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Tuesday, December 26, 2006


Post- Christmas Musings

Item - North Korea Talks Fail to Produce a Deal - What a shock! There is no doubt that Americans (and Europeans) expect too much too soon from negotiations, and that leads them to make ill-advised, premature concessions. Negotiations should be approached from the viewpoint that you will not compromise your significant interests. That means that agreements are reached only when interests coincide. But that should be expected to be a long process, not a speedy one, since the recognition of common interest takes time and repetition, and interests change very slowly over time. The basis for a deal with N. Korea is there, since the subjects of disarmament, or at least nuclear non-proliferation, reunification with the South, economic assistance, and industrial development could all be in play over time. However, we should not expect a deal soon with the current regime in place.


Item - Pfizer's ousted CEO McKinnell wins a big payday - Let's see - a CEO sees his company's stock price steadily fall during his tenure, its drug pipeline basically dry up, and finally, mercifully he is jettisoned by the Board. So what happens - he is rewarded with a gigantic retirement bonus. This has never made any sense to me. The deferred pay business is OK. That's pay he could have received earlier but put off for tax purposes - it's his. But the other bonuses do nothing for the corporation and reek of cronyism. Why should the new CEO object? He is hoping for the same treatment if and when he gets canned.

This is one reason I favor eliminating the cap on income subject to social security tax. The corporations would be more careful about these outsized compensation packages, since they would be contributing their 7% share. I had a discussion with my full service broker about this concept, and I pointed out that the tax revenue will be needed in order to offset a fix to the alternative minimum tax. He made an interesting suggestion. Eliminating the AMT will have to be done to help the middle class who will be incurring the tax in big numbers starting in tax year 2007. So he said that in conjunction with eliminating the AMT, we should leave the wage base cap where it is, but restart the social security tax base at 500,000 (or a million) and up. That would at least leave a corridor of wages between the current cap and 500,000 not subject to ss withholding. An interesting idea.


Item - James Brown - RIP. The Godfather of Soul truly was, not that he was the first, but that he brought R&B music to new dimensions, incorporating funk, and elements of what becme rap and hip hop. There were many great soul singers before Brown, notably Chuck Jackson, Jackie Wilson, and Ben E. King to name a few, but he was a true pioneer. And a great, unique talent.


Item - The commercialization of Christmas - An interesting op ed piece in the WSJ last week made the point that there are really two Christmases. There is the religious holiday celebrated by Christians everywhere - one of the two most significant days on the Christian calendar. Then there is the non-denominational, better yet, civic holiday we all celebrate, regardless of religious affiliation (or non-affiliation). This is the commercial event, complete with the pagan and civil symbols that have become its signature - the tree, Santa and Frosty, etc. Once you accept this, having a tree in front of City Hall should not be a problem, even for those who misinterpret the establishment clause (no pun intended) of the constitution and one can live with the overtly commercial aspects of the event as well. It's a situation where the ability to compartmentalize is really useful.


On 12/20, I bought 50 shares of UIC, yet another new name for the taxable account. Today's purchase, also for the taxable account was 100 shares of ADM at 31.25. One thing really helping the rally continue is all the privatizations. When these private buyout funds take out a public company, the proceeds eventually get recycled back into the market's existing stocks. If the value of private buyouts exceed IPO's, we have a situation where more cash chases fewer outstanding shares.

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