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Tuesday, May 22, 2007


Spring Clearance Items

Item - GE sells Plastics business - The world has certainly changed since that memorable career advice given to Dustin Hoffman's character in "The Graduate." GE's plastics business could no longer meet the company's return on capital hurdles, and the business is now considered such low tech that no one uttered a peep concerning the Middle Eastern buyer of the business.

CEO Immelt then announced that there would be no major acquisitions or divestitures for awhile. Instead, GE would start to return money to shareholders in the form of stock buybacks and higher dividends. Redwavemusings readers already know my dim view of buybacks, and though I look more kindly upon dividends, it says something about the failure of GE's long vaunted management that they can't find better uses for their excess cash.

I'll have a lot more to say about the Six Sigma management style in a future post, and I'm still a shareholder of GE, expecting it to finally do better when it is no longer trading at a ridiculous multiple of book value (it's getting close to fair value) but for now, let's just say that this company's reputation for outstanding management continued long after those management disciplines were abandoned.


Item - Sly Stallone convicted of steroid importation. I guess I can understand a real professional athlete being tempted to use illegal substances to improve performance, but for the life of me, why is this necessary for a pretend athlete? Actors on the cream!? If he could win an Oscar, would Sly have to return it?


Item - Wolfowitz ousted at World Bank - When he was hired, Wolfowitz asked the Bank's Board to allow him to recuse himself from personnel decisions involving his girlfriend, then a long time Bank employee. For some reason, he was told to handle the situation himself. He found her a job at the State Department, and that was OK, or would have been if he didn't also secure for her a big promotion and outsize increase in pay. Naturally, when this came out, it gave his enemies all the ammunition they needed to force his departure. And he had already made plenty of enemies, since he was busily unwinding the corrupt deals his Euro Board members were making in the name of "fighting poverty."

The US funds about 16% of the World Bank's budget, and that's why we get to name the CEO. So the Bush Administration, when they finally gave up the ghost trying to save Wolfowitz, announced they would quickly install a new CEO. Mistake. A better plan would have been to tell the Euro's that we were pulling out and they could either run the Bank themselves or crash it. We could take the same money and put it in our foreign aid budget where it would do some good.

Actually, the UN is equally corrupt, and I would pretty much tell them the same thing.


Item - Tony Blair makes way for his partner Gordon Brown to take over as Prime Minister. Generally, I would not be a big fan of a Labour Government, but since 9/11, the US' most loyal friend has been the UK and in particular, Mr. Blair. He has steadfastly, and at great personal political cost, stood by us in the fight against terrorists. He sees clearly what it seems the majority of the world sees through rose colored glasses. His record as PM was pretty good, all-in-all. Though the UK economy shows some weakness now, it has performed superbly for most of his tenure, and he has achieved steady incremental improvements in government services. He leaves a government not without problems, but arguably one that has outperformed most of its peers.

Here's Tony on terrorism: "This terrorism, in my view, will not be defeated until we confront not just the methods of the extremists but also their ideas. I don't mean just telling them that terrorist activity is wrong. I mean telling them that their attitude to America is absurd, that their concept of governance is pre-feudal, that their positions on women and other faiths are reactionary. We must reject not just their barbaric acts, but their presumed and false sense of grievance against the West, their attempt to persuade us that it is we and not they who are responsible for their violence."

Let's hope that after a little rest to recharge, Mr. Blair will resume his service to the world in some important capacity.


Speaking of folks who made important contributions, we should all thank Pennsylvania voters for lending us the talents of Rick Santorum for 16 years (4 in the House, 12 in the Senate). Of course, we should also give them a big slap in the butts for denying us those services last November. I say this without casting aspersions on PA's junior Senator, who is far from the worst replacement they could have provided. However, Santorum was one of those sharp and relentlessly honest guys that we never have enough of in Congress and that we really miss now. Hopefully, he will also get another chance to serve in the future.


On 5/16, I bought 100 shares of BMTC for the taxable account at 23.60. Yesterday, I bought 200 shares of PBCT at 19.90 for the IRA. Good thing the market is not heeding the demons I have been concerned about, as stocks climb the proverbial wall of worry to new highs. Luckily, I don't pay any attention to my own predictions about the market either, content to just follow the action and let my asset allocation formula dictate buys and sells. Of course, if the bottom falls out, I won't be any better off than the investors who had no idea it was coming.

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