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Thursday, July 31, 2008


C,S and N and the Moribund Left

It was back to Central Park Tuesday night for those 60's troubadours, Crosby, Stills, and Nash. Plenty of familiar, if folky, songs though they did rock out a little on Stills' "Love the One You're With." The place was jammed and I had fun, but I never thought this was a great trio, though the addition of Neil Young did result in a terrific album (De Ja Vu. The title song was a highlight of the show).

But as one of my hosts remarked, it's really all about the politics, and he wasn't only referring to the anti-war and other left wing lyrics. We had voter registration folks everywhere, a table set up by Vietnam Vets against the War (I could have sworn it was over), etc. My comment was that I suspected the Republicans were in the minority. Just a wild guess.

Being an alum of a Quaker, pacifist college, I have given lots of thought as to why the philosophy of pacifist resistance is not the all-powerful weapon its adherents claim. Actually, it works quite effectively when deployed against enemies that have a conscience (see Gandhi v British; MLK v US segregationists). Enemies with a conscience may commit isolated violence but they generally don't seek to eliminate your entire population. Not so with really evil folks like Hitler, Mao, Stalin, etc. They have no problem killing everybody to achieve their ends. Passivity is a disaster when confronted with that kind of enemy, and so is appeasement.

We know that some of the evil folks we are dealing with around the world today are of that ilk, though they may currently be small-timers. In 1936, Hitler was a small-timer too, in what was more or less, a disarmed country. By 1938, appeasing Western leaders were handing him the Sudetenland. Those who forget history are condemned to repeat it, a truism the population of the USA might keep in mind this fall before they turn the entire Federal Government Democratic blue.


Fasten your seat belts, as Bob Murphy used to say, the last two months of the regular baseball season promise to be fun. We have tight races in every division except the AL West, where the Angels are the only solid team. In the AL Central, the White Sox picked up Griffey, but they will not have an easy time staggering over the finish line ahead of the Twins and Tigers. The Bengals improved their bullpen
by picking up Farnsworth form the Stinkees, without giving up much (Pudge was a part-time catcher for them). Still they are the underachievers in this race, versus the overachieving Twins and the inconsistent Sox. Two may make the playoffs since there is a good chance the wild card will come from this division. The three team race in the AL East features the Jeckyl and Hyde Rays (great at home, lousy on the road), the very shaky, now Manny-less Red Sox (can a team still contend with Wakefield in the starting rotation?) and the Yankees, who picked up a lot of players that probably won't help much. The Stinks will go as far as their starting pitching takes them, but I suspect Mussina's good part of the season is over, and that means they will get quality starts no more than half the time. Probably not enough.

In the NL, the Dodgers have looked like they might squeeze by Arizona, and with Manny, Joe Torre may have enough horses. Some people think Colorado can have another great stretch run like last year, but I don't see it. In the Central, I don't think the Cardinals can hold up, but the Brewers should stay in the race, probably falling just short of the Cubs. In the East, The Mets and Phils are likely to go down to the wire again, and Florida doesn't seem to be fading either. But the wild card may come from the Central, and that means things will get desperate in the East come September. The Mets may have good enough starters to get them to the promised land this time around. We'll see.


Monday, I bought 200 shares of Carmax (KMX) at 13.60. Today, I sold 100 shares of Axsys Technologies (AXYS) out of my IRA for 75.08 at the opening. These were purchased for 16.05 on 5/17/06. Hooray!

Thursday, July 24, 2008


Dog Days Musings

Summer in New York - what Mayor John Lindsey used to call Fun City - is in some ways the best of the seasons, despite the fairly steady diet of heat and humidity. One fun thing to do is to go see a big time concert in Central Park, which I did for the first time last night. The headliner was Mark Knopfler, a prominent figure in the Musings list of top ten guitarists (ever), playing with a few of his erstwhile Dire Straits tourists and others. The show combined enough new songs, recent solo hits, and of course those old Dire Straits goodies (Romeo and Juliet, Sultans of Swing, etc.) to keep the large but well-behaved crowd floating on air for a solid two hours. Knopfler's low register vocals are what they are, but they are distinctive and beautifully set off the clear, upper register guitar tones that are what his fans come to hear. All in all, a more than satisfying show in a spectacular setting.


With Barack touring the world, trying to look at least a little Presidential, the pundits continue to express frustration and confusion concerning the election race, which frankly doesn't even officially start until the conventions. I guess most of them are frustrated because they don't yet see the clear path to an Obama victory in what everyone figures to be a Democratic year. If anyone bothered to poke under the hood, they would see instantly why no one can figure out what Obama really stands for. Take Iraq. He has moved from a position of rapid withdrawal to a 16 month phase - out depending on conditions, in effect the same as what the Dems would describe as the Bush/McCain position. Yesterday, the headlines were about Obama's suddenly strong anti-terror stand. On the surge, which he voted against, he is now strangely silent, since he was so clearly wrong. That, I understand. Politicians are taught to ignore their own mistakes and that's fine, but for some reason it was such a crime that President Bush would not admit error. On issue after issue, Obama, as he learns about reality, is adopting more responsible positions, to the frustration of his zany liberal base.

We now have the Dems in Congress avoiding a vote on extending the ban on off-shore drilling (because they know they will lose). It goes on and on - we have only a few years to see the rehabilitation of George Bush on the issues that really mattered (though there were plenty he blew).

So it is no wonder that McCain hangs in, since he is an authentic, if uninspiring candidate. One wonders if Obama will retain the enthusiasm of his youthful base if he continues down this road. If they don't turn out, this election will be another cliffhanger.


It looks like Musings was (belatedly) right on the price of oil after all. After running past our expected top of $135, briefly hitting $145, oil has retreated to the 120's and what we are reading about is the demand collapse, which is what prompted our call in the first place. The combination of the high cost of driving and looming recession (worldwide?) has the demand side spooked. Hopefully housing can bottom within 6-9 months or so, and then we can have some kind of economic recovery.


Lots of news about the stocks on our buy/hold list. It is earnings season, after all. ADCT is suffering from overcapacity for the umpteenth time. Great earnings report for AXYS. Also BG. Those small banks (smaller than regionals) that never relaxed their mortgage lending standards to ridiculous levels continue to perform, including BMTC and FNFG. DOV had good earnings, but not enough impact on shareholder equity. Good report for ECL. GE found a new source of equity capital - you're never too big to tap good sources of green. Somehow, the small truckers are doing a great job juggling their higher costs - good reports from USAK and KNX. LDG appeared on a short list of acquisition candidates in the WSJ, but I've been waiting an awful long time already. I think LNN has had its correction and might have another run in it. PFE is getting better press, but somehow it became an income stock. Looks like the merger of SIRI and XM will finally be approved, but not before the FCC extorted another $20 million from them. TMO was up a nickel despite today's general wreckage - it should have another run-up too. You would think that since copper topped out, we could get a recovery in WLVT.OB, but so far, no good.


On Bastille Day, I bought 400 shares of Marine Max (HZO), the leading player in the beleaguered boating business, at 5.32. Then on 7/16, I bought 100 shares of Quanta Services (PWR) at 31.48, which Cramer then mentioned favorably this week. This was for the IRA - it is a recommendation from the full service broker, and I think another one that will turn out well. On Monday, we came back with a purchase of 300 shares of Boyd Gaming (BYD) at 9.30, a "zero buy" that looked positively brilliant until today. Yesterday, I executed the first sale in a month-and-a-half, selling 100shares of Petroquest (PQ) at 21.67. Obviously, we missed the top pretty badly but we have plenty of shares left. These were purchased at 4.93 on 7/28/04. Love them quads!

The obligatory disclaimer - neither Redwave Musings nor its author are registered investment advisors, nor do they pretend to know anything about much of anything. Especially stocks. The ones mentioned here may not be suitable for readers (or the writer).

Sunday, July 13, 2008


Happy Bastille Day (tomorrow)

Turns out the blog has had quite a few predictions from last year that came out well. One was that quite a large percentage of hedge funds would go under in 2008, and that is already in the well. Quite a few others have announced moratoriums on investor withdrawals, indicating they are in trouble too. The latest indication is that hedge fund manager compensation formulas are starting to abandon the 2 and 20 standard that caused them to swing for the fences all of the time. (That formula results in management fees of 2% of assets plus 20% of investment profits). Instead we are starting to see longer term incentive formulas that at least make an attempt to align manager and investor interests. Still, I would not go near a hedge fund. Regulation is a good deal for investors, far outweighing the investment advantages delivered by managers of unregulated funds. Of course, I am not really a fund investor to begin with.

Another prediction on the money was that the Supreme Court would uphold an individual right to firearms, though limited reasonably. This was based on my originalist belief that the Constitution means what it says. To change the meaning and intent of the Constitution, there is an amendment process.

Some have asked me what I think of the Louisiana case where the top Court determined that the death penalty was not appropriate in a child rape case. I think this decision wasn't unreasonable simply on due process grounds, since the death penalty does not seem to quite fit the crime involved (though it would if the child had been killed).

Death penalty opponents would like to see the Court eliminate all executions based on the "cruel and unusual punishment" clause, but that would be Constitutionally incorrect given that the death penalty was not considered that when the document was written. It seems to me that once there is a consensus (as in most of the world) against capital punishment, a specific amendment should be proposed.

This has been a week where the world has said farewell to many fine souls who contributed much to the planet's progress and entertainment. Dr. DeBackey performed the world's first heart bypass surgery in 1964, and many of us have had our lives extended by that operation. Tony Snow played a significant part in the early success of Fox News Channel, then joined the Bush Administration as its Press Secretary, perhaps becoming the most popular figure in that unfairly maligned administration.

Sir John Templeton popularized global funds and international investing, calling the Japanese markets with special precision. His Templeton Fund Group was the exception proving the rule, a family of funds that provided exceptional and consistent performance for its investors. Mr. Templeton sold his fund company and devoted the rest of his life to philanthropy, particularly advocating causes that reconciled religion with science (reminiscent of the great American Quaker, Rufus Jones in the 1940's). Templeton was a popular guest on Wall St. Week with Louis Rukeyser and a member of that show's Hall of Fame. I particularly remember his appearance the week of the 1987 stock market crash, when he correctly reminded viewers that over any meaningful period in American history, no one who owned stocks outright (that is, without margin) had ever lost money. His calming message in the face of what seemed to be a cataclysmic market event was an initial step in the market's great recovery.
Mr. Templeton became a British subject and was knighted.

Bobby Murcer was a darn good ballplayer for many years, and also became a very good announcer. However, what I remember was his inability to hit homers at Shea Stadium during the two years the Yankees used it as their home field while Yankee Stadium was being refurbished. This had an unfortunate impact on Murcer's career, since Yankee fans were determined that he should be what he was not - a power hitter a la Mickey Mantle - but he got his act back together when he was traded to the Giants and Cubs, and continued to play well during his second term with the Yankees. By the way, as a Yankee announcer, Murcer was one of the few (along with Ken Singleton) who is not an annoying "homer."

Besides founding the Benihana restaurant chain, Rocky Aoki was a daredevil sportsman who ballooned across the Pacific Ocean and drove motorboats at frightening speeds. The miracle was that he lived as long as he did.

It's nice that David Wright was a last minute addition to the All Star Team replacing an injured player. After all, he is likely to be a legitimate MVP candidate this year. I am not a fan of the fans voting players onto the All Star team, but since I have so little interest in the game, I'll shut up about that little issue.


Of course the stock market is a shambles, but one thing to understand with all the earnings reports coming out this month is the concept of quality of earnings. What I want to see is how much of the reported earnings come down to shareholder equity. For example, compare the earnings reports of Fastenal (FAST) and General Electric (GE). Though neither stock is cheap on a price to book basis, I am encouraged by the increasing book value per share of Fastenal, while with GE, there is frustration that their nominally huge earnings seem to disappear somewhere when you get to the balance sheet. Yes, GE is moving gradually toward the value range, but it has more to do with reduced stock price than increasing shareholder equity.

I think this is less a knock on GE's basic businesses and strategy than a reflection of the aggressive accounting techniques the company used to smooth earnings during the Welch period. The Company's investors will be paying for that for a long time yet, as the "Welch premium for being GE" is totally removed.

Last Wednesday, I bought another 100 shares of Loewe's (L) at 47.03, a value buy.

Monday, July 07, 2008


A-Rod and Madonna? Gag me with a spoon!

I would have to put the question of whether A-Rod and Madonna are having an affair on my list of things I could not care less about. Others would include the Olympics, the All Star Game, the Christie Brinkley divorce trial, etc., etc. It's pretty interesting the way pop culture has such a hold on people in a world where much bigger issues are always in play.


Speaking of bigger issues, it's interesting when you talk to people that so many agree that Israel will be taking action (of the military kind) against Iran's nuclear capability before the end of 2008. When you think about it, it is quite a logical conclusion. It makes sense that the Israeli's would have to move while the Bush Administration is still at least nominally in charge. I suspect they can not even wait for the election, since if Obama wins, the current administration will go into official lame duck status.

One should not underestimate the danger of such a mission for all concerned, but we should also recognize the danger of deferring it.

The polls are saying that Obama is leading, but one feels that every day's exposure reveals his weaknesses. He is also coming off a lot of the positions he took in the primaries - it is natural to move toward the center for the general election, of course. From my point of view, the newer positions sound a lot more responsible. Question is, and this will come from all sides of the political fence, what does he really believe and what will an Obama administration try to accomplish? As a conservative, I would be concerned that Obama will prove to be the talking head for "handlers" whose political philosophy most closely resembles the MoveOn.Org crowd.

Another interesting question is whether Obama will pick a senior, experienced running mate to act as his version of Cheney. Somehow, I think he is resisting that advice. I don't think he is willing to be marginalized in his own administration, as Bush was in his first term.


My recovery continues apace, with the major lingering impact being a urinary system that is not quite behaving normally yet. When I described my predicament to my wife (in more detail than she needed to hear, I am sure) she broke out laughing, indicating that the annoyances were similar to what the female of the species endures on a regular basis. If so, that explains about 30 years of mood swings, and I have new found respect for women everywhere. If I had lived like this since puberty, I would have been confined to a padded room ages ago.

But, in truth, I have very little to complain about, a testament to the skill of the surgeon in handling the incredible equipment I described in the previous post. In fact, I even hit some golf balls on the range yesterday (12 days since surgery) and returned to the office for a full day's work today.

Thanks to all those who communicated their best wishes over the last week or so.


As for the stock market, the less said, the better. Someone asked me about nibbling at undervalued stocks at this juncture, as I do, but I felt it necessary to warn him that a stock undervalued now could be significantly more undervalued a couple of months from now. That's why this is one game you just never go "all in."

On June 30, I bought 200 shares of Carmax (KMX) at 14.70, on the long shot hope that someday, somewhere, someone will buy another used car. On July 2, we averaged down again in Hauppauge Digital (HAUP), buying 1500 shares at 1.26, hoping that someone, somewhere, might buy a high end TV device. Today, we bought 200 shares of Boyd Gaming (BYD) at 10.98, hoping that someone, somewhere might visit a casino. That was a "zero buy." It is also the 9th straight buy transaction (actually, only one sale transaction out of the last 15).

Of course, this is officially a bear market now, and it has the essential element of bear markets (water torture - one down day after another). The little technical rally at the opening today was pitifully weak so it was no surprise to see it fade quickly. We are likely to have a short covering rally soon that could take us up 2 or 3 hundred in a day, but that is likely to be followed by another week of downers that take us to new lows. To break the bear is likely to require a top in oil prices, a bottom in the dollar, and some good news on the geopolitical front. That confluence of events looks to be a ways off right now.

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