theological course.  Virtue must be caught, and it can rarely be taught.  So I can only really teach virtue by practicing it in front of others who are learning from me and with me.  But the classroom model is not adequate for this kind of learning.

I had the experience last year of a doctoral student explaining to me that he wouldn’t  return to Africa, despite signing a detailed contract agreeing to do so, and that he was just going to take a job here in the US which would then be his base of ministry.  Then he explained that his PhD had taught him to be an academic, a person that does high level theological research, and that he would not be able to carry out such elevated thinking and writing within the pressures of his African context.  This is symptomatic of the problem in academics generally, as Thomas Benton has written:

Also, remember that most grad students start out as dilettantes, thinking they’ll just hang out for a few years on a stipend. But eventually they become completely invested in the profession, unable to envision themselves doing anything else.

I told this man that his donors paid him to study at the PhD level so that he could go back to Africa and train leaders there, not so that he could teach undergraduates in America.  But to no avail, he would not give up the idea that it was ok for him to break his agreements.  We had trained someone who had no virtue but his cleverness had led him to think he could only be useful doing research like our funding had enabled him to do during his studies.  So the church in Africa has again been deprived of a great talent, and our North America scene has another developing world academic who probably won’t  return to work in his own context where such talent is actually needed.

But the problem does not begin at the level of doing the PhD in America.  It starts at a much earlier level.  Perhaps his own PhD supervisor was partially to blame; he wrote to me:

The ministry opportunities that are open to Michael [not his real name] in his home country would not enable him to use his gifts and training. Michael is a gifted scholar and writer; his dissertation is very well-done, indeed. He has spent many years working hard to polish his skills as a scholar. I would hate to see them “wasted.”

So there we have it:  a full time North America scholar at an evangelical seminary could not see how his doctoral student, with the training that he had received from him, could work in his own country given his skill set as a fine researcher and scholar.  Whatever occupation this man would find there working in his own church would be a waste. So says the man that supervised his very fine dissertation work, a very well-respected and well-known evangelical scholar who himself is the best product of Western theological education.  In my view, the only waste in this matter was the money spent training Michael at this particular supervisor’s school of theology!  Michael had learned to be clever, but he had not learned virtue: certainly not the virtue of keeping one’s word.

But I find that this is the problem with theological education in general.  I was promoted through the ranks and yet not for any particular virtues that I practice, whether goodness, generosity or gentleness, but because I was smart.  It has always been this way.  But shouldn’t theological education teach us to be people of our word.  What kind of God would we worship if He did not keep his promises?  Yet we are called to be imitators of God.  And to what suffering did our Lord Jesus Christ not submit?  Shouldn’t we be willing to suffer like Jesus Christ, who was obedient even unto death–and yet the only suffering we asked this African scholar to endure was to keep his word and return  and to use his training and skills to help the African church, because that is what his donors required of him before they gave him the scholarship to study in the US.

I wrote about the difficulty I had working in an evangelical setting because of the exploitation of desperate PhD labor.  In my opinion, theological education which is caught not taught is more profound than classroom training.  By mistreating adjunct labor, the theological school was actually teaching the students, without realizing it, that it was ok to be a bad employer and to exploit a glut in the PhD market.  First the theological schools create the glut by promoting too many people to the PhD level, then they exploit their labor by using them as part-time workers.  It is a vicious problem of exploitation, and yet this is what is modeled in many evangelical seminaries.

I have written that I question the efficacy of school as a model for theological education. But this model which is ineffective here in North America has been exported to the church overseas.  What can we do to resolve such issues?

Theological Education Bubble V: On the payment of adjuncts

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Fourteen years ago, after finishing a PhD at Cambridge, I managed to land a part time job at a seminary as an adjunct instructor.  The pay was $2700 per course, and I taught a full-time equivalent load (6 courses) in the year that I was there.  The salary was thus about $16,200.  But as a first-year instructor, I had to work essentially full time, despite having no committees or other administrative responsibilities.  One of my students was making more working at MacDonalds, with benefits.

I left after realizing that the seminary had no plans to regularize my appointment.  I made known my complaints, which were actually more about working conditions than it was about pay.   Afterwards, I taught at an African seminary for eight years on short term mission trips for no pay at all–in fact, we paid out of our own pockets to make it happen.  It really was more about working conditions (no office, no email, no key to building, no parking spot, etc.)  and the lack of any real status or respect that there is for the poor guy who can’t manage to find full-time employment in a field with an extremely limited number of job prospects.  I’ve known other adjuncts who have felt exactly the same way.  And you can read about these people and their stories all over the internet and in such distinguished publications as the Chronicle of Higher Education.  But when you are going through the experience, you feel isolated and like you are going to go insane.

The former dean who hired me wrote to me in an e-mail the following comments:

You may feel that they have treated your poorly, but …  I, as former Dean … , certainly do not agree …. I was giving you an opportunity to teach in a graduate seminary. This was intended to open the door to you to find long-term employment in the area, eventually.

There are dozens and dozens of young and older men and a few women who have PhD’s in biblical and/or theological studies who would love to have had the opportunity that I gave you. You had an inside track because I knew you from [before]. The fact that you had a PhD from Cambridge was of marginal value in securing this opportunity. During my time at [as dean], six of your colleagues were willing to teach without any pay at all, and one of them continues to teach regularly without pay. And there were dozens of others who were in regular contact with me asking to teach who were willing to take whatever we had to offer, or even teach for free, whom I could not, or chose (for a variety of reasons) not to, invite.

You have every right to set whatever salary you would like for your gifts and skills, but each of these institutions has every right to offer you whatever it thinks it can afford to pay you. If you do not come to an agreement, then each will have to go its separate way. This is the way the world works economically (and this is also the way the church and the non-profit world, which has much more limited resources, works as well).

He very kindly warned me not to make such a protest when deciding to leave, because in doing so I would give myself a negative image in the Christian community.  He was undoubtedly correct.

I write because many people who might stumble across this post, even some whom I know, might be spared this agony.  The academy is a ruthless place for scholars–Thomas H. Benton compares graduate school to a cult.  If you don’t act just the right way, you become branded and since there are so many other candidates for any position you might be competing for, you may as well kiss your career good bye.

In this post and my previous posts, I describe the bubble in academics and theological education which is so bloated and out of control that it seems irresponsible for educators to continue down this destructive path.  And yet I think they will not heed these kinds warnings because every institution seeks to survive, and every employee to preserve his own position.  Education in general is a bubble:  students on average get little out of it, its costs are escalating out of proportion, and afterwards, graduates experience the pain of  inescapable debt with few job prospects.  The bubble is there but few employed in it can admit it, nor are they necessarily well positioned to determine how to address the problem.