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Sunday, November 26, 2006


Sunday Night Musings

How does any one resist the Sunday AM news shows? The competition between the pundits and the politicians to see who can make the most stupid comments is enthralling... The idea that we should cut and run in Iraq, through some kind of scheduled "redeployment," makes you wonder yet again about the courage and character of the current generation of leaders. These morons are of the same ilk as the ones who repositioned the worst battlefield loss suffered by the VC (the Tet offensive) as a loss for us and started us on the road to abandoning Vietnam. I wonder how we are going to characterize allowing the Iran allied Shiite militias in Iraq to exterminate the Sunni militias when we withdraw. Will that be "peace with honor?" On the other hand, I don't know what "stay the course" means anymore either. I CAN understand why people throw up their hands and say "what the heck, let these Islamists kill each other off if that's what they want to do." Unfortunately, innocent civilians are suffering. What we need now is some really creative thinking that goes beyond how many troops we need, and beyond the reality that there is a tremendous amount of good we are doing over there and that compensates for the violence. Soemone who knows what they are talking about needs to think about what the realistic end result that we are seeking could be and determine a strategy for getting there. That means taking into account the whole Sunni-Shiite schism in Islam, and somehow maneuvering a more stable solution. If that means that Iraq should be three countries, so be it...If the U.N. were worth one-tenth as much as the real estate it sits on, it might be able to contribute some ideas to help the situation. As it is, forget it...

The Part D plan that was added to Medicare seems to be working better than I ever thought it would. You know this because of the hysterical concerns coming from Democrats that the Government needs to negotiate the prices for drugs. In other words, price controls. Meanwhile, most seniors seem to have adapted. It also means that the overall program is already too expensive...The D's are also seeking a fourth recount in one of the remaining contested Congressional election districts. I guess this is saying that R's are better at cheating, or that D's are sore losers, or both... I read that some wag pointed out that once all the Chinese and Indians have cars, the internal combustion engine is dead, there can't be enough oil to go around. People have been making that Malthusian prediction for a long time, and oil capacity never seems to go down, but this time, it could be different (I know, it never is different, until it is). Battery or atomic powered automobiles, that can be refueled conveniently, can't come soon enough.

I follow about a half dozen blogs, and my sense is that enthusiasm is waning at some of them. Posts are less frequent and comments are less entertaining. On the other hand, redwavemusings continues to generate the same wild enthusiasm as always...One sure sign of the end is that many corporations are studying whether they should have a blog, who should write it, what subjects it should cover, etc. With all of my being, I want to shout out, "No, you idiots, this is for individuals! You, have websites, ads, PR, Corporate and stockholder communications, etc. Enough, stay out of the blogosphere. I am sure your customers are anxious to read a corporate blog with yet another thinly disguised sales pitch...

Music note: Guitarist Pat Martino (#3 on my list of all-time favorite guitars) comes into Birdand this week. Call the club or visit its website (www.birdlandjazz.com) for details. Also, to hear the latest incarnation of my #4 guitarist, Mark Knopfler, listen to his CD in collaboration with Emmy Lou Harris (All the Roadrunning), combining elements of rock, country and Irish folk.


On 11/22, I bought 100 shares of NEM for my taxable account at 45.29. That worked out nicely since I had just sold NovaGold. The people who have predicted 10 of the last 4 recessions are still calling for one, but the market refuses to tank.

Monday, November 20, 2006


Milton Friedman and other musings

Milton Friedman was the economist who got it right in the 20th century. When I was in college, of course you studied Samuelson and his treatment of Keynesian economics in Macro. The monetarists were considered some kind of flakes, appealing only to crackpot conservatives and anti-government types. Perhaps some of their ideas would have application in Micro, but Keynes, multipliers, and the Philips Curve explained what you needed to know about Macro.

To some of us though, there was something intriguing and elegant in the work of the monetarists, and to those who actually read Friedman and his disciples, there was the ring of truth. As Keynesian solutions reached their performance nadir during the Carter administration, and Paul Volcker was forced upon him as Federal Reserve Chairman, markets moved with M1 and M2 weekly figures, and the monetarists began their ascendancy. During the Reagan administration, when Volcker was kept on, we saw the success of the monetarist experiment. That was followed by the success of their spiritual cousins, the supply sider's like Laffer and Rutledge.

In fact, Friedman always preferred a mechanical approach to money supply management, as opposed to allowing the Fed to feel its way. This was true even as he acknowledged the successes of the Fed Chairman and his successor, Alan Greenspan.

But Friedman contributed much more than his Nobel winning economics brilliance. He jump started the school voucher movement, a unique way to allow the poorest children access to the best schools; he advocated a libertarian (not to mention sensible) approach to narcotics policy; he re-popularized the work of Hayek for a new generation, and the worthy goal of spreading freedom around the world. For a beautifully written appreciation, read his student, then senior colleague, Thomas Sowell's op ed piece in the WSJ.

Not all of Friedman's ideas are yet ascendant, but I predict more of them will be within the next decade. He was the giant in his field in his time, as was Peter Drucker (management) and Sir John Templeton (investments).


The recent WSJ editorial on the Democrats' goofy division on trade issues is right on the money. If the Unions drive the D's to a protectionist stance, they will do a lot of damage, not just here, but also to the poorest countries of the world.

On the other hand, Republicans in Congress continue their self - destructive ways, keeping their failed leadership team (minus Hastert, of course) in place and continuing to oppose the President's enlightened immigration stance. There is xenophobia emanating from both parties, but its impact on Republicans will be much worse, because the media will assume it has overtones of bias.


On 11/15, I bought 200 shares of ADPI, a new name, at 19.26 for the taxable account. On 11/16, I sold all 500 shares of my NG position for a price of 16.06, just above Barrick's increased takeover offer. 300 of the shares were purchased for 8.69 on 11/10/05 and 200 on 10/23/06 for 15.10, all in the taxable account (discount commissions make short term gains like that possible). Enough was enough, and I have taken the stock off my buy list. This was a low stakes game of "chicken" since all of the company's mineral properties are non-producing, and who knows when they will ever start producing. Sometimes you get to sell these things to greater fools, and if the next fool also makes a few bucks, more power to him. But I am out of this crazy stock.

Tuesday, November 14, 2006


Election thoughts

Election night was no surprise to Redwavemusings readers, as the Dems gain in the House was well within the predicted parameters, and the Senate came down to the six states that the Dems needed to win, after holding NJ and MD. The only surprise, though we had conceded the possibility, was that the Dems won them all, though the counts went to day two as predicted.

Now that they have the majority, it will be interesting to see how they share the burden and responsibility for governing in these times of the early years of the war with militant Islam. Up to this point, it has been easy for them to join and exacerbate the media drumbeat that basically amounts to little more than Bush hatred and the tired old liberal class warfare policy prescriptions. Of course, when Clinton was in office, the GOP was no less relentless.

As for the Republicans, it is clear that their congressional leades butchered the last few years through the earmarks system and the corruption by lobbyists, etc. As McCain wisely said, it stopped being about limiting and improving government and became totally about maintaining power - being government. The administration has blown it too by not giving the other side a reasonable hearing. It's one thing to pursue the war seriously - a good thing - but another thing to belittle and disregard criticism, which is what the media and the loyal opposition are supposed to provide. The administration and congressional leaders also missed excellent chances to compromise on any number of initiatives to achieve results that would have been better than where we are now - estate tax reform, a more reasonable and less costly prescription drug solution, and AMT relief to name a few major items. Also social security reform was blown. So the GOP will need to straighten up its act in a hurry in order to resume majority status.

One consolation is that the newly elected Dems who provided the majority tend to be centrists, not flaming liberals. This should put the brakes on the senior liberal leadership group. If it doesn't, the Dems majority will be short-lived indeed. If the Dems are smart though, they will follow the model of the UK's New Labour party that grabbed that country's center for so long, leaving the Conservatives a very shallow Right end of the pool. The public has had it with the extreme positions dominating the policy debates. So, the Dem centrists, like Independent Dem Lieberman, should have more influence. I still say that a very smart choice for a Dem Presidential candidate would be Bill Richardson of New Mexico, who will be less polarizing then Sen. Clinton. He won re-election impressively as Governor.


On 11/8, I bought 1600 shares of WLV at 1.28. This is an average down in a situation where the company has talked openly about filing a pre-packaged bankruptcy. In a pre-packaged bankruptcy, usually more capital is injected into the company, the bondholders exchange some or all of the debt for equity on favorable terms, and the original stockholders suffer a reverse split. However, if done correctly, the company quickly emerges as a more stable entity with better cash flow and restored operating margins. Whether the original shareholders have any hope of getting even is somewhat problematic. So why average down, especially when most financial advisors advise against it even under normal circumstances? Well, I have had pretty good luck with average downs, (for example, BAMM, FFEX and CNRD) for one thing. For another, Wolverine Tube was a great company at one time and has suffered mainly from a distortion in the price of one of its major raw materials, copper. Finally, the copmpany still trades at about one seventh of its book value. Of course, that may mean that its non-cash assets are grossly overvalued, or that its inventory and accounting methods are flawed, or both. However, I have not removed it from my buy list, so when it came up in my formula, I do what I have learned to do from experience - hold my nose and buy.

Yesterday, I sold 100 ROP from my taxable account for 49.35 on the opening. Aside from the tax hit (these shares were purchased for 18.40 on 2/19/01) I was also greeted by news of a dividend increase at the close. As usual, impeccable timing. At least I could console myself that there are still 400 shares in the portfolio to benefit from the higher dividend. Years ago, I agonized over every sell decision, particularly after my all-time bonehead decision to sell ALL of my shares in DELL Computer way too soon. Someday, the full sad story of that chapter will appear in the blog. However, like all investors, I also had the experience of seeing gains melt away because of an inability to ring the cash register. So I had to find a way to take the emotion out of the sell decision, and that solution is now part of the formula. Importantly, I sell the way I buy, in small pieces, and that takes the agony out of the decision. Usually, I've still got shares to enjoy additional gains if they are going to come. I will only sell my whole position when the reason for buying the stock originally no longer exists. And that does happen, and when it does, I no longer even follow the stock.

But it's important to book profits, even if you have to pay some taxes. Best investment advice I ever read was "Don't forget to sell!"

Monday, November 06, 2006


Dallas trip and election predictions

My Dallas trip was fun and reasonably educational, although I only left the hotel once, to play golf. Frankly, this was my third or fourth visit to Dallas and the downtown has been going downhill, not up, in my experience. Besides, there was more than enough to do at the Anatole, even a decent jazz group in the lounge on Saturday night, my only free night anyway. By then, the talk among Texans was strictly NASCAR in anticipation of yesterday's race in Ft. Worth. This country has really become a tale of two worlds - no not Dems and R's, but those who are into NASCAR and those who aren't. I'm not sure which half is bigger, but I think I can guess whose having more fun, and it's those stock car crazies.

Our featured speakers included Mary Matalin and James Carville on Thursday and George Bush #41 on Saturday morning. Mary and James are hilarious together, and they have put together a real good act. George Bush was extremely personable and comfortable speaking, very much unlike his days in office. He seems secure in the knowledge that he did his best in office, as he has continued to do in his charitable efforts (in partnership with former rival President Clinton) and that most of his major decisions were correct tactically and strategically, even if not always communicated adequately from a political standpoint. He was enthusiastically received by the audience, including yours truly.

No matter how it goes, tomorrow should be an interesting evening. There seems absolutely no doubt that Dems will win the House, the only question is by how much. This despite the fact that I think the R's will do a little better than they are polling. There are three reasons why R's will improve in the only poll that counts. One, their turnout is always better, partcularly in off-year elections. Two, though the rule of thumb is that undecideds break against incumbents, I think that may be different this time. Most polled undecideds this time, I believe, are R's of one stripe or another and they are more likely to return to the fold than not, compared with true independents. Even if they don't, they may go the third party route rather than for the enemy. Finally, the lever just counts the vore, it has no way to measure the indifference or enthusiasm of the voter pulling it. So while D's are all keyed up to vote for their guy, and the R's aren't, chances are they will still offset in the booth.

All that having been said, the R's have too many weak incumbents in the House to defend. The Dems should be good for a 20-35 seat gain and they only need 15. The only seats the D's really have to defend are two in Georgia. They are expected to easily retain the rest of their seats. You'll know it's a bad night for the R's if the early returns from Indiana indicate that Hostettler, Sodrel and Chocola are losing their seats. The R's will also lose three in Ohio, most likely, unless Deborah Pryce hangs on to her seat. Then watch Florida and see if the seat vacated by Katherine Harris changes hands. In CT, both Chris Shays and Rob Simmons could be ousted. So those races will give you an idea of whether the shift will be at the high end of the range or not. Later on, upstate NY will provide confirmation, where as many as four R incumbents are imperiled.

The Senate, on the other hand, is unlikely to provide a clear majority party on election night. It now looks like Kyle (AZ) and Corker(TN) will come through. I did not expect Ford to self destruct in TN, since he seemed to have the momentum, but that has been reversed. On the other hand, I did expect Santorum to revive in PA but that now looks like a lost cause. I would say Kean has a chance to flip the NJ seat against the corrupt Sen. Menendez. Also, Steele has come on and has a chance to flip the MD seat. DeWine (OH) is a lost cause, and I would be pleasantly surprised if Burns came through in Montana. So that leaves MO (Talent), RI (Chafee) and VA (Allen), clearly too close to call. Together with MD and NJ, that's 5 races with the potential to go to the absentee ballots and post race procedures/litigation. When you take that into consideration, and any lingering doubt about which party Lieberman (CT) will caucus with, you can see why we will go to bed without a clear conclusion in the Senate. The D's need a net gain of six seats to win the mjority (they need 51, since the VP has the tie breaker), so they have to win MO, MT, OH, PA, RI and VA while holding NJ and MD to gain the majority. A tall order but not quite impossible. My best guess is that the R's flip one D seat, most likely MD, and the D's flip 4, probably MO, MT, OH, and PA for a net gain of three seats, leaving the R's in control 52-48.


On 11/1, I bought 100 SHLM for the taxable account at 24.26, and today, opened up a new position, NEM, buying 50 shares at 46.15 also for the taxable account.

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