redwavemusings

People keep asking me what Hillary's chances are for gaining the White House, hoping I will say little or no chance, that a woman is still not electable. My answer is that right now I put her chances at a minimum of 60%, which invariably disappoints. They can't believe she is that high. I base this assessment on the fact that she is all but a lock to win the nomination (only a Draft Gore movement is a threat to her) and that she is still polling slightly ahead of Rudy and way ahead of the other GOP hopefuls.

Republicans need to deal with the reality that they have all but totally wasted the advantageous standing they had coming out of the 1998 and 2000 elections. They have done this systematically, a virtually flawless campaign to turn America blue. The steps to accomplish this:

Failure to limit earmarks and other spending abuses when they held Congressional majorities;

Failure of the President to veto any of the irresponsible spending bills during that period;

Xenophobic immigration policy that turned off the Hispanic vote, which was up for grabs and is the fastest growing segment of the electorate;

Flagrant lobbying scandals;

Tin ear on issues ranging from entitlements to Guantanamo.

Even when the GOP was on the right side of an issue, they presented their case with an arrogance and a bluntness that ruined the party's image. You know things are bad when so many of the 2004 red states are in play and virtually none of the blue states are. This is the difficult political climate that Giuliani is bucking against Hillary. If Mrs. Clinton weren't so polarizing, the election would not even be close.

As for the "woman issue," forget it. Americans were great admirers of Maggie Thatcher. After her performance as UK Prime Minister, which grows in historical stature much as President Reagan's has, the vast majority of Americans have no qualms about electing a female President.
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The stock market continues to demonstrate amazing resilience in the face of the mortgage driven credit crunch, and oil prices pointed toward $100 per barrel.

I believe that the market is reflecting its "equity value" as an inflation hedge, as I posited in a previous post. This doesn't mean that we can't have a severe bear move somewhere along the line here, and if we are going to have a recession, the market should forecast it first. But in dollar terms, prices still figure to go higher over the long term. This does NOT mean that stocks will be worth more in real terms.

Another thing that would murder stocks would be tax changes such as that proposed by Charlie Rangel. Any Democratic "success" that rolls back the dividend and capital gains tax cuts would be predictably and extremely bearish for stocks.

There are times when I think about just selling everything, but then what? Holding cash is a sure loser to the higher inflation rates I anticipate. Same for bonds. That leaves commodities, including gold. I have been a buyer of NEM, but really, what I know about commodities couldn't fill a decent length musings post. So I am sticking to stocks and relying on my inflation theory to stay solvent. Of course, because of capital gains taxes, I will be taxed on any inflationary gains, which hardly seems fair. Capital gains should be indexed for inflation before any tax rate is applied.
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As for the Rangel bill, it reminds me of what people used to say about ERISA - Every ridiculous idea since Adam. The AMT was totally misguided in the first place, and when it wasn't indexed for inflation, Congress set itself up for the problem it has now, where the AMT has become a middle class tax and generates too much real money to simply be jettisoned. My solution is still the same - Make the AMT the tax system for all individuals, sharply increasing the 0% tax rate threshold so the poor don't even have to file, and jettison the system with all the deductions, credits and multiple rates. Don't worry about pay/go rules. Instead REDUCE SPENDING!!
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The nominee for Attorney General is wise to sidestep Senate Judiciary Committee questions about whether waterboarding is torture. By this time he knows what torture is - it's enduring this Committee's endless partisan questioning.
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Last Wednesday I bought 100 shares of Bryn Mawr Bank (BMTC) for 22.65, where I had my checking account in college (and until I got married). On Friday, I bought 200 more shares of Marine Max, (HZO) the boat company with the great stock symbol, for 14.24.

It was family weekend at Cortland State and a pretty good time was had by all. We managed to squeeze out some quality time with our freshman progeny without disrupting her evening party commitments. As for the parents, it was the Saturday night biker bar (Easy Streets) in Homer, NY, one of central NY's finest, believe me. In between, we saw C-State rip Montclair State on the gridiron and enoyed the ever changing weather typical of the Adirondacks - Rain on Friday, cool and breezy Saturday, summer - like on Sunday. As they say, if you don't like the weather, just wait 15 minutes.

Overheard - Misty eyed husband: Did you ever think, in your wildest dreams, after all these years, we would get to this point, visiting our daughter in college?
Wife: Honey, in my wildest dreams, you're not even there.
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Also, as fate would have it, I have been spending a little extra time visiting in the Rehab Center (talk about the Sandwich Generation). Nevertheless, there is the occasional amusing incident, even in that setting. One evening, after visiting directly from work, and on my way out, I was stopped by a female elderly resident (FER) in a wheelchair in the hall.

FER: Are you the boss?
Me: I'm sorry, I have no authority here at all.
FER(puzzled, frowning): Then why are they making you wear that suit?
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Writing in Forbes Life, P.J. O'Rourke discussing the need to respond to recalls of China made toys: "My wife and I have had to empty our playroom and come up with an explanation for why there's nothing in there except a Mr. Potato Head. We invented a tale of the 'Anti - Santy.' He comes in the middle of the year and takes toys away from bad children. Fortunately our children are pretty bad, so they're buying it. But I wouldn't say they were happy with the situation."
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The stock market has bounced back the last two days, impressively today, but we still might find that this rally is merely short covering after last week's misery. Once the shorts have restored balance and taken their profits, the selling may well resume. A certainty is that we have not seen the last of the mortgage mess or the credit crunch. That should make the market vulnerable for some time yet.

Anyway, I've been buying, since we raised all that cash selling PWI and UIC, and then the market fell. On 10/15, I bought 200 shares of USA Trucking (USAK) at 14.46. Last Wednesday, I bought another small trucker, Frozen Food Express (FFEX), 400 shares at 6.58. This was a stock we were selling in 2005 at prices ranging from 10.59 to 13. Yesterday, I bought 100 shares of Watts Water Technologies (WTS) at 29.34.

I find television shows I like in reruns, movies on DVD, and music on reissued CD's. Rarely do I set the trend, or even closely follow it. More likely, I pick up on something long after its hot streak is over. So it is again with the Counting Crows.

I didn't know this group existed until watching the Feature Commentary on my Rounders DVD and heard Director John Dahl introduce the closing credits with the words, "And now the Counting Crows." The song played behind those closing credits is the fabulous "Baby, I'm a Big Star Now." I decided I needed to hear more of this.

Unable to find a CD with that song on it (I guess the movie's producers locked up the rights for the soundtrack), I bought the group's first album, August and Everything After (1993). My only mistake was not to buy the current reissue with several live versions of the songs added. The eleven songs on this record, nearly all of them written by lead singer Adam Duritz, like a lot of first albums by outstanding groups, have nary a clinker, and are obviously the result of considerable polishing and reworking. My favorite cuts are, well, all of them, but the ones with the hooks that newcomers to the group will love right away are "Round Here," "Mr, Jones," "Time and Time Again," and the incredible "Murder of One." But after enough hearings, I think all 11 are first rate songs, and first rate performances.

As for Mr. Duritz, his stylistic affinity to Van Morrison is obvious, and his lyrics have also been likened to Dylan. Actually, I hear more of the early Springstein, especially with the extended phrasings and short bridges.

Anyway, my next mission is to pick up the rest of the CD's (there aren't all that many, this is a group whose rep rests as much on their live performances, with lots of improvisation, as on their studio recordings) and then be on the lookout for the coming DVD of their Town Hall tour finale from last September 18 (reportedly, a knockout - how did I miss it!).

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We inch closer to the Presidential primaries, and it seems that more and more commentators are coming to terms with the inevitability of a Hillary/Rudy faceoff. Even Al Gore's Nobel Peace Prize (somehow devaluing it forever, I think) hasn't slowed down the NY Senator's momentum. Believe me, none of the announced candidates seem to have a prayer against her, so Gore was the only hope for those Dems who fear that she is not electable. But they are needlessly pessimistic. A Hillary - Rudy race will be very close, but I would have to make her the favorite at the moment.

On the Republican side, the Romney run is in reverse, Thompson peaked before he formally entered, and McCain's problem is that he is 71. Newt won't run and the people who really know Huckabee know he's not Presidential timber. So there are really no meaningful obstacles to a Rudy nomination. It may be the wrong year for any Republican though.

I think Hillary will choose Richardson as her running mate, locking up the southwest as Kerry failed to do. Guiliani may counter with McCain.
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Bush's veto will probably hold with respect the the ACHIP bill, but Congress will then pass a compromise he can sign. This is just the preliminary for the health care battle to come, when we'll see if Americans want universal coverage enough to fund it publicly, and are willing to accept the rationing of health care prevalent in Europe and Canada. My guess is that they won't quite go for it, but may continue the journey along that path. Eventually, care may have to be rationed anyway, since doctors don't feel they are getting paid enough to continue to practice, and there is already a critical nursing shortage. At that point, we might as well adopt a single (government) payor. That's when we'll learn to appreciate the system we have now, with all of its deficiencies.

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On Wednesday, as I indicated in the last post, I sold my 150 share position in UIC at 80.57. This is one time where it pays to use a limit offer, since a tender offer is outstanding. Since the stock has to move to the offer price over time, you can be fairly sure to get your price (assuming you leave enough on the table for the arbitragers). Since with my discount broker, the difference in commission between a limit and a market order is $5, I only needed 4 cents to make it worthwhile to limit the sale price of the 150 shares and I got more than that (versus Wednesday's opener). All of these shares were short term gains, and the average purchase price was 51.21. I decided again not to add Textron to my buy/hold list, because of its high price to book ratio and the absurd salary the CEO collects.

Then on Friday, I bought 200 shares of I2 Technologies (ITWO), a big average down in a "zero buy." This is a stock where I am well under water, but the dealsters are trying to put this one in play, and we may be able to cut the losses.

The housing market is months, maybe years, from bottoming. Its economic side effects are only beginning to impact earnings in the banks, home improvement retailers, and truckers. The dollar is weak, and the Fed is reducing interest rates in the face of it, perhaps exacerbating future inflation. The Federal Government, already in deficit despite burgeoning tax receipts, faces a change in administration in the midst of a foreign war, and must take steps to fix the AMT and estate taxes or there will be a popular uprising. And if Congress does nothing, the Bush tax cuts could expire under the new administration, dampening the economy, ironically reducing tax collections, and causing a harsher investment climate when dividend and capital gains tax rates increase.

And what are the candidates talking about? National health care, a new entitlement causing bigger than ever deficits and more inflation.

So why is this market rising? Aren't higher taxes, a weak dollar and inflation bad for stocks?

Well, yes and no. What people forget is that stocks are called equities for a reason. In the short run, inflation is a worry for investors, and may cause them to sell. In the long run, stocks maintain their real value and go up in dollar terms when the dollar is weak and inflates. Furthermore, all but the most disciplined governments inflate the currency. Inflation reduces the real cost of the public debt, and aids exports. As the dollar inflates, corporate revenues and earnings go up in nominal terms. Stock prices inevitably follow earnings, revenues and book values.

Short run irrationality in the stock market is normal, but in the long run, the market reflects the values of the company assets the shares represent. Inflation causes stock prices to rise in nominal terms in the long haul. Those prices may reflect less or more value depending on the severity of the inflation.

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This morning brought news of another takeover of one of my stocks, United Industrial Corp. (UIC), a builder of pilotless aircraft, by Textron, the defense oriented conglomerate that was built by the legendary Royal Little. Though I got a nice bounce in UIC today, and will have a nice profit once I pull the sell trigger (probably Wednesday), I have mixed emotions. I thought, despite its high price to book ratio. that this stock had further to go. Also, I've already got excess cash from the PWI takeover, so this will mean more buying in a market that is making new highs. However, the "formula" will be followed. Also, I will give Textron yet another look and could add it to my buy/hold list.

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Let's talk global warming, since we are in the midst of an unusual October heat wave. At this point, no one disputes that the climate is in a warming trend, but there continues to be differences of opinion about when it started and what are its causes. Clearly, the musings author lacks the technical knowledge to have an informed opinion about those questions, but there would be nothing wrong with adopting policies to conserve organic fuels and clean up the air and water. I still believe that nuclear and hydrogen power have the best potential to solve the world's energy problems. I would not favor measures that would have the impact of reducing economic activity in the developed and developing world, as the anti-globalization crowd has demanded. Improving economies are almost invariably correlated with better human health, safer environments both at work and at home, and decelerating population growth thanks to lower birth rates.

A much more difficult issue concerns the growing danger of significant species extinction, and here man's role is indisputable. Destruction of jungle and other natural habitats, pollution, and overfishing are some of the ways that man has made it difficult for other of earth's creatures to survive. China, in particular, is an environmental disaster area (as was the Soviet Union).

Man has the power to think and understand the impact (s)he has, unique among animals. One could argue that man is simply another animal, and his activities are no less natural than any other animal's. However, we can see the consequence of our activities. Disruption of the food chain is a serious issue.

It brings to mind that classic Seinfeld episode where Kramer is asked to apologize to a zoo chimpanzee that he insulted after the chimp threw some food object at him. "That chimp is an innocent primate," says the zoo's administrator. "So am I," replies Kramer. True enough, but we're smart enough to rise above our innocence.

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Last Wednesday, I bought another 1000 shares of FSI International (FSII) for 2.05, an average down that may be getting out of hand. Today, I bought 100 shares of Shulman (SHLM) at 21. Good time for the disclaimer - Neither redwavemusings nor its author are investment advisors, and the securities and transactions mentioned here are not recommended for anyone else, and may not be suitable for anyone else (or even for me). The blog merely serves as a place to record the transactions for the interest of readers, but does not constitute advice of any kind.

I may have mentioned WSJ Moving On columnist Jeffrey Zaslow before since I am a big fan, but his column of September 20 set a new standard. It was about Carnegie Mellon University computer science professor Randy Pausch, who gave a "Last Lecture" that was not hypothetical since he has pancreatic cancer and, at age 46, expects to live only a few more months. He is retiring to enjoy his last days with his young family. In his lecture, taped so that his kids will be able to see it when they are older, he lightened the mood with much good humor, and also delivered wonderful life lessons to an admiring and riveted audience of about 400 students and colleagues. "I've experienced a deathbed conversion,"he said, "I just bought a Macintosh...Brick walls are there for a reason. They let us prove how badly we want things...Wait long enough and people will surprise and impress you...If your kids want to paint their bedrooms, as a favor to me, let 'em do it."

Jeff's column, and the bloggers who got hold of the URL to the video of his lecture, which Prof. Pausch insists remain in the public domain, set off a whirlwind of adulation and publicity, temporarily delaying the private fun the Pausch's intended to have. He has been on Good Morning America among other TV shows. Zaslow received lots of mail from readers and wrote a follow up column for the 27th. Professor Pausch has enjoyed his time of fame. "There's a limit to how many times you can read how great you are and what an inspiration you are, but I'm not there yet." As for Jeff, his columns have been the most viewed and e-mailed since WSJ started monitoring its website.

Whether or not you saw Zaslow's columns, I urge you to visit WSJ.com, click on videos, then most popular, and find the two taped segments of the Last Lecture. They are short, but you will love them and be inspired.

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Ah, the Mets. What happened? I could make a top ten list, but here's the story. The older pitchers (Glavine, Hernandez, Wagner) had nothing left in September, and the younger ones were too erratic. Jose Reyes was worn out too. Beltran was beat up. Delgado was beat up (and lousy anyway). Lots of excuses, but after 162 games, every team is hurting, unless they are fresh, like Moises Alou who missed half the season with an injury.

Was it Willie Randolph? He's not a great in-game manager, but he's good at using his players, keeping them up and involved. No, I really can't blame him.

One thing, the Mets were real bad at Shea this year. They were only one game over 500 at home, not a contending performance. They were much better on the road, where Beltran's line drives reach the seats, and if they had won the division, it would have been because they played unusually well on the road. But losing 8 straight to the team chasing you is hardly a performance worthy of a title.

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I had a very nice time in D.C., enjoying several excellent restaurants and the beautiful early fall weather during the rare time outside the meeting room. Now it's on to Cooperstown for another Conference. The Otesaga Hotel in Cooperstown is where the Hall of Famers stay when they come in August and it is simply a beautiful lakeside setting. I always look forward to staying there, even if the cell service ain't too good.

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Today, I bought 100 shares of Lowes (LOW) at the bargain price of 28.70, a "zero buy." The price is depressed because of the down residential housing market. We're getting close to recouping all of the market losses in the credit crunch correction.