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Sunday, November 16, 2008


Your pictures look like...November

The post title quotes the memorable assessment by Robert Redford's character in "Three Days of the Condor" of the Faye Dunaway character's photography display. As we get into colder, grayer weather this fall, that November mood takes hold. Yesterday and today's wind on Long Island pretty much cleared the trees of remaining leaves and scattered them about the neighborhoods.

Unfortunately, the mood in the financial markets is equally gray, especially following a week that took us back to the bear market lows twice. In both cases, we successfully passed the test, small consolation when you close near the low. However, a classic aspect of the bottoming process is successful tests and retests of the low, so it could be that the market has priced for this recession, awful as it is likely to be. We will learn more this week, of course. But we should have learned by now that there is no urgency to put your cash all to work at once. A little at a time will be sufficient.


This blog has frequently commented, both favorably and less so, on Jim Cramer's show, and I must offer my thoughts on his show from last week, in which he repeated and endorsed analysis by Goldman Sachs highly critical of life insurers. In particular, the GS analyst jumped on the bandwagon of those predicting a bad end for companies active in making guarantees on their variable annuity contracts.

I am not in love with these provisions either, but I have to say I am appalled at the incompetent understanding of insurance accounting revealed in the GS analysis, and by extension, Mr. Cramer. The weakness in company reserves for these guarantees, a matter of conjecture and some dispute by the way, relates to their statutory balance sheets, a measure of solvency. Their stocks move based on their GAAP books, which also are the income statements of interest to investors. Solvency is a necessary prerequisite to insurers' ability to operate. Beyond that, it has little or no effect on GAAP. In fact, the guarantees that are the source of the concern would only be triggered if the stock market stays under water for an extended period. There are no appreciable guarantees that would be triggered imminently. It is irresponsible of GS to issue such a report with such a poor understanding of the issue, and worse for Mr. Cramer to broadcast it when he even admits he doesn't understand the issue well.


For those of us who treasure the WSJ and for whom it is an important foundational element, there is great relief that the News Corp. acquisition has brought about little or no negative change, and that the quality of this paper remains unequalled. And so, I must quote from a couple of recent pieces.

My fellow Haverfordian Juan Williams has become a frequent op ed contributor to the WSJ, alongside his Fox gig and his regular syndicated work. Here are a couple of excerpts from his column, "What Obama's Victory Means for Racial Politics."

"There is no other nation in the world where a 75% majority electorate has elected as their supreme leader a man who identifies as one of that nation's historically oppressed minorities...

The idea of black politics now tilts away from leadership based on voicing grievance, and identity politics based on victimization and anger. In its place is an era in which it is assumed that talented, tough people of any background will find a way to their rightful seat of power in mainstream political life...The market has irrevocably shrunk for Sharpton-style tirades against 'the man' and 'the system.' The emphasis on racial threats and extortion - like demands - all aimed at maximizing white guilt as leverage for getting government and corporate money - has lost its moment. How does anyone waste time on racial fantasies like reparations for slavery when there is a black man who earned his way into the White House?..

The onus now falls on individuals to take advantage of opportunities. That begins with keeping families together and taking responsibility for the twisted 'gangsta' culture that celebrates jail time instead of schooling...(Dr. King said) There are no quick solutions, but no matter how difficult or frustrating there will be success because the arc of the moral universe is long but it bends toward justice...

In terms of racial politics, the arc of justice took a breathtaking leap."

Juan, if I could have said it as well, I would have.


Another piece that attracted a lot of attention was the reprint of a lecture by novelist Michael Crichton, recently deceased, given at Cal Tech in 2003. Mr. Crichton was critical of the science behind global warming, not so much disputing the theory as pointing out that the "evidence" usually cited for its support was anything but scientific.

"I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you're being had...

To an outsider, the most significant innovation in the global warming controversy is the overt reliance that is being placed on models...large scale computer models are seen as generating data in themselves...As if they were themselves a reality...

Nobody believes a weather prediction twelve hours ahead. Now we're asked to believe a prediction that goes out 100 years into the future? Has everybody lost their minds?"

When you see data that shows the planet warming, that's one thing. When models are cited to "prove" the reason why the planet is warming that's another. Man may be causing global warming, but when models are cited instead of direct evidence, the hypothesis is not proved.


On Monday, I bought 1400 more shares of Marine Max (HZO) at 1.54. Their earnings report Tuesday, while showing a substantial loss, also showed a company taking the proper steps to get through the slump, and the market reacted favorably.

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