Sunday, November 30, 2008
To my Dad- my eulogy this morning
I know this is pretty self indulgent, but it is my blog!
Too bad you can’t speak at your own funeral. This is the kind of thing Dad always did so well.
At heart, Dad was an entertainer, and not only when he was on stage. He was just plain fun to be around, not in an overbearing way, not especially ostentatious, just humorous, upbeat, optimistic, entertaining. He sang at parties, not only because he wanted to, which he did, but because almost everyone else wanted him to. He had a trained voice and the ability to entertain in almost any setting. His song was never “My Way,” because the lyric didn’t fit, it usually didn’t have to be his way. “The Best of Times is Now,” that was his song. It fit his optimistic spirit.
Selling insurance, and teaching others to sell was another kind of performance, but one with a special urgency because he was helping families and businesses assure their long term well being. Since selling an intangible takes special talent, he would channel his performing ability to convince his clients to take important steps to secure their futures, and almost all of those clients were grateful that he did.
Dad could act, and he played many roles on and off the stage. On the radio show, Live Like a Millionaire, he could be an Irish Tenor. For Theater 2, he was FDR and a loony character who was pretty sure he was Teddy Roosevelt. At home, he could provide wise advice in a subtle way, like Bing Crosby as Father O’Malley. And, of course, he could do all the accents. He joked about being Dr. Sloane too, prescribing doubtful home remedies for common ailments, often in a funny accent.
Though he could, he rarely had to mete out discipline. It was awful enough to suspect his disapproval. The main thing was to do your best, and your honest effort would be recognized. And to do all things in moderation.
One thing, Dad was a sucker for kids, almost any kid, and he took special pride in the accomplishments of his nephews and his niece, just as he did in his own kids. He was a go to person for them too, never imposing his view, but often finding his counsel requested.
Dad had a strong sense of justice though he didn’t wear it on his sleeve, he was more of a quiet crusader. Our house always subscribed to progressive periodicals. I am pretty sure that I was the only person in Glen Cove High School that was a regular reader of The Nation and I.F. Stone’s Weekly. Dad was a fairly avid baseball fan, it was about the only sport that really seemed to interest him other than playing tennis, and he took me to my first baseball game when I was 5, a night game no less at Ebbets Field in Brooklyn against the hated Giants. Needless to say, we stayed for the entire game which the Dodgers won in the 11th inning. I asked him if he had always been a Dodger fan and he said no, he had been a Yankee fan until the Dodgers signed Jackie Robinson. See, the Dodgers had done the right thing, and that was so much more significant than allegiance to a team. Later on, when the Dodgers tried to trade Robinson and left Brooklyn, he lost interest in baseball until the Mets were born, and so was a new rooting interest. When Dad became Aetna’s first Jewish Vice- President, I always thought he considered that breakthrough a smaller scale version of what his baseball hero had accomplished, and he was really proud of that.
Dad recognized foibles and weaknesses in others, but rarely spoke of them. About the
harshest thing I can ever remember him saying about anyone was an occasion where I
was pointing out that someone we had run into seemed really annoying, and his response was, “well, it’s a shame, when he says hello, he makes you want to hit him.” I remember thinking how incongruous the line was since it was virtually impossible to imagine Dad hitting anyone, then realizing he was only making the point that some people mean well but just come off badly anyway. It was a very good lesson in tolerance, delivered with utter simplicity.
Dad was a very lucky man in most ways. He had great parents, was blessed with talent
and the determination to cultivate it, he had excellent health until the last couple of years, he married the girl of his dreams, and they had 64 years together, three healthy and very grateful children, an adoring grandchild, and a wonderful extended family. He has left us with so many memories of really great occasions, unforgettable moments. Singing with his sister Ann, singing at our weddings and birthdays, his and Mom’s 50th anniversary party, their trips to far off places, his Aetna retirement party, the Yom Kippur Torah readings, the last few from memory since though he seemed to be reading, he could no longer make out the letters on the scroll. Anyone lucky enough to have been here when he and Lois Morton sang, in memory of her husband, about the Nightingales in Barclay Square could never forget that.
So we say good bye to Dad but in the physical sense only. We will always follow his
living example, to do the right thing, the right way, the best you can, enjoy the best of times.
Too bad you can’t speak at your own funeral. This is the kind of thing Dad always did so well.
At heart, Dad was an entertainer, and not only when he was on stage. He was just plain fun to be around, not in an overbearing way, not especially ostentatious, just humorous, upbeat, optimistic, entertaining. He sang at parties, not only because he wanted to, which he did, but because almost everyone else wanted him to. He had a trained voice and the ability to entertain in almost any setting. His song was never “My Way,” because the lyric didn’t fit, it usually didn’t have to be his way. “The Best of Times is Now,” that was his song. It fit his optimistic spirit.
Selling insurance, and teaching others to sell was another kind of performance, but one with a special urgency because he was helping families and businesses assure their long term well being. Since selling an intangible takes special talent, he would channel his performing ability to convince his clients to take important steps to secure their futures, and almost all of those clients were grateful that he did.
Dad could act, and he played many roles on and off the stage. On the radio show, Live Like a Millionaire, he could be an Irish Tenor. For Theater 2, he was FDR and a loony character who was pretty sure he was Teddy Roosevelt. At home, he could provide wise advice in a subtle way, like Bing Crosby as Father O’Malley. And, of course, he could do all the accents. He joked about being Dr. Sloane too, prescribing doubtful home remedies for common ailments, often in a funny accent.
Though he could, he rarely had to mete out discipline. It was awful enough to suspect his disapproval. The main thing was to do your best, and your honest effort would be recognized. And to do all things in moderation.
One thing, Dad was a sucker for kids, almost any kid, and he took special pride in the accomplishments of his nephews and his niece, just as he did in his own kids. He was a go to person for them too, never imposing his view, but often finding his counsel requested.
Dad had a strong sense of justice though he didn’t wear it on his sleeve, he was more of a quiet crusader. Our house always subscribed to progressive periodicals. I am pretty sure that I was the only person in Glen Cove High School that was a regular reader of The Nation and I.F. Stone’s Weekly. Dad was a fairly avid baseball fan, it was about the only sport that really seemed to interest him other than playing tennis, and he took me to my first baseball game when I was 5, a night game no less at Ebbets Field in Brooklyn against the hated Giants. Needless to say, we stayed for the entire game which the Dodgers won in the 11th inning. I asked him if he had always been a Dodger fan and he said no, he had been a Yankee fan until the Dodgers signed Jackie Robinson. See, the Dodgers had done the right thing, and that was so much more significant than allegiance to a team. Later on, when the Dodgers tried to trade Robinson and left Brooklyn, he lost interest in baseball until the Mets were born, and so was a new rooting interest. When Dad became Aetna’s first Jewish Vice- President, I always thought he considered that breakthrough a smaller scale version of what his baseball hero had accomplished, and he was really proud of that.
Dad recognized foibles and weaknesses in others, but rarely spoke of them. About the
harshest thing I can ever remember him saying about anyone was an occasion where I
was pointing out that someone we had run into seemed really annoying, and his response was, “well, it’s a shame, when he says hello, he makes you want to hit him.” I remember thinking how incongruous the line was since it was virtually impossible to imagine Dad hitting anyone, then realizing he was only making the point that some people mean well but just come off badly anyway. It was a very good lesson in tolerance, delivered with utter simplicity.
Dad was a very lucky man in most ways. He had great parents, was blessed with talent
and the determination to cultivate it, he had excellent health until the last couple of years, he married the girl of his dreams, and they had 64 years together, three healthy and very grateful children, an adoring grandchild, and a wonderful extended family. He has left us with so many memories of really great occasions, unforgettable moments. Singing with his sister Ann, singing at our weddings and birthdays, his and Mom’s 50th anniversary party, their trips to far off places, his Aetna retirement party, the Yom Kippur Torah readings, the last few from memory since though he seemed to be reading, he could no longer make out the letters on the scroll. Anyone lucky enough to have been here when he and Lois Morton sang, in memory of her husband, about the Nightingales in Barclay Square could never forget that.
So we say good bye to Dad but in the physical sense only. We will always follow his
living example, to do the right thing, the right way, the best you can, enjoy the best of times.
Friday, November 21, 2008
Taking stock
For those near the end of their patience with the grinding down, water torture phase of this bear market, where the volatility is such that we lose 400 points a day instead of 50 or 75, here are some q and a's to put things into a little clearer perspective.
Q What is causing the prolonged crash?
A There are many factors but the overriding one is that the world became too leveraged with debt, which artificially increased the values of assets, including equities. Once the housing bubble burst, a chain reaction deleveraging was set in motion, that has rotated across several business sectors starting with investment banking. As debt is removed, the asset side of the balance sheet shrinks too, so all kinds of assets (homes, stocks, commodities, etc.) shrink in price. Having made mush of the balance sheets of financial service companies, the damage is now inflicting itself full scale in hedge funds and certain other mutual funds. It is seeping into the retail and commercial real estate areas. This is occurring as layoffs and fears about future employment cause retail customers to pull their horns in on spending.
Q So when do equities finally reflect the real values of the underlying companies?
A Chances are, market prices have already overshot to the downside in most cases. However, that doesn't mean the selling is over or that a bottom has been reached. That's because the hedge funds and certain other market players still have some leverage to unwind. Chances are, that even with all the selling this week, the hedge funds are now only about 2/3 of the way there. The breakdown in prices causes margin calls and forces others to sell, when buyers are scarce. So prices keep plunging without reference to actual corporate value. Since price is set at the margin where the last buyer and seller meet, forced selling in an environment where buyers are scared and scarce drives prices below actual asset value.
Q So why can't we just ignore the stock prices of all these companies? What is the danger?
A For companies with little or no debt, there may, in fact, be little danger. Their earnings will be down for as long as the recession lasts but they probably have the resources to ride it out. However, for those with debt, the situation is perilous. That's because the recession will impact their cash flow and ability to pay down the debt. When the debt becomes due, they may find a bond market and banking system unwilling to refinance their debt or extend it. If rating agencies perceive that this will be the case, they are likely to downgrade the credit ratings of those companies, and those downgrades often trigger collateral or even accelerated repayment requirements in the LOC or bond agreements. If that happens, the company might not survive.
Q So what can be done to break this vicious cycle?
A If we really knew, it would have been done. It has become more and more evident that the very expensive solutions that the Treasury has tried are having little actual impact. Congress seems unable to do anything more than criticize and engage in political posturing. And the Obama people have become very quiet. Given that there are two months still to go in the transition to the new administration, one would think that if they thought they had the right answer, they would have offered it by now. Do they really want to inherit an economy that's flat on its rear end, 1932 style? At least by naming its new Treasury Secretary today, the incoming administration sparked a technical rally.
Q Why do we get these short, one-day rallies of 4% or more?
A Just as in a bull market, we get technical corrections that lurch to the downside, only to have the market reassert the uptrend, in bear markets, the sudden lurch is an unsustained upside move. In a bull market, when margin players get spooked, they rush to sell to protect their positions, but eagerly return to the borrow and buy side once the danger has passed. In a bear market, the short players rush to cover when there is good news or a rally looks like it could take hold. This accelerates the sharp rally, but as soon as the players realize the bear market is not ending, they use the higher prices from the rally to reestablish new short positions.
Q So what is a long term investor to do?
A There's no easy answer. For many stocks, it's too late to sell unless you can use the tax loss. As for buying, you can nibble on debt free companies with credible business plans, but know that even those are likely to retreat until the deleveraging is over. They won't ring a bell when the bear is over, and typically the best part of a bull move is right at the beginning. So it is a little dangerous to be out of the market. Of course, this bear could stay in place for a long time. The looming problems in the retail and commercial mortgage sectors may overwhelm all other factors, leaving the economy in recession for an additional year or three.
---------------------------------------------------------------------------
The recovery, whether it comes in 2010, 2011, 2015, or 2020, is likely to be driven by revival in world trade and employment prospects, reduced taxes on capital (the opposite of what Mr. Obama campaigned on), and technological breakthroughs, which could be in the areas of energy development and distribution, transportation costs, health care costs, communication costs, or global conflict resolution. Obviously, none of these can be guaranteed to occur. But the belief that we can do the right things economically, politically, and/or technologically is what is needed to rebuild confidence and markets.
So far, the Obama team looks mainly to be Clinton era retreads, some capable, some not so capable. In short, the transition is doing too little to breed confidence so far, and with the current administration and congress all but standing down because of lame duck status, the transition period is too long for comfort.
------------------------------------------------------------------------
Wednesday night, I went jazzing for the first time in quite a while, a little reward for a couple of extra hours of office time (and the failure of the weekly card game to occur). For an ad libbed evening, there is nothing like a seat at the bar at the Kitano Hotel, a couple of glasses of really good Oregon Pinot Noir, and some high quality jazz in NYC's most intimate setting (translation - small). On this particular occasion, I was doubly rewarded when the Michelle Walker quartet played a superb set.
Ms. Walker has a very creative and distinctive style of taking a familiar song and providing a fresh cover arrangement. Her strong alto was very solid in covering Lionel Ritchie, Paul Simon and others. Backed by a solid bass and drum, the group took on difficult arrangements but put each song over beautifully, a kind of high wire act set to music.
But the real revelation was Ms. Helen Sung on piano, who performed her own trapeze act (without a net). The 2007 Mary Lou Williams Competition winner (at the Kennedy Center), and obviously classically trained, Ms. Sung attacked each solo with the right combination of touch and speed and all of those swift passages were played as cleanly as a concert pianist. Yet, she swung with the band too, playing the bluesy cracks when called for and causing the audience to whistle and shout during many of her solos (when was the last time you heard that kind of reaction for a piano solo?). In fact, she and Ms. Walker seemed to be having just a fine time all evening, exchanging gleeful laughs and smiles as they explored the intricacies of their daring arrangements.
It's great to be young, fearless and talented. Look for these two on the bandstand when they come to your favorite venue, as surely they will.
------------------------------------------------------------------------------
On Monday, I bought 50 shares of Transocean (RIG) at 70.48, and got shellacked almost immediately. Wednesday, I bought 1000 shares of Books A Million at 2.20, a limit order that saved a penny, which is nothing compared to what I could have saved if I had just waited until the end of the session to put the order in.
I am making the first change in the trading formula in quite some time by reducing the qualifying debt - to - equity ratio for a value buy from 1.0 to 0.7. At 1.0, the capital structure of a company is 50% debt, too much for the current situation certainly, possibly too much for my taste anyway. At 0.7, debt constitutes only 41% of total capital. Note, Jim Cramer has been talking about 0.5 being his ratio break point, but there debt is only one-third of capital, and that may be a little too disciplined in my opinion, especially in normal times. In this environment, it could be that zero debt is the only acceptable level.
The other change to the formula is that regardless of how low the price to book ratio is, a stock having more than a 0.7 debt to equity ratio will not be considered a value play. The current formula has allowed value buys as long as the combination of the two ratios did not exceed 2.5. Where the debt/equity ratio passes, we'll still use 2.5 meaning that book value can exceed two times price as long as the debt ratio is low enough. This recognizes the current urgency around maintaining a low debt ratio.
Q What is causing the prolonged crash?
A There are many factors but the overriding one is that the world became too leveraged with debt, which artificially increased the values of assets, including equities. Once the housing bubble burst, a chain reaction deleveraging was set in motion, that has rotated across several business sectors starting with investment banking. As debt is removed, the asset side of the balance sheet shrinks too, so all kinds of assets (homes, stocks, commodities, etc.) shrink in price. Having made mush of the balance sheets of financial service companies, the damage is now inflicting itself full scale in hedge funds and certain other mutual funds. It is seeping into the retail and commercial real estate areas. This is occurring as layoffs and fears about future employment cause retail customers to pull their horns in on spending.
Q So when do equities finally reflect the real values of the underlying companies?
A Chances are, market prices have already overshot to the downside in most cases. However, that doesn't mean the selling is over or that a bottom has been reached. That's because the hedge funds and certain other market players still have some leverage to unwind. Chances are, that even with all the selling this week, the hedge funds are now only about 2/3 of the way there. The breakdown in prices causes margin calls and forces others to sell, when buyers are scarce. So prices keep plunging without reference to actual corporate value. Since price is set at the margin where the last buyer and seller meet, forced selling in an environment where buyers are scared and scarce drives prices below actual asset value.
Q So why can't we just ignore the stock prices of all these companies? What is the danger?
A For companies with little or no debt, there may, in fact, be little danger. Their earnings will be down for as long as the recession lasts but they probably have the resources to ride it out. However, for those with debt, the situation is perilous. That's because the recession will impact their cash flow and ability to pay down the debt. When the debt becomes due, they may find a bond market and banking system unwilling to refinance their debt or extend it. If rating agencies perceive that this will be the case, they are likely to downgrade the credit ratings of those companies, and those downgrades often trigger collateral or even accelerated repayment requirements in the LOC or bond agreements. If that happens, the company might not survive.
Q So what can be done to break this vicious cycle?
A If we really knew, it would have been done. It has become more and more evident that the very expensive solutions that the Treasury has tried are having little actual impact. Congress seems unable to do anything more than criticize and engage in political posturing. And the Obama people have become very quiet. Given that there are two months still to go in the transition to the new administration, one would think that if they thought they had the right answer, they would have offered it by now. Do they really want to inherit an economy that's flat on its rear end, 1932 style? At least by naming its new Treasury Secretary today, the incoming administration sparked a technical rally.
Q Why do we get these short, one-day rallies of 4% or more?
A Just as in a bull market, we get technical corrections that lurch to the downside, only to have the market reassert the uptrend, in bear markets, the sudden lurch is an unsustained upside move. In a bull market, when margin players get spooked, they rush to sell to protect their positions, but eagerly return to the borrow and buy side once the danger has passed. In a bear market, the short players rush to cover when there is good news or a rally looks like it could take hold. This accelerates the sharp rally, but as soon as the players realize the bear market is not ending, they use the higher prices from the rally to reestablish new short positions.
Q So what is a long term investor to do?
A There's no easy answer. For many stocks, it's too late to sell unless you can use the tax loss. As for buying, you can nibble on debt free companies with credible business plans, but know that even those are likely to retreat until the deleveraging is over. They won't ring a bell when the bear is over, and typically the best part of a bull move is right at the beginning. So it is a little dangerous to be out of the market. Of course, this bear could stay in place for a long time. The looming problems in the retail and commercial mortgage sectors may overwhelm all other factors, leaving the economy in recession for an additional year or three.
---------------------------------------------------------------------------
The recovery, whether it comes in 2010, 2011, 2015, or 2020, is likely to be driven by revival in world trade and employment prospects, reduced taxes on capital (the opposite of what Mr. Obama campaigned on), and technological breakthroughs, which could be in the areas of energy development and distribution, transportation costs, health care costs, communication costs, or global conflict resolution. Obviously, none of these can be guaranteed to occur. But the belief that we can do the right things economically, politically, and/or technologically is what is needed to rebuild confidence and markets.
So far, the Obama team looks mainly to be Clinton era retreads, some capable, some not so capable. In short, the transition is doing too little to breed confidence so far, and with the current administration and congress all but standing down because of lame duck status, the transition period is too long for comfort.
------------------------------------------------------------------------
Wednesday night, I went jazzing for the first time in quite a while, a little reward for a couple of extra hours of office time (and the failure of the weekly card game to occur). For an ad libbed evening, there is nothing like a seat at the bar at the Kitano Hotel, a couple of glasses of really good Oregon Pinot Noir, and some high quality jazz in NYC's most intimate setting (translation - small). On this particular occasion, I was doubly rewarded when the Michelle Walker quartet played a superb set.
Ms. Walker has a very creative and distinctive style of taking a familiar song and providing a fresh cover arrangement. Her strong alto was very solid in covering Lionel Ritchie, Paul Simon and others. Backed by a solid bass and drum, the group took on difficult arrangements but put each song over beautifully, a kind of high wire act set to music.
But the real revelation was Ms. Helen Sung on piano, who performed her own trapeze act (without a net). The 2007 Mary Lou Williams Competition winner (at the Kennedy Center), and obviously classically trained, Ms. Sung attacked each solo with the right combination of touch and speed and all of those swift passages were played as cleanly as a concert pianist. Yet, she swung with the band too, playing the bluesy cracks when called for and causing the audience to whistle and shout during many of her solos (when was the last time you heard that kind of reaction for a piano solo?). In fact, she and Ms. Walker seemed to be having just a fine time all evening, exchanging gleeful laughs and smiles as they explored the intricacies of their daring arrangements.
It's great to be young, fearless and talented. Look for these two on the bandstand when they come to your favorite venue, as surely they will.
------------------------------------------------------------------------------
On Monday, I bought 50 shares of Transocean (RIG) at 70.48, and got shellacked almost immediately. Wednesday, I bought 1000 shares of Books A Million at 2.20, a limit order that saved a penny, which is nothing compared to what I could have saved if I had just waited until the end of the session to put the order in.
I am making the first change in the trading formula in quite some time by reducing the qualifying debt - to - equity ratio for a value buy from 1.0 to 0.7. At 1.0, the capital structure of a company is 50% debt, too much for the current situation certainly, possibly too much for my taste anyway. At 0.7, debt constitutes only 41% of total capital. Note, Jim Cramer has been talking about 0.5 being his ratio break point, but there debt is only one-third of capital, and that may be a little too disciplined in my opinion, especially in normal times. In this environment, it could be that zero debt is the only acceptable level.
The other change to the formula is that regardless of how low the price to book ratio is, a stock having more than a 0.7 debt to equity ratio will not be considered a value play. The current formula has allowed value buys as long as the combination of the two ratios did not exceed 2.5. Where the debt/equity ratio passes, we'll still use 2.5 meaning that book value can exceed two times price as long as the debt ratio is low enough. This recognizes the current urgency around maintaining a low debt ratio.
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.
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.
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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.
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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.
Saturday, November 08, 2008
Election Aftermath
We nailed the election, mainly because of our conclusion that there was a 6-1 likelihood that the polls were right. I have my faithful readers to thank for correctly confirming my belief that this would occur. As a result, I won our company contest for coming the closest on Obama's electoral vote count (missing by only 2) and also nailed the Governors exactly and almost exactly, the Senate and House breakdowns as well. But there was no great science to it - you just had to recognize this would not be a GOP year; Americans reliably vote their wallets and pocketbooks.
One thing John McCain did win was the most gracious loser award and I would join him in hoping that the new President has a successful term in the sense that his policies and decisions inure to the country's benefit. Dems might keep that sentiment in mind for the next time they lose, unlike their attitude the last two times.
In fact, whether Mr. Obama does succeed very likely depends on the choices he makes now in selecting his inner circle, cabinet officers, and key regulators. Considering that regulation of the financial services industries must be reconfigured from top to bottom, these choices are of the greatest importance.
The selection of Congressman Emanuel as Chief of Staff can be considered a good start, his partisan record notwithstanding, and we can hope that Robert Rubin and Paul Volcker will return to Washington. Preferably, I would not object to Rubin returning to Treasury, although it looks more like Larry Summers has the inside track. Governor Richardson as Secretary of State would not be a bad choice. I assume Governor Patrick will also get an important slot. One person I am not looking forward to seeing in the Administration is Clinton Labor Secretary Robert Reich, but I'm afraid he is also Washington bound. Ditto for lightweight economist Laura Tyson.
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Meanwhile, Republicans in general and Conservatives in particular need to do some soul searching concerning their failures over the last election cycle. First and foremost, they blew it when they had Congressional majorities by ignoring the significant planks in the Gingrich Contract with America. Simply put, they displayed the same arrogance and extravagance they always hated during the long hegemony of the Dems. The earmarks, the log rolling, the refusal to include Dems in the committee process, and worst, the failure by the President to veto a SINGLE spending bill directly led to their return to the minority.
As for the election, the Dems simply outflanked the GOP in fund raising, voter registration, use of resources, especially the internet, and so on. Campaign execution was a mismatch, not just on the Presidential level but all up and down the ballot. The GOP needs to be so much more articulate in explaining its positions and why they are better for our people in the long run.
And the GOP needs to completely refocus its message to the Hispanic community, a natural constituency for Republicans that has been totally alienated from the party. The appeal to the Know-Nothing, xenophobic crowd on immigration and border security seems almost to have been designed to discourage Hispanic affiliation with the party.
So the GOP needs to rebuild, re-articulate, and redefine itself. They start, luckily with 42 Senators (possibly 43 if Lieberman joins the caucus), pending a result or two still in question. They also have three young potential megastars to turn to in 2012 and beyond: Gov. Palin, Gov. Pawlenty, and Gov. Jindall of Louisiana. Those burying the GOP should remember that the GOP was buried in 1964 (but won in 68); the Dems were buried in 72 (but won in 76); the Dems were buried again in 88 (but won in 92). So the parties take turns in 8 or 12 year cycles for the most part (unless you get someone as bad as a Carter). Except for the Jeffersonians in 1800-1824, the Civil War and Reconstruction Republicans, and FDR/Truman 1932-1952, no party has held the Presidency for more than 12 consecutive years.
------------------------------------------------------------------------------
It sure was an ugly market last week as the two down days badly overshadowed the two up days. The market is absorbing the reality that the economic ills are moving from the devastated financial sector to the services, retailers, and manufacturers. In short, few will be spared and the unemployment numbers reflect the severity of the recession.
It is a fact that lenders are still not lending, balance sheets are shrinking because of the need to deleverage, and that means that companies that need to roll over their maturing debts may find that credit is just not available at any price. This is why most of the companies on my buy/hold list have low debt to equity ratios, or no debt at all. I only wish that I had made my debt criteria even tighter. A very good op ed piece in today's WSJ made the case that the deleveraging is only half over. That is why the hedge funds continue to use every rally as a selling opportunity.
Debt avoidance is also a good strategy for consumers. You need to have little or no debt. Pay down your mortgage if you can, eliminate your auto loan, and above all, do not buy stocks on margin. You want to minimize the hold other entities have on you in this environment, and that's what debt represents. Credit card debt should be paid down first before any other loans. Credit card interest rates and late payment penalties border on usury; they represent a very expensive way to finance a lifestyle.
On the other hand, charging purchases and paying the bill by the due date represents free credit, and that really makes sense.
There has been the usual flood of third quarter earnings reports, and I have been reviewing the balance sheets usually presented with them with more care than usual. A lot of commentators have remarked about the single digit price/earnings (p/e) ratios as an indicator of value, but followers of this blog know that I all but ignore earnings statements, and stopped paying much attention to p/e's a long time ago. Most companies have not yet fully experienced the hit to earnings that the recession will provide, so the denominator of the p/e ratio is suspect. As companies earn less, or move to losses, their p/e 's swell, or become not available when earnings go negative. The p/e ratio you usually see is backward looking, with the "e" representing the last four quarterly reports.
Balance sheets are what I am interested in, and more important than ever in the current environment. In addition to the two ratios I always study (price to book and debt to equity), I am also looking to see changes in soft assets (good will and intangibles), and understanding the debt structure (long term versus short term) of the company. Obviously, hard assets are better than soft assets. As debt moves into short term status, you want to know that liquid assets are there to pay it off or the arrangements are in place to roll it over.
In a future post, I will take a couple of balance sheets from this earnings period and review them. Analysts like David Dreman have long advocated a low p/e strategy in their value approach only to be burned in recessions when p/e's are just too misleading. True value emanates from the balance sheet.
--------------------------------------------------------------------------
Last Monday, I bought 200 shares of Quanta (PWR), the wind power play, at 19.73. Wednesday, I bought another 100 shares of Belden (BDC) for my IRA at 21.25.
One thing John McCain did win was the most gracious loser award and I would join him in hoping that the new President has a successful term in the sense that his policies and decisions inure to the country's benefit. Dems might keep that sentiment in mind for the next time they lose, unlike their attitude the last two times.
In fact, whether Mr. Obama does succeed very likely depends on the choices he makes now in selecting his inner circle, cabinet officers, and key regulators. Considering that regulation of the financial services industries must be reconfigured from top to bottom, these choices are of the greatest importance.
The selection of Congressman Emanuel as Chief of Staff can be considered a good start, his partisan record notwithstanding, and we can hope that Robert Rubin and Paul Volcker will return to Washington. Preferably, I would not object to Rubin returning to Treasury, although it looks more like Larry Summers has the inside track. Governor Richardson as Secretary of State would not be a bad choice. I assume Governor Patrick will also get an important slot. One person I am not looking forward to seeing in the Administration is Clinton Labor Secretary Robert Reich, but I'm afraid he is also Washington bound. Ditto for lightweight economist Laura Tyson.
-------------------------------------------------------------------------
Meanwhile, Republicans in general and Conservatives in particular need to do some soul searching concerning their failures over the last election cycle. First and foremost, they blew it when they had Congressional majorities by ignoring the significant planks in the Gingrich Contract with America. Simply put, they displayed the same arrogance and extravagance they always hated during the long hegemony of the Dems. The earmarks, the log rolling, the refusal to include Dems in the committee process, and worst, the failure by the President to veto a SINGLE spending bill directly led to their return to the minority.
As for the election, the Dems simply outflanked the GOP in fund raising, voter registration, use of resources, especially the internet, and so on. Campaign execution was a mismatch, not just on the Presidential level but all up and down the ballot. The GOP needs to be so much more articulate in explaining its positions and why they are better for our people in the long run.
And the GOP needs to completely refocus its message to the Hispanic community, a natural constituency for Republicans that has been totally alienated from the party. The appeal to the Know-Nothing, xenophobic crowd on immigration and border security seems almost to have been designed to discourage Hispanic affiliation with the party.
So the GOP needs to rebuild, re-articulate, and redefine itself. They start, luckily with 42 Senators (possibly 43 if Lieberman joins the caucus), pending a result or two still in question. They also have three young potential megastars to turn to in 2012 and beyond: Gov. Palin, Gov. Pawlenty, and Gov. Jindall of Louisiana. Those burying the GOP should remember that the GOP was buried in 1964 (but won in 68); the Dems were buried in 72 (but won in 76); the Dems were buried again in 88 (but won in 92). So the parties take turns in 8 or 12 year cycles for the most part (unless you get someone as bad as a Carter). Except for the Jeffersonians in 1800-1824, the Civil War and Reconstruction Republicans, and FDR/Truman 1932-1952, no party has held the Presidency for more than 12 consecutive years.
------------------------------------------------------------------------------
It sure was an ugly market last week as the two down days badly overshadowed the two up days. The market is absorbing the reality that the economic ills are moving from the devastated financial sector to the services, retailers, and manufacturers. In short, few will be spared and the unemployment numbers reflect the severity of the recession.
It is a fact that lenders are still not lending, balance sheets are shrinking because of the need to deleverage, and that means that companies that need to roll over their maturing debts may find that credit is just not available at any price. This is why most of the companies on my buy/hold list have low debt to equity ratios, or no debt at all. I only wish that I had made my debt criteria even tighter. A very good op ed piece in today's WSJ made the case that the deleveraging is only half over. That is why the hedge funds continue to use every rally as a selling opportunity.
Debt avoidance is also a good strategy for consumers. You need to have little or no debt. Pay down your mortgage if you can, eliminate your auto loan, and above all, do not buy stocks on margin. You want to minimize the hold other entities have on you in this environment, and that's what debt represents. Credit card debt should be paid down first before any other loans. Credit card interest rates and late payment penalties border on usury; they represent a very expensive way to finance a lifestyle.
On the other hand, charging purchases and paying the bill by the due date represents free credit, and that really makes sense.
There has been the usual flood of third quarter earnings reports, and I have been reviewing the balance sheets usually presented with them with more care than usual. A lot of commentators have remarked about the single digit price/earnings (p/e) ratios as an indicator of value, but followers of this blog know that I all but ignore earnings statements, and stopped paying much attention to p/e's a long time ago. Most companies have not yet fully experienced the hit to earnings that the recession will provide, so the denominator of the p/e ratio is suspect. As companies earn less, or move to losses, their p/e 's swell, or become not available when earnings go negative. The p/e ratio you usually see is backward looking, with the "e" representing the last four quarterly reports.
Balance sheets are what I am interested in, and more important than ever in the current environment. In addition to the two ratios I always study (price to book and debt to equity), I am also looking to see changes in soft assets (good will and intangibles), and understanding the debt structure (long term versus short term) of the company. Obviously, hard assets are better than soft assets. As debt moves into short term status, you want to know that liquid assets are there to pay it off or the arrangements are in place to roll it over.
In a future post, I will take a couple of balance sheets from this earnings period and review them. Analysts like David Dreman have long advocated a low p/e strategy in their value approach only to be burned in recessions when p/e's are just too misleading. True value emanates from the balance sheet.
--------------------------------------------------------------------------
Last Monday, I bought 200 shares of Quanta (PWR), the wind power play, at 19.73. Wednesday, I bought another 100 shares of Belden (BDC) for my IRA at 21.25.
Sunday, November 02, 2008
Election Preview post
There are really only two possibilities. Either the polls are right or they're not. If they are right, Obama is going to get over 330 electoral votes, winning most of the states that are really competitive. I would expect him to win, for example, New Mexico, Virginia, Ohio, Colorado, New Hampshire, Pennsylvania, and Wisconsin. The rout is on if, as is possible, he can win one or more of the following: Florida, Indiana, North Carolina, Georgia, Missouri, and Montana. You are going to get results from Virginia, North Carolina, Indiana, and New Hampshire pretty early, and if a couple of these are going to Obama pretty decisively, you can go to bed. If he runs the table, GOP survivors will be few.
The second possibility is that the polls are wrong, either because of flawed statistical and/or execution methods, including bias by those conducting them, or because poll subjects simply self selected (McCain supporters were more likely to decline to be polled) or chose to poll for Obama when they were in fact undecided or leaning to McCain. There is also the possibility that there has been a late move toward McCain that his supporters have been talking about, in spite of the lack of any apparent evidence.
If this is the case, McCain would squeak out all of the above mentioned states, except perhaps New Hampshire and New Mexico, resulting in another cliff hanger election. In that case, we will have a very long night, probably inconclusive, going to the absentee ballots, confirmation of provisional ballots, etc. Hopefully, without litigation. In this scenario, McCain probably brings back one of the 2004 blue states that was very tight, maybe New Mexico (I doubt it), but probably not Pennsylvania.
Which scenario is more likely? I am afraid that scenario #1 is about 85% probable. Americans vote their wallets and their pocketbooks. When the economy looked like it might hold, McCain's edge in experience and statesmanship might have been enough to overcome the unpopularity of the current administration. With the economy pretty clearly in recession, a change of parties in control of the administration must be expected. I expect the popular vote to be something like 53% to 45%, with the rest going to the fringe parties.
One might ask why I would assign scenario #2 even a 15% probability? The fact is that I am seeing folks who are usually knee jerk liberals having trouble committing to Obama. This lends credibility to the few polls showing very high (up to 14%)numbers of "moveable voters." So, we'll have to watch for confirmation of the Obama tide before hitting the hay Tuesday night. But confirmation may come early.
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The Congressional races don't look so good for Republicans either. Say what you will, African American turnout will be much higher than ever, and they vote reliably Democratic. The only question is whether all the new voters will spend any more time in the booth than it takes to mark their vote for Obama. So GOP senate candidates are hoping for a big undervote for their races. If that doesn't happen, the Dems have a good chance for 60 or more. Races to watch - New Hampshire where Sununu is in trouble, North Carolina where Dole is at risk, and Minnesota where Norm Coleman could actually lose to a not very funny comedian, Al Franken. What a country!
If the GOP hangs on to 41 or more, they will have to be dealt with and they will stand as the last bastion for private property and against higher taxes. As for Iraq and other international issues, independent Senator Lieberman can be added to the minority, and that will prevent the more radical mischief. Still it's a very bleak picture for the GOP. They are likely to lose 15-20 House seats as well. My next post will feature prescriptive advice for how Conservatives should go about the rebuilding process.
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Here's a quote from a WSJ editorial. "If Fannie May were a normal private company, it would be tarred and feathered faster than you can say 'Enron.' But Fannie May is not just another private company. It has a federal charter and an implicit guarantee from the government (read: taxpayers) of its debt. Which makes it all the more vital that Congress reduce the risk that Fanny Mae and Freddie Mac pose to our financial system and the federal fisc."
As if we didn't know, right? Well, we didn't all know when this was written. It's from the February 24, 2006 edition, predating Fannie's demise by more than two years. It expanded on the findings of the Rudman Commission, which highlighted the mismanagement and outright thievery of Franklin Raines and the other managers of the GSE's, who maintained their gold mine by sprinkling gobs of cash to Congressional supporters like Barney Frank, Chris Dodd, Chuck Schumer, and yes, Barack Obama. And this is the crowd about to gain almost unfettered control of Washington.
--------------------------------------------------------------------------
There was actually a rare win for logic and good sense this week when the Bilosky decision was handed down by the U.S. Court of Appeals. The case concerned the ability to patent so-called intellectual property, that is business processes and other methods. The Court quite logically decided that without some physical manifestation, an idea could not be patented. If you are not in a large corporation, you have no idea how the in-house lawyers had gained control of all the projects so they could patent every seemingly new idea under the sun, allowing them to rush to the courthouse seeking compensation every time someone else thought of the same thing.
Intellectual property is, hopefully, an idea consigned to the scrap heap, although a Supreme Court appeal is likely.
--------------------------------------------------------------------------
We are likely in a bear market rally, with a retest of 8200 on the Dow still a possibility, but for now, I will stand by my call in the last post that we have made a bottom, that occurred Monday. The markets had driven my account values down to the point where the formula calls for only three transactions every two weeks instead of four, so we only had one last week. On Monday, I bought 500 shares of Boyd Gaming at 3.95, for a change, a well-timed purchase based on its closing price for the week. This will be an interesting week. The market will like the certainty of knowing the election result (assuming we do know), though it may not be crazy about the identity of the winners. The other question is where we are in the deleveraging process, and what the next move by the hedge funds will be.
The second possibility is that the polls are wrong, either because of flawed statistical and/or execution methods, including bias by those conducting them, or because poll subjects simply self selected (McCain supporters were more likely to decline to be polled) or chose to poll for Obama when they were in fact undecided or leaning to McCain. There is also the possibility that there has been a late move toward McCain that his supporters have been talking about, in spite of the lack of any apparent evidence.
If this is the case, McCain would squeak out all of the above mentioned states, except perhaps New Hampshire and New Mexico, resulting in another cliff hanger election. In that case, we will have a very long night, probably inconclusive, going to the absentee ballots, confirmation of provisional ballots, etc. Hopefully, without litigation. In this scenario, McCain probably brings back one of the 2004 blue states that was very tight, maybe New Mexico (I doubt it), but probably not Pennsylvania.
Which scenario is more likely? I am afraid that scenario #1 is about 85% probable. Americans vote their wallets and their pocketbooks. When the economy looked like it might hold, McCain's edge in experience and statesmanship might have been enough to overcome the unpopularity of the current administration. With the economy pretty clearly in recession, a change of parties in control of the administration must be expected. I expect the popular vote to be something like 53% to 45%, with the rest going to the fringe parties.
One might ask why I would assign scenario #2 even a 15% probability? The fact is that I am seeing folks who are usually knee jerk liberals having trouble committing to Obama. This lends credibility to the few polls showing very high (up to 14%)numbers of "moveable voters." So, we'll have to watch for confirmation of the Obama tide before hitting the hay Tuesday night. But confirmation may come early.
-------------------------------------------------------------------------
The Congressional races don't look so good for Republicans either. Say what you will, African American turnout will be much higher than ever, and they vote reliably Democratic. The only question is whether all the new voters will spend any more time in the booth than it takes to mark their vote for Obama. So GOP senate candidates are hoping for a big undervote for their races. If that doesn't happen, the Dems have a good chance for 60 or more. Races to watch - New Hampshire where Sununu is in trouble, North Carolina where Dole is at risk, and Minnesota where Norm Coleman could actually lose to a not very funny comedian, Al Franken. What a country!
If the GOP hangs on to 41 or more, they will have to be dealt with and they will stand as the last bastion for private property and against higher taxes. As for Iraq and other international issues, independent Senator Lieberman can be added to the minority, and that will prevent the more radical mischief. Still it's a very bleak picture for the GOP. They are likely to lose 15-20 House seats as well. My next post will feature prescriptive advice for how Conservatives should go about the rebuilding process.
-----------------------------------------------------------------------
Here's a quote from a WSJ editorial. "If Fannie May were a normal private company, it would be tarred and feathered faster than you can say 'Enron.' But Fannie May is not just another private company. It has a federal charter and an implicit guarantee from the government (read: taxpayers) of its debt. Which makes it all the more vital that Congress reduce the risk that Fanny Mae and Freddie Mac pose to our financial system and the federal fisc."
As if we didn't know, right? Well, we didn't all know when this was written. It's from the February 24, 2006 edition, predating Fannie's demise by more than two years. It expanded on the findings of the Rudman Commission, which highlighted the mismanagement and outright thievery of Franklin Raines and the other managers of the GSE's, who maintained their gold mine by sprinkling gobs of cash to Congressional supporters like Barney Frank, Chris Dodd, Chuck Schumer, and yes, Barack Obama. And this is the crowd about to gain almost unfettered control of Washington.
--------------------------------------------------------------------------
There was actually a rare win for logic and good sense this week when the Bilosky decision was handed down by the U.S. Court of Appeals. The case concerned the ability to patent so-called intellectual property, that is business processes and other methods. The Court quite logically decided that without some physical manifestation, an idea could not be patented. If you are not in a large corporation, you have no idea how the in-house lawyers had gained control of all the projects so they could patent every seemingly new idea under the sun, allowing them to rush to the courthouse seeking compensation every time someone else thought of the same thing.
Intellectual property is, hopefully, an idea consigned to the scrap heap, although a Supreme Court appeal is likely.
--------------------------------------------------------------------------
We are likely in a bear market rally, with a retest of 8200 on the Dow still a possibility, but for now, I will stand by my call in the last post that we have made a bottom, that occurred Monday. The markets had driven my account values down to the point where the formula calls for only three transactions every two weeks instead of four, so we only had one last week. On Monday, I bought 500 shares of Boyd Gaming at 3.95, for a change, a well-timed purchase based on its closing price for the week. This will be an interesting week. The market will like the certainty of knowing the election result (assuming we do know), though it may not be crazy about the identity of the winners. The other question is where we are in the deleveraging process, and what the next move by the hedge funds will be.
