Dazed and Confused

I've been thinking about this ever since seeing a Wall Street Journal article about "Fresh Water investment". It is an interesting point of debate. And since bright light is actually painful to me right now and it is a bright sunny day, why not ??

So what is the price of fresh water ? Or what would you pay for a gallon of freshie ? Like oil, if you can't just go outside and get it, water can be produced. People often argue that the "world is running out of oil". But for the right price, oil can be produced from shale or coal. Nazi Germany was not exactly overflowing with oil, but powered WWII with coal gassification. The oceans are overflowing with water. And for the right price ocean water can be de-salinated. But the profit margins for water purchased at the grocer is scandalously brilliant.

Now what is ther price of fresh water ?? Well, it is really free. But transpotrtaion to places where it is scarce costs money, it evaporates while it is being transported, it is heavy. And it is dirty and often needs to be cleaned or brought to a standard particulate count and quality. And there is seasonality to water. During the year, sometimes it rains or snows mnore. And during summers, it evaporates more quickly.

Water is probably more "valuable" in a place like the Mojave desert than it would be in Duluth.

All manufacturing involves the use of fresh water. Of course we drink water. And people are breeding. If the price of oil goes up, it means that the cost of transporting water would go up. And it means buying pipes to transport water is more expensive. Therefore, it is likely that water will cost more to use in the future than it does now.

Well, we live in the virtual OPEC of fresh water. And the world wants our fresh water. So we had better start thinking about the value of the commodity that we have at our doorstep. It is stupid to think that we can "refuse' to sell it. And we use plenty of it ourselves.

A "spot" price is the currrent value of something of a particular grade delivered someplace. The cirrent price of "Chicago" water will cost X. But that same gallon of water delivered in Milwauklee will cost X plus a factor for the cost of transportation. Since there is seasonality to water, the spot price will be expeected to be less expensive in May. in May, but more expensive in September. There are carrying costs to water to reflect the cost of money, which is the interest rate.

Let's say that my company is called ACME and it produces Widgets. I am located in Rockford, IL. My prodcution primarily takes place in the summer because producing heat is less expenive for me and I can use cheap part time help fropm the local college. I extimate that I will need 1,000,000 gallons of good grade that I could buy and have trucked to ACME from Chicago.

Perhaps ACME would not want to buy water for delivery in August in the spot market. Instead, ACME could contract a forward delivery of May water. That is, by contracting May water for August delivery, ACME locks in the lower water costs for it's production.

How do we price this ??" On May 1 the spot price of fresh water might be $1 per gallon for Chicago delivery. My cost of transporting the water might be $.02 per gallon. assuming risk nuetrality, it is therefore possible to calculate a term structure of water forwards.

Without doing the marh, it can be shown that forward prices of water will indeed ultimately lower the costs of water usage for users. ACME will now be able to cut the price of widgits for its consumers.

What does this have to do with the environment ?? For one thing, by contracting forward the water, in pricing, we have reduced usage and pricing volatility. And ultimately we save water because we consume it when it is most abundant, and save it when it is in it's greatest demand.

And so, I think a very interesting product that could be sold on electronic exchanges would be the development of a fresh water index, reflecting a standardized unit of fresh water. This would be a very intersting prodcut to trade and it would have interesting quantifiable volatility components.

And anybody who thinks that they could "buy" Lake Michigan ?? Trust me, they can't afford it.

The best part about this is that it prices the fair value of water so highly that
consumers are discouraged from removing Lake water from the region.

And let S(0) be the spot price at time 0 at place x
R = rate of interest
T = time
M = Transport cost
Z = seasonality factor
F(1) = Forward price at time 1

F(1) = S(0)exp(RT) +- M +- Z

In our example, Rockford Delivery of Chciago water in the spot market
is $1.02. The price three months hence would be expected to be:

1.02 * (EXP(3/12)*.05) - .30 = .96

It was a beautiful morning. it was so bright it hurt my eyes...I have an injury in one eye.
I visited my Doc at the hospital in Evanston today. Afterwards, I headed north for some lunch. And before lunch I walked through the old campus of Northwestern....my undergrad alma mater.
I walked through the Economics Department to see if I could find any Profs from my days there. I found one: Robert Moses---I had him for Micro-Economic Theory...

As I made my way to the elevator, I saw a plaque....and on it a familiar face. It was Steve Glick, someone I'd known during my days as an undergrad/ A conference room was named in his honor...a father, a student and a friend. He'd gone on to Harvard Business and was a Director at Credit Suisse, First Boston, after Northwestern.

Sadly I now know probably a crowded classroom full of people who went down with the WTC towers.
Screw terrorists.....and fundamentalist Muslims who are just Nazis in their beliefs.

My beautiful morning walk just darkened. And on the way out of the B school, I saw another memorial for numerous alums that went down with the WTC.

Steven L. Glick (MBA ’89) of Greenwich, Connecticut, was a managing director at Credit Suisse First Boston (CSFB) and headed the e-Client effort at the firm’s institutional e-commerce group, CSFBNext. He was attending a conference on the 106th floor of the World Trade Center’s north tower on the morning of September 11.

Prior to joining CSFB earlier this year, Glick was a senior partner at Greenwich Associates, where he led the global fixed income, foreign exchange, and derivatives consulting practice. He was a graduate of Northwestern University.

Classmates and colleagues held Glick in the highest esteem. Vikram S. Gandhi (MBA ’89) called him a “wonderful human being,” and Theodore H. Barnett (MBA ’89) said he was a “bright, happy, and caring person.” François J. Maisonrouge (MBA ’85), a colleague at CSFB, noted that Glick was widely respected across his industry and that “he always had a word of encouragement for others.”

Glick is survived by his wife, Mari (also MBA ’89), and their two young children, Colin and Courtney; his mother, Ester Glick; sisters Ellen and Stefanie; and brothers Gordon and Robert.

Memorial donations may be made to The Greenwich Chapter of the American Red Cross, 231 East Putnam Ave., Greenwich, Connecticut 06830.

What a croc of BS. I COULD send my kids to the school down the street from me. Kids who attend Chicago public schools often graduate not being able to read (my 6 year old CAN). Gang bangers hang out in front of the school. And even though my diverse neighborhood is primarily caucasian, the school is like 85% black...not exactly a model of "diversity". So now we spend $7k per kid for Catholic parochial school, not exactly my first choice (jeez, I am a protestant) If the public schools were WORTH it, I wouldn't MIND paying a bit more. But right now these schools are rest areas on the way to jail.

Until we STOP paying administrators $300k per year and we STOP needing gun toting police to patrol grammar school hallways ....PRIVATIZE !!!!!!

Chicago Trib 4/13/05

Seeing red over school funding

Published April 13, 2005

Clad in red, hundreds of teachers are set to descend on the state Capitol on Wednesday to lobby for more state funding for schools. They're going to try to pressure Gov. Rod Blagojevich and legislators to support an income tax hike for education.

There's no question that classroom education in the state has felt a squeeze, resulting in fewer AP classes, fewer sports activities, cuts in art instruction and bulging class sizes. Each loss is disheartening. Together, they constitute a gradual march toward educational mediocrity.

Yet there's a disconnect here. Last week, Chicago-area voters defeated about two-thirds of the referendum proposals that asked people to increase property taxes to help their own schools.

One big reason: Many voters don't trust the state and the schools to spend the money wisely.

Now consider this: Many of those red-clad educators demanding more money for schools are lobbying just as hard against state pension reforms that would free up hundreds of millions of education dollars. That money could be spent to reduce class sizes, expand art and foreign language instruction, lengthen school days and attract better teachers with higher pay.

Blagojevich has recognized that the pension systems are going to break the state, and he has moved for reasonable changes. One of those changes would curtail the practice of school districts slipping huge end-of-career salary increases to teachers and principals that let them qualify for much higher pensions--which the state has to pay.

But the education lobby refuses to budge on this. And so long as they refuse to budge on pension reform, taxpayers will have a hard time sympathizing with the fiscal calamity that they describe in the classroom.

There are other reasons for voters to be suspicious. Take a look at surrounding states. Missouri has 524 public school districts; Iowa, 370; Wisconsin, 426; Indiana, 294.

Illinois has a whopping 881 school districts.

Remember that each district usually comes with a superintendent, an assistant superintendent, a principal and an assistant principal. And that's just for starters. Some of those administrators are making big salaries--up to $300,000 a year--and working up similarly astounding pensions. Now consider that almost half of those 881 districts have fewer than 150 students. It's no wonder voters start acting grumpy at the prospect of a tax increase.

Imagine how classroom spending might be boosted if Illinois consolidated school districts and cut administrative overhead to be more in line with neighboring states.

A proposal in Arizona would mandate that at least 65 percent of every school district's operational budget be spent in the classroom. This is going to a statewide referendum. It's a simple idea, yet so radical that it could push hundreds of millions of dollars to be spent on students.

Advocates of the Arizona proposal calculate that Illinois spends only 59.5 percent of its operational budget inside classrooms, and that upping that to 65 percent would translate to $906 million more for things like teacher salaries, computers and supplies.

Such ideas reflexively make educators see a different kind of red. But if they want to win a debate on school funding and tax reform, they need to instill more confidence that the money will be spent where it's needed most: on students.

It seems that all of the immigrant bashing going on now happened once before...back between 1830-1860. the "Know Nothing party" reacted strongly against the 4.9 million Germans that immigrated to the USA from Germany during those times.

Yep, we German-Americans are the biggest ethnic group in the States. It was by only one vote in Congress that we do not now speak German as our first and official language today. But yet, we've "blended in". Who is to say that all of the immigrants coming in today won't, as well ??

The 4.9 million immigrants who arrived from Europe between 1830 and 1860, among them 1.36 million German-speakers, met head-on with a well-defined "Americanism." The conflict was accentuated when several Midwest states started to grant voting privileges well before the five year waiting period for citizenship had transpired. In Minnesota, a male adult got the right to vote practically upon arrival. Only four months had to elapse after he declared his intention to become an American citizen. Using all available xenophobic arguments, the immigrant-bashing nativist American Party, popularly called the Know-Nothings, tried to extend the waiting period for naturalization and for voting to 21 years instead of the five required by law. In addition, immigrants were to be permanently excluded from holding public office; and the poor, those with criminal records, and the loyal subjects of a "foreign power" -- above all members of the Roman Catholic Church -- were not to be admitted into the country at all.