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Tuesday, August 28, 2007


Late Summer Musings

Nice of Jim Caruso to visit the blog and comment. Mr. Caruso puts the Monday night shows together at Birdland.

A couple of additional jazz tips. WKCR.org is the site for the live stream feed of the annual Pres/Bird birthday marathon. It started yesterday on Lester Young's (Pres) birthday and continued today with a mix of Young and Charlie "Yardbird" Parker. Tomorrow is all Bird. If it's possible that these are unfamiliar figures to you, Lester Young was a fixture on tenor sax in the Basie band after making jazz history playing behind Billie Holiday. Young's tone on the tenor was unmatched and he practically pioneered the bebop solo. Charlie Parker pioneered bebop along with Dizzy Gillespie, and became the idol of the beat generation before his untimely death in 1955. Perhaps no one ever played with more facility and brilliance than he did on the alto sax. To this day, his music is played every weekday morning on Birdflight hosted by Phil Schaap on WKCR.

Also, this week at Dizzy's Club Coca Cola, an outstanding young tenor sax headlines, Eric Alexander.

With the resignation of Attorney General Gonzales, the poor judgment of President Bush in appointing a Texas crony who didn't really have the chops for the position reaches its inevitable culmination. I still would submit that this says little or nothing about the substance of the dispute over the fired attorneys, who served at the President's pleasure. Instead of trying to justify the firings on competence grounds, Gonzales and the Administration should have simply said that the firings were political, just as were the firings of all 93 US attorneys by the incoming Clinton administration in 1993. That would have been the end of the controversy.

Speaking of embarrassed public figures, we have Michael Vick, de facto Commissioner of the Ulitmate Dog Fighting Federation. Frankly, I don't see how dog fighting differs that much from cock fighting, which is actually still legal in one state (though no longer in Bill Richardson's New Mexico). Though both "sports" are reprehensible, I hardly think that Vick earned the equivalent of the football death penalty. From a football point of view, the real crime he committed was enabling and abetting a betting ring. For consorting with known gamblers, Paul Hornung and Alex Karas earned a one year suspension back in the 60's, so why is Vick's suspension "indefinite," meaning it could be longer?

It's sad to watch the decline of Mike Mussina, such that he will have to be dropped from the hapless Yankee rotation and probably be moving to the end of his career. Mussina has really had an outstanding career, and he is in that second tier of pitchers probably just outside of Hall of Fame consideration. That group would include names like Billy Pierce, Jim Maloney, Ron Guidry, Camilo Pasqual, Johnny Podres, Jerry Koosman, Vern Law, Lou Burdette, Mickey Lolich, Mudcat Grant, Dwight Gooden, Dave McNally, you get the idea.
The Bourne Ultimatum nears $200 million at the box office, virtually assuring a fourth installment. We do love it so.
Most magazine and newspaper columnists rely on you to read their stuff when it is hot off the press. That way, you are unlikely to check up on their predictions and recommendations. They should only have the burden of making their guesses on an Internet blog, where they will be preserved forever.

Anyway, those who know me know that I am often reading some fairly old stuff, so that frustrates the hopes of the writers I am reading. A case in point is poor Forbes Columnist Marilyn Cohen who, in the July 23rd issue (which would have hit the stands around July 9) boldly recommended Countrywide Financial in the face of an unraveling subprime mortgage market. My sympathies to anyone unfortunate enough to follow such silly advice.
On August 22nd, I bought 1800 shares of Wolverine Tube (WLVT) at 1.16, a very risky average down. Then today, I sold 200 shares of Conrad (CNRD) at the opening at 14, the first sale since July 20. These shares were purchased on 2/9/05 for 2.25. I had put in a limit order yesterday at 14.15, but it never executed, so i changed it to a market order. Jim Cramer is very strong on limit orders, but it is a mistake for long term players. Limit orders connote a short term trading strategy where a few cents in the price might make a significant difference in return. For long term players, you just want to get the transaction done and a few pennies in price either way is less important. This was a six timer, not a case of making a point or two. As it turns out, if I had put in a market order on Monday, it would have executed at 14 anyway.

By the way, this market is looking fairly precarious. We are retesting the lows, which was predictable. What is more difficult to predict is whether we will bounce off the previous low, or go through to much lower lows. From a technical point of view, we previously achieved correction status on an intra-day basis, namely a 10% drop from the highs before we bounced. The bounce fell well short of the previous high, and now we are retesting the correction low, possibly headed toward a bear market low (20% off the high). Why? The credit crunch has removed the silly buy-backs and the overpriced takeovers from the market pricing calculation. Unless the Fed can bring itself to effectively add back some of the missing liquidity, we are headed much lower. If the Fed succeeds, the cost will be a new round of inflation. That will hurt bonds, but the equity market would cope.

Tuesday, August 21, 2007


Honky Tonk Meets Hell's Kitchen

Which is exactly the way Laura Bell Bundy described the last of her three scheduled Birdland appearances this summer, part of Birdland's continuing Monday night Broadway at Birdland series. Since Monday night is dark at most of the Broadway theatres, it is a chance for the musical stars and lesser lights to strut their individual stuff at NY's landmark jazz club on West 44th. I had never made it for a Monday night before, and never heard of the evening's performer, but by chance, I had the opportunity last night, and found myself at a little table for the 7PM show featuring Ms. Bundy, currently starring on Broadway in the lead role of the musical adaption of Legally Blonde.

Most of the songs Bundy sang were from her new solo CD, Looking For a Place Already Gone. I can take or leave country, and it's a bit incongruous to put a pert young blond (don't take my word for it - visit her official website at http://www.laurabellbundyfanclub.com/LauraBellBundy.com/index.html)
in front of a seven piece band of pickers at Birdland (or as Bundy mused, imagine what Charlie Parker would have thought of the idea) but I must say that I really liked many of the songs (all but one written by Bundy) and thoroughly enjoyed the show, as did the near capacity audience. If you know Birdland, it's a big room for a jazz club, so on Monday night, at $25 plus a minimum per head, that's saying something!

So if that's the quality of performance that's typical of Monday night at Birdland, I guess I've got another good alternative each week.

Also, at Birdland in September, the third week's regular jazz headline show will be a tribute to John Coltrane, featuring the always exciting sax of Joe Lovano. The last week of September, the headliner will be world class jazz guitarist Pat Martino, making the commute up the turnpike from Philadelphia. An absolute must see. Jazz headliners generally appear for a Wednesday through Saturday night stay.

I loved the op ed piece in the WSJ by Joyce Lee Malcolm of the George Mason University School of Law called "Wonderfully Spared" that appeared back on July 3rd. Here are a few excerpts:

"You and I have been wonderfully spared," Thomas Jefferson wrote John Adams in 1812. "Of the signers of the Declaration of Independence I see now living not more than half a dozen on your side of the Potomak and, on this side, myself alone." Jefferson and Adams were not merely signers of the Declaration. Both sat on the committee that drafted the document, and Jefferson wrote it. And while they later became bitter political opponents, they reconciled in their later years...

They would never see each other again. But from a modest farm in Quincy, Mass., and a plantation in Virginia they corresponded and reminisced about the days when they were "fellow laborers in the same cause, struggling for what is most valuable to man, his right of self-government."

It's easy now in a nation awash with complaints about what our Founders did not do, what imperfect humans they seem to 21st century eyes, to overlook how startingly bold their views and actions were in their own day and are, in fact, even today. Who else in 1776 declared...that all men were created equal, entitled to inalienable rights, or to any rights at all? How few declare these views today..?

Certainly not America's 20th century enemies, the Nazis and communists; certainly not today's Islamic radicals...We are fortunate that the Founders of our nation were enlightened, generous, jealous of their rights and those of their countrymen, and prepared to risk everything to create a free republic...

But if we were angry at British treatment, we were also lucky that Britain was our mother country. The British taught us respect for the rights of individuals, for limited government, for the rule of law and how such values could be realized...We were lucky in our generals. Unlike the commanders of nearly all revolutionary armies before and since, George Washington resisted the temptation to seize power... Washington prevented a coup by his officers and when the war was over, he bid a moving farewell to his men and staff before appearing before Congress to resign his commission...

In their correspondence, Adams wrote Jefferson that the future would "depend on the Union" and asked how that Union was to be preserved...He was right to worry. The Union has always been difficult, from the first fears that the 13 separate states would behave as competing countries or bickering groups, through a brutal civil war whose wounds have yet to entirely heal, to a vast, modern land whose residents, taking for granted the blessings bestowed upon them, are deeply divided and quick to vilify each other.

In 1825 Jefferson wrote to congratulate Adams on the election of his son John Quincy to the presidency - an election so close it was decided in the House of Representatives. "So deeply are the principles of order, and of obedience to law impressed on the minds of our citizens generally that I am persuaded there will be as immediate an acquiescence in the will of the majority," Jefferson assured him, "as if Mr. Adams had been the choice of every man..."

On July 4 the following year, as the nation celebrated the 50th anniversary of the Declaration of Independence, its two frail signers died within hours of each other. Their cause, "struggling for what is most valuable to man, his right of self-government," continues in the nation they launched, still fraught with aspirations and anxieties, flaws and divisions but, one hopes, with the ability to reconcile as they did, to work together for the joint venture.

Professor Malcolm, thanks for the timely reminder.

On 8/15 I bought 100 shares of American Dental Partners (ADPI) at 22.48. Monday, I bought 200 shares of Thompkins (TKS) a little foreign diversification of mine, at 17.95.

Tuesday, August 14, 2007


The Scooter

I'll still owe musings readers a better post, but I really couldn't let tonight get away without a comment on the passing of a New York/New Jersey icon, Phil Rizzuto.

The Scooter played shortstop, a key position, on a dominant team for 13 seasons. Though not a great hitter, he was better than average for his position, and he was a productive offensive player though he lacked power. He was perhaps the best bunter ever, an aggressive baserunner who rarely made a mistake, and a team player who always made the most productive outs. If he came up with a runner on second and no one out, you knew that even if he made an out, he would at least get that runner to third.

Defensively, Rizzuto was a prototype shortstop for his era. Small of stature but quick, he got to everything on the relatively slow grass fields of that era, threw accurately if not powerfully, and anchored infields that usually outplayed the opposition. In fact, the Yankees of the 40's and 50's, though known for their offense, won games day in and day out with their defense and pitching.

Phil finished his career as an almost sure Hall of Famer based on his all around performance, but as the years faded, and he was not immediately voted in, his statistics, which outlived the memory of his performance, seemed to be borderline. Ultimately, it was his old friends on the veterans committee who voted him in, correcting a clear error by the sportswriters.

After his career, Phil moved to the broadcast booth joining Mel Allen and Red Barber, and later working with Frank Messer, Bill White, Tom Seaver, and most notoriously, Fran Healy. By any objective standard, Phil was a perfectly awful play by play man, basically reacting to plays like a fan instead of describing them. So a typical call by Phil would be "there's a line drive, oh would you look at that play," or "what was that!", or simply "Holy cow!." On TV, this was one thing, but on radio, a listener would have no idea what was going on. Typically, Phil did 3 innings on radio, three on TV, and then he was on his way home to New Jersey, listening to the end of the game in his car. If the game went to extra innings, well all the extra work would fall on his two announcing partners, since Phil was home!

Despite these foibles, or maybe because of them, and his Hall of Fame personality, Phil was one of the best loved baseball announcers in New York. The stories he told about his teammates and opponents, umpires and mangers from his playing days, were usually hilarious and always of interest. Funniest of all was the mindless banter with Seaver and especially with Healy. He and Healy would trade non-sequitors with such alacrity and innocence that one could easily forget how horrible the Yankees were then and how boring the actual game was. They would hop from comments about the game to Italian food, to fans in the stands, to politics, the news, anything without any transition between subjects. By the way, Phil always called former player announcers by their last name only - it was always White, or Seaver or Healy. The whole atmosphere was as if these old players were with you in the den, watching the game over a few beers.

Even when Phil campaigned openly for Hall of Fame election, the fans were in support. Maybe they realized that other former player announcers had campaigned more quietly but successfully for election, including Duke Snider and Richie Ashburn. Of course, they all deserved to be in.

Anyway, no one who loves baseball can be anything but sad to see Phil pass on though he lived a full and fulfilling life of mostly great fortune. He survived a world war in which he saw combat, had a great athletic career, won world championships, made the Hall of Fame, had a great family and earned a very comfortable living doing what he loved. Not bad for a little shrimp from Brooklyn.

On Monday, I bought 100 shares of Archer Daniels Midland (ADM) at 34.38. Go ethanol! This market really stinks. I am still well above 20% cash, no sales coming up soon.

Thursday, August 09, 2007


Investing - Part 5

To close out this series, I'll respond to questions received from readers about the System, and questions I anticipate readers my have, even though they were not received.

Q. Let's get right down to cases - the system's criteria for choosing transactions is pretty elementary. It seems too simple to be very successful for very long. Shouldn't you work harder to find bargains and determine "tops" for selling points?

A. Success is a function of what your goals are. If you define success by an ability to buy at or near the bottom and sell at or near the top, it's true the system does not consistently achieve that. In fact it rarely achieves it. However, I don't know anyone who does. There are people with a knack for gambling, who seem to win at poker, at the races, and maybe at stocks. These people are fearless, confident, decisive, and respectful of the game. They are very rare. And probably, in their honest moments, they will tell you that they are not as far ahead as you think they are.

Most people are not that way, and they don't have all those strengths. I don't. There are things I am good at, I enjoy reading about companies, and I think I have a feel for companies with good strategic ideas, nurturing and ethical cultures, and solid management. Those are the companies I want on my buy list. However, I know I am a lousy trader. To me, the market's next move and any given stock's next move is just a guess, a shot in the dark. I can't make money calling tops and bottoms. I know this from my experiences with options trades, and with bad decisions as in the Dell episode. I also know I am really weak on the sell decision.

For the few good gamblers in the world, they may not need the discipline of a system. I do. That way, I never agonize about a trade, either a buy or a sell. I just do it, knowing that I am trading in small increments, and no one decision is make or break. The system is designed to result in a tendency or a bias for buying lower and selling higher. But it is only a tendency. Losing trades are very possible.

Also, my main goals are to preserve capital while achieving a reasonable risk adjusted return. I think the system has done that pretty well so far.

Q. So where does the individual investor's work and decision making enter the picture? Or will everyone using the system obtain approximately the same results?

A. The decisions to agonize about are whether to add or subtract a given company from your buy/hold list. Finding "good" stocks and following them closely enough to determine whether they are still on track is where the individual judgment comes in. It is that which will drive the results, so it is very likely that two investors, both using the system, will obtain very different results.

To put it in the simplest possible terms, if you have stubbornly kept Kodak and companies like it on your buy/hold list for the last ten or twenty years, no system is going to help much.

Q. OK, so are there any scenarios where the system breaks down and doesn't protect your capital?

A. I am afraid there are, and I have been trying to anticipate them and make the appropriate adjustments. Again, if we went into a secular bear market, that lasted a decade or so, as in the great depression, eventually, I've got to lose a lot of money unless I abandon stocks. And they won't ring a bell to let you know when it's safe to go back into the market. Though the 2000-2002 market was pretty awful, and caused me to make a few improvements to the system, it was no real secular bear market. Basically, my view is that we have been in a secular bull market since 1982. Unless you ignored the warning signs, and overplayed tech stocks in 1999-2000 without diversifying, you almost had to make money in the market the last 25 years. You didn't need to be a genius. So I would not argue with someone who said that the system will not be proven until it rides out a longer bear market. It could be getting that test now (though if I had to bet, I would say that we are in the midst of a ten per cent correction caused by the mortgage shakeout).

Q. Ok so there are no guarantees.

A. Nope, though someone using a system will trade with more discipline, and that will help most people.

Q You seem to be holding a lot of cash. Aren't you too young to hold that much cash? Especially since 50 is the new 40, etc.

A. Well thank you. It used to be that investment accounts held no cash, and advisors simply allocated assets between stocks and bonds. A typical formula was you subtracted the person's age from 100 and that was the percentage you held in stocks, and the person's age was the percentage you held in bonds and cash (but probably only bonds). So as the investor aged, you gradually moved him out of stocks and into bonds. But those were the days when folks assumed that bonds and stocks moved in opposite directions. However, since the late seventies, we have learned that bond and stock moves are more correlated, since interest rates drive P/E ratios, and therefore stocks. Interest rates always move bonds, of course. So cash (or Treasuries) have become a proxy for bonds that provides a better hedge against stocks, since cash does better when rates go up. For a long time, I have avoided investing in individual bonds (too expensive, markets too illiquid). I do have a few preferred stocks (that act like bonds) and a muni bond fund. Neither counts as cash in my system, which makes my allocation even MORE conservative. I do count Treasuries as cash, which I have now started to buy since they are more tax efficient (i.e. not taxed by New York state, an important tax to avoid if you are subject to AMT).

This is a long way of saying that I am comfortable with 20% of my investment portfolio in cash, given our other assets, and I don't think it's too much for my age, but it could be too little, if anything. The last few weeks should have proven that there is nothing wrong with cash. It would have been better to have been 40% in cash, right?

Q. CNRD closed today at 15.70. Do you regret selling it earlier this year as low as 6.10?

A. Nope. And if you have to ask that question, you need to reread Investments Parts 1-4 again (all available on the blogsite). I also don't regret missing the chance to sell my remaining 2500 shares at 17.75, which top the stock made for a few minutes earlier this week. I have no idea where it goes from here, but the system is sure to tell me to sell more shares if it stays where it is for very long (or goes higher). And when it does, I'll do it. But first, I have to get my cash down to 20% again. And if we keep having days like today, that won't be anytime soon.

Q. Should I adopt your system?

A. Who knows? My system was designed to meet my needs, and whether it does or not is a matter of opinion. It was not designed to meet anyone else's needs and it may not be suitable for you. (That sounds suspiciously like my periodic disclaimer, which I will complete by stating that neither redwavemusings nor its author are investment advisors). The point is that designing a system that meets your needs will bring discipline to your transaction decisions.


On Monday, against all logic, I bought 100 shares of Bryn Mawr Bank (BMTC), where I had my checking account in college (and until I got married). The price was 22.48. Then on Wednesday, I bought 100 shares of SEI Corp (SEIC), the mutual fund company, for 26.30. Somehow, I got mixed up and got my zero buys and value buys out of order. Clearly SEIC was a zero buy, while BMTC was a borderline value buy, that also would have been the zero buy choice. So unless the market skyrockets tomorrow, I will be looking for a value buy for Monday.
There are a few more stocks on my list that now qualify, thank you.

Sunday, August 05, 2007


The Bourne Ultimatum and The Political Void

The Bourne Ultimatum is a Must See for those who love the Action genre, and even those who don't may find it sufficiently cerebral, particularly if they saw the first two movies. This is a rare series where a good initial effort was followed by an even better sequel, and the third of the series is every bit as good as the Supremacy. It's another superior effort by Paul Greengrass as Director, using his trademark "shaky" camera work to heighten the viewer's perception of being involved in the action. But again, he gets to work from a really good screenplay where a really unique sequence of scenes among the three movies is pulled together in the Ultimatum. I don't want to reveal anything about the plot, but it will certainly be helpful to have a pretty close recollection of the first two movies. Again John Powell's score is an integral part of the fun.

The Minneapolis bridge collapse brings to mind the corroding infrastructure of the country, and the lack of incentives and priorities to put it right. In NY, we didn't really need the reminder, since Con Ed is STILL dealing with the hole in the ground at Lex and 41st Street because of the burst pipe a few weeks ago. Buildings in the immediate area have still not all reopened due to the need for asbestos abatement following the explosion. So now all of the bridges need to be inspected and the pipes will need to be replaced eventually. Lots of work for the construction folks, but it's time to get around to it instead of these Congressional earmark expenditures on useless projects like the infamous road to nowhere.

Unfortunately, Congress is hooked on earmarks, and the recent "ethics legislation" does nothing to curtail them. In the majority, the Democrats are proving to be no improvement over the Republicans.
In Presidential politics, the Dems strategy seems to be for Obama, Edwards, and the lunatic liberal base to make Hillary look good by criticising her more reasonable positions at every opportunity. So by comparison, she looks responsible and certainly electable. Does anyone take Obama's foreign policy ravings seriously? I guess this is one of those cases where the more we're exposed to him, the weaker he seems as a candidate.

Not that anything much is happening on the GOP side either. The McCain candidacy has completely imploded, and I doubt he will stay in the race much longer. Thompson is running but hasn't officially committed, meaning that his exit, when it comes can, be considerably more graceful. That leaves it to Guiliani and Romney, and I suspect the latter is an Obama-like stealth candidate whose appeal will likely wane with exposure. So religious righters may have to accommodate themselves to Rudy, unless they can convince Newt to make the race. But Newt's run, if there is one, is more likely to be Quixotic, sort of like Barry Goldwater, where he gets slaughtered but plants the seed for some future conservative activist.

All of this proves that the marathon has become too long to sustain enthusiasm for any candidate continuously.
The stock market certainly had another miserable week, reeling from failures in the mortgage sector, teetering hedge funds, and the knowledge that the shake-out is not nearly complete yet.
In the end, the market perceives a credit crunch, and the two major liquidity impacts that supported the market (share buy backs and takeovers) will soon be MIA. I, for one, am against buy-backs anyway, as I have stated previously, preferring dividends as a way to reward investors (in the absence of growth investment opportunities). As for takeovers, I am fine with having my companies taken out, but it does not do the economy any good for private equity to do a takeover, stiff the bondholders by over-leveraging the company, get their money out, lay off the employees and walk away from the ruins. The bond market has finally figured out that there is a need to protect bondholders, so for new bonds they have restored all of the old covenants that force bankruptcy under certain conditions. So market dynamics have really changed.

This is not the end of the world, just the end of a chapter. It is and will be painful, as all important adjustments are, but investors would be well advised to go back to doing fundamental home work, find and accurately assess value, and transact accordingly. This is certainly not a time for leverage, margin buying, option buying, etc. Above all, it is time to keep to your trading disciplines, whatever they are, maintain your asset allocation, and keep a cool head. And above all, don't commit everything at once to any decision. Whatever moves the market makes will take time, and you can let that time work for you instead of against you by trading in smaller increments.

On Wednesday, I bought 200 shares of Marine Max (HZO), the recreational boat builder/servicer, for 18.70.

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