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Monday, November 26, 2007


Spotlight on 2nd Amendment case

The Supremes have decided to take on a 2nd Amendment case that could decide once and for all whether the right to bear firearms is an individual right or a collective one that constitutionally enabled and protected state militias. The Amendment reads "A well-regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed."

In its historical context, the Amendment is part of the Bill of Rights, ten original amendments that represented a compromise between the Federalists and anti- Federalists necessary to get the Constitution ratified by all of the states. The thrust of these amendments is to protect individual rights and freedom, with the exception being the Tenth which reserves rights not delegated to the Congress to the States and to the People.

Otherwise, the term "the people" refers to individuals. There is no reason to believe that the same term in the operative clause of the Second Amendment does not also refer to individuals.

As I read it, the reference to the militia is merely a rationale for the operative clause that sidestepped the other arguments that might have been made to safeguard the right to own weapons. In the 18th century, when a militia was mobilized, it was expected that the volunteers would bring their own weapons. If the population were disarmed for any reason, it would be virtually impossible to organize a militia.

Fast forward to the 21st century. The right to bear arms is under attack by gun control advocates. The closest thing we have to a militia is the National Guard, and weapons are often supplied to reservists. Is the 2nd Amendment inoperative, outdated, or does it merely survive an obsolete rationale to exist on its own merits? D.C. will argue (in favor of preserving its ordinance) that the Amendment is now inoperative since its reason for being is outdated. The NRA and gun owners will argue that the operative clause survives the original rationale.

The political merits of the case are also a matter of dispute. On the surface, removing a significant number of weapons from society should reduce urban violence. However, the other side of the argument is that disarming the peaceful members of the community will only embolden the criminal element that will obtain guns illegally if necessary. Could an armed Samaritan have short circuited the Virginia Tech massacre or similar incidents around the country? Some think so.

The statistics don't provide much comfort for gun control advocates. In his op ed piece in the WSJ last week, Mike Cox, Michigan AG, wrote that "crime rose significantly after the gun ban (in D.C.) went into effect...during the 30 years since the ban, the murder rate has only once fallen below what it was in

Last night's Cold Case episode indirectly raised a lot of the issues with gun control, when a fictional loose cannon police officer actually provided a gun to a coed to use to protect herself from a serial rapist who was considered a threat to repeat. The gun ultimately proved to be the weapon that terminated the rapist though a different person pulled the trigger in what was ultimately determined to be justifiable homicide, a conclusion satisfying to most viewers (though it may have left a few lawyers queasy). Nonetheless, the question was raised, if you are violated and the police refuse to take action or provide protection, at what point and to what limit are you entitled to defend yourself?

it appears that candidate Guiliani has moved from gun control advocate (as NY Mayor) to gun ownership advocate. Perhaps, as has been suggested, he is merely responding to the GOP primary electorate, but I wonder if he also hasn't come to the conclusion that his success at reducing violent crime as Mayor was less because of gun control than it was a result of a more determined and capable police force. That success has continued under the leadership of NY's current Police Chief Kelly, who has approached the job with as much determination but perhaps a little more thoughtfulness and sensitivity than his predecessors.

Back to the Court - the decision is almost certain to be 5-4 with Scalia, Thomas, Roberts, and Alito lining up against Stevens, Souter, Ginsburg and Breyer, leaving Kennedy to again decide for the Court. I have never owned a weapon and wouldn't want to, but I also believe the Constitution means what it says, and therefore I hope Kennedy rules for the 2nd amendment and against the D.C. ordinance. Is that unfair to the clear majority in D.C. who want to ban weapons. No - if the Constitution means anything, it forbids states or the District from enforcing ordinances that remove rights protected by that document. When certain states denied some of their citizens their voting rights in the 1950's and 60's, people made great sacrifices, even giving up their lives, to make the point that Constitutional rights had to be protected against state prejudices. The point was correct then and it is correct today.

Finally, we should all remember that the Constitution is a living document, but its dynamism stems from its Amendment procedures, not from the desire by many to reinterpret it according to "current standards" or what they deem to be the informed position on an issue. It may or may not be that gun control laws could be a positive thing, and there is no reason why permits and registration of weapons should not be required. What is not disputable is that there are specific procedures in the Constitution for changing it, but there is no chance in the foreseeable future that a consensus exists to overcome the political obstacles for Amendment either by gun control advocates seeking to overturn the Second Amendment or by gun ownership advocates seeking to make the Amendment right more explicit.


Thanks to musings readers for putting the blog over 1000 hits. I am not sure what this says about how we folks choose to spend our time or whether it is sillier for all of you to look at this drivel than it is for me to write it, but I will continue to do so as long as there is interest and I have anything to say. A reminder that comments are welcome.


The market continues to take a shellacking and there is no immediate end in sight. Still, I keep buying, getting better and better prices as we go. On 11/19, I added to my position in Boyd Gaming (BYD), buying 100 at 38.25, a zero buy and a small average down. Last Wednesday, I bought 100 shares of Lowes (LOW) for the bargain price of 22.27 a value buy - yes LOW! Today, I bought 100 shares of Stiefel (SF) at 47, even though the chart seemed to be indicating a test of the low a few dollars further down. But I am largely ignoring technical analysis - Lew Rukeyser thought it was voodoo - but sure enough, the stock went straight down all day closing under 45. The consolation is that I am staying with my system, making decisions unemotionally in what is becoming a pressure cooker market for many, and my system requires me to keep a lot of dry powder. Buy side investors should be prepared to spend a prolonged period under water.

Friday, November 16, 2007


Formal Musings

As I write this from Orlando (using a kiosk thoughtfully provided by one of the vendor exhibitor companies), I have my tux on and am ready for our formal evening, clearly the highlight of the week here at the big Trade Show. I have had a love/hate relationship with this tux since buying it many, many years ago, and getting dressed for such events is a real exercise in paranoia for me. However, I continue to learn new tricks that make the process a little less time consuming, thus allowing me to squeeze in this post.

I actually look forward to the few opportunities I get to wear this thing, and since I am a night owl anyway, I have generally a good feeling about formal events, unlike most people who seem to dread them (more than root canals in some cases). The worst part used to be putting on my shirt since the proceess of putting in those accoutrements (studs I guess) where any normal garment would have buttons was virtually impossible while WEARING THE SHIRT! Finally, I figured out that you could simply put them in first, THEN put the shirt on, and button them as if they were buttons. So there's about 10 minutes saved.

I have now figured out that the same principle applies to the cuff links, since I can squeeze my fist into the fully assembled sleeve, no problem. This saves time, and also reduces the chances of a severly sprained wrist or shoulder. Of ourse, I still worry about whether the link is inside out or upside down. But the paranoia is not debilitating. More concerning is whether my cumberbun and bow tie are upside down. Frankly, I have pretty much decided that there is no upside down for the bow tie, it looks the same either way, so I just put it on once now and forget it instead of trying it each way twice hoping to figure it out.

So the whole process of getting dressed now doesn't take much longer than putting on a suit and tie.

Of course there are still a couple of things to worry about. Should my wallet and cell phone go in the pants pockets or the coat pockets? That's a pretty deep question. Also, I have a pronounced red inside lining in my coat and I like to wear it open, which means I have to be careful when the photag comes by. A few years ago, our group's picture appeared in the industry trade journal and my freaking red lining was all too visible, though it's possible no one else noticed. Since then, I tend to close the coat when it's picture time.

Anyway, the evening promises to be fun, and it's almost post time as Frank Sinatra used to say (reference the movie, The Joker Is Wild).

A good rule of thumb I learned a long time ago is that the financial stocks and utilities lead the market trend. So, when the financials are whacked by a unique event, i.e. mortgage write downs, are they leading the market down, or will this be confined to that segment. My guess is that the financials' slump is part unique and part trend. I would be careful with this market, and even though economists have called 10 of the last 3 recessions, the possibility that we are beginning one should not be discounted.

Monday, November 12, 2007


More Journal Musings

Regular readers of this blog know of the influence of the WSJ on my thinking and that I don't throw the paper out without thoroughly perusing it first (even though that means I still have some fairly old newspapers lying around). I certainly spend around two hours with most editions. So this post will catch me up on various articles and columns that I have torn out recently for the purpose of quoting here, hopefully for the benefit of musings readers who either don't have the patience to spend quite so much time with the WSJ or somehow manage to make it through life without it.

First a quote I found amusing from the September 26 edition on U.S. Homebuilder Horrors. Actually this is something the Journal reprinted from a fellow blogger, breakingviews.com. "The (housing) sector is on course to meet D.R. Horton Chief Executive Donald Tomnitz's prediction that 2007 was 'going to suck, all 12 months of the calendar year.'" Hey, this is a family blog! Seriously, great call, Donald, and what do you think it's going to be like in 2008? Please, tell us what you really think this time.

Then, on the ever popular topic of global warming and human culpability, November 1 brought us an op ed from skeptic John R. Christy of the University of Alabama's Earth System Science Center, who was one of the IPCC panelists who shared the Nobel with Al Gore. Unlike Mr. Gore, Mr. Christy looks at the data as a scientist, not as a politician nor as an anti-development academic. As a result, he interprets the data a little differently, and draws more measured conclusions about the lengths we should go to combat the warming climate. For example: "The recent CNN report 'Planet in Peril'...spent considerable time discussing shrinking Arctic sea ice cover. CNN did NOT note that winter sea ice around Antarctica last month set a record maximum (yes, maximum) for coverage since aerial measurements started."

And, "There has been a drought (in the U.S. Southwest), but it would be a stretch to link this drought to carbon dioxide. If you look at the 1,000 year climate record for the western U.S. you will see not five-year but 50 year long droughts. The 12th and 13th centuries were particularly dry. The inconvenient truth is that the last century has been fairly benign in the American West. A return to the region's long term "normal" climate would present huge challenges for urban planners."

And finally, "My experience as a missionary teacher in Africa opened my eyes to this simple fact: Without access to energy, life is brutal and short. The uncertain impacts of global warming far in the future must be weighed against disasters at our doorsteps today...a cost benefit analysis of health issues by leading economists calculated that spending on health issues such as micronutrients for children, HIV/AIDS and water purification has benefits 50 to 200 times those of attempting to marginally limit "global warming."
In a recent post, I estimated that Mrs. Clinton was a 60% favorite to win the Presidency, a calculation that stemmed from my assumption that the Democratic nomination was a lock for her. Though this calculus may have disconcerted readers and others, I still think she is the favorite, though her campaign has been tarnished of late by a couple of mediocre debate performances, and the portrayal of her (by her husband) as a "victim" of the increasingly desperate attacks on her positions by her primary opponents.

I have to admit to laughing out loud at the Journal Editorial page reaction to her debate performance. "The junior Senator from NY seems increasingly to have adopted her husband's political methods, minus the savoir-faire. The result is that it's impossible to know what she believes about anything."

"On Iran's nuclear ambitions, moderator Brian Williams asked...the candidates 'What would make it crystal clear in your mind that the U.S. should attack Iran?' Senator Clinton's answer was, in sum, 'I think that what we're trying to do here is put pressure on the Bush Administration.' She added, 'we've got to rein him in.' (meaning Bush, not Ahmadinejad). Pressed by Mr. Williams, she clarified, "We're not in my view, rushing to war. We should not be doing that. But we shouldn't be doing nothing.'"


"The question of experience came up repeatedly, and Mrs. Clinton wasn't shy about citing her time as First Lady as a main qualification to be President. When Tim Russert asked 'In order to give the American people an opportunity to make a judgement about your experience, would you allow the National Archives to release the documents about your communications with the President, the advice you gave, because President Clinton has asked the National Archives not to do anything until 2012. Mrs. Clinton's initial response was to blame the Archives, but when Mr. Russert asked about lifting her husband's ban, she replied 'That's not my decision to make.' Apparently we are supposed to believe that the former President would refuse his wife's request to release those records if she asked. Even gentle Mr. Obama couldn't bite his tongue about that one, comparing the episode to the "secretive" Bush Administration."

Also hilarious were her responses on the Spitzer driver's licensing plan for illegal aliens: "It makes a lot of sense" to give licenses to illegals. "Mr. Spitzer is trying to fill the vacuum left by the failure of this Administration to bring about comprehensive immigration reform...I just want to add, I did not say it should be done, but I certainly recognize why Governor Spitzer is trying to do it...Do I think this is the best thing for the Governor to do? No." On Social Security, "I do not advocate and do not support" raising Social Security taxes. But she would still consider it."

You get the idea. I won't be voting for her, but I must admit to a certain nostalgia for the innocent hi jinx of the Clinton years. And we can spend some more effort trying to define the word "is."

And in her weekend column, the fabulous Peggy Noonan, in contrasting Mrs. Clinton's character with that of the Iron Lady, Mrs. Thatcher, told the following anecdote:

"The story as I was told it is that in the early years of her prime ministership, Margaret Thatcher held a meeting with her aides and staff, all of whom were dominated by her, even awed. When it was over she invited her cabinet chiefs to join her at dinner in a nearby restaurant. They went, arrayed themselves around the table, jockeyed for her attention. A young waiter came and asked if they'd like to hear the specials. Mrs. Thatcher said, "I will have beef."
Yes, said the waiter. "And the vegetables?"
"They will have beef too."

More from Ms. Noonan's column next time.


Back on the road again, this time to Orlando, home of theme parks, golf, sun and this year, the best trade show in our industry.
The market continues to stink, and to be buffeted by hedge funds that cause enormous price swings in individual stocks as they change their bets and move from one sector to another. That can be very disconcerting for individual investors, but it also provides opportunity for nimble investors looking for attractive entry and exit points. Last Wednesday, I bought 200 shares of Bank of Granite (GRAN), a beaten down regional bank for 11.42. Today, I exited my position in Andrew Corp.,selling all 1700 shares for 14.75, close enough to the expected takeover price of 15, especially since there have been doubts expressed about whether this deal will close. The shares were purchased in 8 different transactions from 2004-2006 at prices ranging from 8.73 to 14.42. Also today, I bought 1100 more shares of FSII at 1.90. So far, this average down has been a complete failure. They can't all be gems.

Monday, November 05, 2007


Big Timber Falls on Wall Street

This is the 94th Musings post so it appears we will get to the 1000th hit before the 100th post. Both milestones will be quite amazing to me. I have done very little to promote this blog, and perhaps I will start to do more promotion after next year. It's not that I am against widening the audience - on the contrary, readers are welcome to spread the word - but I do prefer some anonymity concerning the author, at least through 2008. After that anonymity won't be a consideration. Still the blog continues to be fun to write, and I am pleased to have regular readers.

In short order, some very big company CEO's have taken the axe (O'Neal, Prince Parsons), and more are apparently cued up (Cayne, Sullivan?). Short tenures and instant culpability for disappointing results are why it is necessary to pay CEO's so much. The O'Neal case at Merril Lynch is especially instructive. By all accounts, he did a splendid job turning Merrill around and pushing them far beyond their dominant retail brokerage origins. Unfortunately, that was also his undoing as the company's risk management function did not properly contain its investment in mortgage securitizations (Whose did? Only Goldman Sachs seems to have totally avoided this debacle). So right away he gets canned, and then to add insult to injury, the headlines are about his nine figure exit package, none of which was really severance! All of it was his vested pension, options, and restricted stock. So I feel better that even though his reputation was unfairly tarnished, at least he won't end up on welfare. Seriously, being CEO is no bowl of cherries these days, especially in a big company. They work 24x7 (Cayne is being pilloried for spending his vacation playing in a bridge tournament and being out of touch for a few days), endure tremendous pressure, and get bounced, tarred and feathered at the drop of a hat. Not for me, thanks.

Folks in this country are having a tough time dealing with the fact that the USA is not the economic sun, moon and stars (though it still may be the center of universe). Imagine that our economy is impacted so much by China, India, Europe and other places. Well, thank goodness it is. The demand from those countries, though keeping up energy prices, is also making the world safe for our export oriented companies and softening recession threats. It used to be the USA provided the only meaningful consumer demand in the world, and when we caught cold, the rest of the world got pneumonia. People may not see it that way yet, but both our economy and the world's will be better off because there is more balance and effective international demand for consumer goods.

However, with that comes more responsibility for a reasonable dollar policy, one that neither strengthens nor weakens the dollar unnecessarily. Right now the dollar is too weak, so weak, in fact, that a number of countries that have pegged their currencies to the dollar are reconsidering the wisdom of that policy. I would prefer to see the Fed peg the price of gold in dollars, say at $500 an ounce, instead of trying to modulate the economy by balancing inflation and recession risks. Another possible system would be to start with a given gold price target and add 2% to it each year to allow modest inflation and monetary expansion.

My concern that the credit crunch would retest the highs of anxiety and the lows of financial asset prices has come to pass very quickly. Housing is nowhere near a bottom - at least 6-9 months away, and a couple of years before any upturn. When picking stocks, balance sheets are more important than ever in this environment. That means picking stocks close to book value (not more than 2X) and with the less debt the better. Right in my formula's wheelhouse. Now you just have to hope the numbers on the balance sheet are real. As we have seen, no one really has much idea concerning the quality of the assets underpinning these securitized mortgages, or anything else that the capital markets have spun out the last couple of years. It will be interesting to watch the ratings agencies downgrade everything and anything in the coming months.

Still we keep buying. On 10/31, it was 100 shares of home builder Centex CTX), admittedly a very deep position to take, at 26.70. Then on November 1, I bought 1900 shares of Wolverine Tube (WLVT) at 1.10, the same price as the rights that expired last week, but it's actually cheaper to make a limit order with my discount broker than to exercise rights. Finally, today, I bought 50 shares of Boyd Gaming (BYD) a new name at 40.05. When things get tough, it is better to own the casino. Which reminds me, time for the periodic disclaimer: neither redwavemusings nor its author are investment advisors and the strategies and securities mentioned here are for readers' interest only, and are not recommendations. They may not be suitable investments for readers (or even the author).

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