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Sunday, March 29, 2009


CO2 Called a Noxious Gas

The Environmental Protection Agency has deemed Carbon Dioxide a dangerous greenhouse gas and has called on factories, equipment makers, utilities, etc (e.g. the productive forces) to limit its emission in the interest of preserving the earth as we know it. Fortunately, the crack redwavemusings investigative staff was able to obtain the draft regulations being prepared by EPA and the Energy Department. Herewith, a sampling of what's ahead under the regimen of CO2 regulation:

1. Since humans breathe out carbon dioxide, all citizens shall make every effort to avoid unnecessary expiration, and preferably will endeavor to exhale only once for every two inhales.

2. Since green plants ingest CO2 (and helpfully, excrete oxygen), all families shall maintain and care for at least two times as many plants as children.

3. Fireplaces and wood burning stoves, inefficient heaters (though efficient producers of CO2), are banned.

4. Since methane is also a greenhouse gas, and since we seem to be unable to control the emissions of flatulent beasts such as cows and horses (not to mention Indian sacred cows), human citizens must avoid foods causing their own flatulence.

5. In an effort to emit most of the CO2 we have to produce in the direction of the Atlantic Ocean, utilities will all be moved to the East Coast with power distributed west by means of The Grid.

6. However, as the ocean rises due to global warming, despite our best efforts to control greenhouse gases, utilities will have to be gradually moved west to avoid the advancing Ocean.

7. Since we cannot expect the very poor peoples of the southern hemisphere to help with this effort, and since their population growth is often of control, this administration will curtail the woefully meager efforts of the Bush administration to provide AIDS drugs and anti - malaria mosquito nets to the poor of Africa and South America. Maybe they will become too weak to continue clear cutting the precious jungle areas that we need to soak up our excess CO2.

8. Finally, if all else fails, the Obama Administration is prepared to stop its efforts to bail out the economy and will simply allow (and possibly encourage) widespread business failures. Drastic reduction in business and economic activity should put the CO2 problem behind us once and for all.


Hope you are enjoying tax time. In this, either the last or next to last year of the Bush tax returns, we have two weeks or so left to file, unless you go the extension route. If you think this year is bad, wait til you get to file under the Obama tax regimen in 2011.

Those of us in high tax states like NY (and they are all getting much worse, by the way) enjoy the exquisite torture of doing their federal taxes twice, once using their itemized deductions and once without so they can pay the higher of the two figures. The latter calculation, called the alternative minimum tax, is rightly reviled by middle and upper class residents of high tax states, but the answer to tax simplification is actually to keep that calculation and eliminate the first one. I wouldn't mind paying the higher tax if I weren't first seduced by the possibility of paying the lower one. The extra work just adds insult to injury.

THEN, we get to fill out the most annoying of all the returns, the state tax return, where you literally have to copy the figures from your 1040 onto the state form, again eliminate most of your Schedule A deductions, and pay a state income tax that seems to go up every year.

The impact of the Bush cuts has been so overstated because of the AMT. Actually, the Obama increases will also be less meaningful since we'll probably still be paying the AMT. The problem is what's going on in the states, where the budgets have collapsed and taxes will go through the roof. In NY we are looking at combined Federal, State, sales and social security taxes of around 60% before long. At that point, people will either move out or quit working. Since the folks in government seem to have no appreciation for the central role of business in our economy or for what incents people to produce and achieve, don't expect enlightened policy anytime soon.

It was more than 80 years ago that President Calvin Coolidge became famous for the simple insight that "the business of America is business." Environmentalists, academics, and others on the left seem to feel that business is something to be reined in. I wonder where they think jobs come from.


Tomorrow, I'm off to South Florida for a couple of days, meaning I will get to see the Eastern Ground Zero of the housing bust. Complete report when I return.

Monday, March 23, 2009


Left Coast Musings

I hate to admit it but I enjoyed San Diego this trip, although 5 nights is a long time to be away on business. But I had three really first - rate meals, beautiful weather, though it starts to get boring when there is NO variation, and some fun on St. Patrick's Day at Dublin Square Pub in the Gaslamp District. They actually try to make a big deal of St. Patrick's Day in San Diego, closing off a two square block area and bringing in some bands for a $25 dollar cover. I passed in favor of the nearby Irish Pubs, and was suitably rewarded for making the right call. It was so beautiful out that I hung with the smokers out on the patio. One of the characters was a Seth Rogen look-alike, sound-alike, act alike. It definitely felt like I had been dropped into a Judd Apatow movie.

Anyway, it's even better to be home, especially now that we are getting very close to golf weather. And I have to do my taxes.


Instead of a blue Monday, we had fireworks today, and big Monday moves are rarely sustained, so we need to tread carefully the rest of the week. However, the upturn we forecast is very much in tact, our target of a 2500 point move still in the wood as the bowlers might say. Market watchers attributed the move to Gaithner's plan for dealing with toxic assets, but critics were out there and I am less sure it was that then it was a general feeling that the financials and energy have bottomed (and maybe even housing!). Employment lags, as we know, so we still have some pain to endure.

Some folks are concerned that we are saving instead of consuming, but I think this is a good thing. Long term, we need to move our savings rate from 0% to something north of 5%, even 10%. We can get healthy serving growing consumer demand from other countries and continents. We got into this mess from too much debt, both private and public, and hair of the dog is NOT the cure. So we don't need banks to resume lending on all four cylinders, just enough to allow business to refinance inventory, roll over debt, and for the housing market to gradually recover. Beyond that, banks should exercise lasting prudence (remember Forbes columnist Ashley Bladen?).

So there is reason for hope, and recovery may come in spite of the administration's left wing agenda and the profligacy of the states. The two policy mistakes that do concern me in terms of stifling recovery would be much higher taxes and protectionist measures. That's where depressions come from.

One such protectionist measure already being put in place is the restriction / prohibition of Mexican trucks, a blatant Dem payoff to the teamsters. Mexico, rightly immediately slapped tariffs on much of the goods we export to them. All of this makes a shambles of NAFTA, arguably one of the true success stories in our recent economic history.

Another way we are failing our southern neighbor is by continuing our insane war on drugs, while at the same time doing nothing to stifle our domestic demand. This has caused extremely violent and ruinous drug wars in Mexico. Meanwhile, illegal drugs come into this country, seemingly without limit. It's time to decriminalize possession and usage and nationalize the supply and sale. That's right, nationalize the drug trade, not the banks. How's that for a slogan?


On March 20th, I bought 400 shares of Gencor (GENC) at 6.311, a value buy, and 103shares of Home Diagnostics (HDIX) at 5. That's right, 103. As you might guess, this was simply another limit order snafu. The order was for 400 @ 5, 103 executed off the bat and that was it. Today, I was much smarter, putting in an order for Bank of Granite (fearlessly) under the terms all or none. The limit order of 1100 shares of GRAN executed at 1.92, well below the opening, but alas, a little above the close, one of the few stocks to lose ground today. Badly timed idea, well executed. Nobody's perfect.

Thursday, March 12, 2009


Mark-to-market expiration rally

The FASB knuckled under before Congressmen dealing with the practical reality of a catastrophic credit crunch and agreed to relent on mark-to-market accounting in approximately three weeks, if not sooner. Though the academics, bears, and market cynics will recoil in horror at the blurring of real values on financial statements, the impact on capital requirements is what is really important. I don't even care how the income statement is presented. They can require notes concerning market values or report net income on that basis, whatever they want. But what they cannot require is for risk based capital calculations to be done on a market value basis. In good times, it creates bubbles by over expanding available capital. In bad times, you get what you have had for the past 15 months - devastating bear raids by short sellers and vulnerability to all manner of financial terrorism. Thank goodness that's over.

Actually, the man to thank is Ben Bernanke, of all people, who for weeks has been signalling his willingness to suspend mark-to-market of rarely traded securitizations. Whatever Ben's deficiencies as Fed Chairman, he has demonstrated on several occasions his willingness to be flexible, to learn, and to change his mind. Maybe George W. didn't make such a bad choice after all! Ben also seems to have a favorably strong influence on our hapless new Treasury Secretary, and that may enable him to survive what seems to be a really steep learning curve.

Next to come to heel should be the SEC on various short selling regulations, particularly the restoration of the underestimated uptick rule.

These developments, along with the obviously oversold and undervalued condition of the market, have set off what could be a very playable stock rally. This blog predicted a 2500 point bounce in the market Sunday night, and after a typically blue Monday, we had a "pivotal Tuesday," as my very first broker, Irving Padwa used to call it, that set the tone for the week. To keep things in perspective, 2500 points would only be a one-third retracement of the bear market plunge, so don't go remortgaging the house or anything to buy stocks yet. But readers of this blog know we have been nibbling steadily since September, and finally feel a little better about that this week. We'll see how long this good feeling lasts.

Meanwhile, I have to admit to taking some perverse delight in seeing panicky shorts run for cover for a change.


There was more good news this week when the administration's nominee for Director of the National Intelligence Council, Charles Freeman, was forced to withdraw. Mr. Freeman's background includes a longstanding close relationship with Saudi Arabia as head of the Middle East Policy Council. A consistent critic of Israel, he also was a cheerleader for China's repressive tactics at Tienanmen. In fact, he was critical of the Chinese government, since in his words, they made "the unforgivable mistake (of failing) to intervene on a timely basis to nip the demonstrations in the bud...Tienanmen stands as a monument to overly cautious behavior on the part of the leadership...I do not believe it is acceptable for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government, however appealing to foreigners their propaganda may be."

Predictably, Mr. Freeman blamed his withdrawal on the pro-Israel lobby, in a statement that fairly reeked of anti-Semitism. In fact, his downfall was greased by a timely WSJ op ed (containing the above quotes) written by Witherspoon Institute resident scholar Gabriel Schoenfeld. Soon after, he came under fire from leading Jewish legislators, Rep. Israel (D-NY) and Sens. Lieberman (I-CT) and Schumer (D-NY), all with considerably more credibility than the unfortunate nominee.

The question now is how long before we happily accept the resignation of National Intelligence Director Dennis Blair, who pushed and defended the Freeman nomination.


The newest Broadway star you never heard of is 21 year old Argentinean Josefina Scaglione. When Arthur Laurents, who wrote the book for West Side Story, decided to direct a revival, he sought a younger cast and one able to perform authentically a bi-lingual version of the play (where the Puerto Rican characters speak and sing in Spanish when it would have been natural to do so). He was referred to a U-Tube performance by Ms. Scaglione and brought her to America for an audition. When he heard her operatically trained voice in person, he knew he had found his Maria. The show is now in previews on Broadway following a brief run in D.C., but even before it formal late March premier, it is playing to packed houses.

I saw it with my wife and daughter Tuesday night, and I can say that this sparkling, harder edged version of the greatest Broadway musical of them all is simply thrilling. And the major reason is the fabulous Josephina, for whom many in the audience stood and cheered during the curtain call. If you are in NY, this is an option to consider very strongly, even if you have seen West Side Story many times before.

Monday, I bought 200 shares of Raven Industries (RAVN) at 16.30. OK, Monday wasn't the greatest day, but the last three days, RAVN is airborne again, and turned in decent 4th Q earnings as well. Quoth the RAVN, "Evermore!"

Sunday, March 08, 2009


We Need An Economist Jack Bauer - Now!

It has not been the popular view, but my feeling has been for some time that we are enduring a form of financial terrorism, international and domestic. Yes, we had bubbles in various markets that assured a significant recession, but watching even viable stocks get relentlessly pushed down to one - third of their book values, I can't help but recognize that the short interests are taking advantage of relaxed trading rules and brutal bank capital standards to make fortunes at everyone else's expense. Even if assets were half soft, these stocks would be trading well below real book.

Steve Forbes op ed in Friday's WSJ should be required reading for anyone wishing to talk or even think intelligently about what is going on. His recount of the FDR administration belatedly putting in the short selling uptick rule and relaxing mark-to-market accounting in 1938, and how that set the stage for recovery once WWII mobilization began, was totally pertinent for current policymakers. For some reason, the Bush administration allowed both of these intelligent regulatory moves to be reversed, and worse, stopped enforcing the need to borrow shares before selling them short. Thank you Chris Cox, perhaps the worst SEC Chairman ever.

The lack of mark-to-market accounting removes any hope of regulatory forbearance for banks pressured by dubious (though not hopeless) mortgage securitizations. The result is a vicious cycle of risk based capital weakness and the need to replace capital when it is not readily available. The shorts pile on without the inconvenience of actually having to first locate stock to sell or wait out a small uptick before moving in. This means they can relentlessly push down stocks to absurdly low levels, forcing margin players to cover, and creating grave doubt about the viability of the banks and businesses they are targeting.

That hedge funds and other known short players are cooperating in this scheme has been widely suspected of course, but it is now routine to see their activities with respect to certain stocks described in the financial blogs. This crime is of the same magnitude as polluting the water supply or other serious crimes against society that true terrorists would consider.

To hear the shorts talking down stocks, calling for the nationalization of banks (that have no current cash strains), defending mark-to-market on grounds of transparency for investors is enough to make anyone sick since all of these comments are so self serving. For that reason, it was good to hear Federal Reserve Chairman Bernanke recently address the regulatory fixes we need and to hear a rising crescendo against mark-to-market among economic experts.

It's time to move on this and, I would say that since the market is SO OVERSOLD, and since the shorts would run for their butt covering lives at the sight of a meaningful rally, any move in the direction of restoration of the uptick rule and eliminating mark-to-market would set off a 2500 point advance in pretty short order. These moves would not by themselves end the recession, but they are a necessary and important first step.

Will the Obama Administration have the courage and wisdom to do this? So far, their only reaction to folks like Jim Cramer and Steve Forbes has been to show a strangely thin skin. I would like to think they could take a short break from their socialist agenda to accept some good advice about how to end the financial crisis, since it's already clear their own gang has no clue. But I am not confident on that score. Hopefully, Bernanke. Volcker, and Gaithner can get it done anyway. In any case, I look for a rally this week. I think the market moved into short covering mode in the last hour Friday, and that there is a lot more of that coming this week.


Recession or no, the NYC Jazz clubs keep bringing in the crowds, and Thursday night, we had the true privilege of seeing and hearing the legendary Michel Legrand before a very nearly packed house at Birdland. With the incredible Lew Nash on drums, David Finck on bass, and a string quintet featuring harpist Catherine Michel, the 77 year old pianist/singer/composer played a set that playfully alternated romance and swing, exclusively playing his own great songbook that included "What Are You Doing for the Rest of Your Life" and Summer Smiles. Legrand has won 3 academy awards for his movie songs and scores including Summer of '42, Yentl, and Atlantic City among more than a 100 others. He can't sing so much anymore and therefore sings less, but his piano may be better and more in a jazz idiom than ever. He and Nash are especially communicative, in the musical sense.

There's a lot more great stuff still to come to NYC in March. For example, the Jeremy Pelt Quintet is at Smoke March 19-21, 90 year old piano legend Hank Jones at Iridium March 11-15, sax player Seamus Blake at Smoke March 26-28, drummer Louis Hayes' Quartet at The Kitano March 27-28, legendary Lee Konitz at the Creole Music Supper Club March 20-21, Michelle Walker singing at Smoke March 22, and the Wonderful World of Armstrong, featuring trombone Wycliff Gordon at Dizzy's Club Coca Cola March 31-April 5. Also, exciting pianist Helen Sung leads Nugenerations at 1PM at Dizzy's March 21 in a free, first come, first served show.


Also on March 21, the Philly Sound comes to Westbury Music Fair, featuring 70's stars the Chilites (OK they're from Chicago), the Stylistics, and Eddie Holman! ("Hey There Lonely Girl").


Last Monday, we added 400 shares of Home Diagnostics (HDIX) at 6.60. On Friday, we made our return to energy (actually, energy service) buying 300 shares of Gulf Island Fabrication (GIFI) at 7.04. We thought that was a good price but apparently the analysts didn't like what they heard on the earnings call because the stock got hit later that morning. I heard the call and didn't think it was so bad since I wasn't anticipating good earnings and growth visibility. This company has no debt and it wasn't that long ago it was selling above 20. Energy needs the economy to rebound a bit, but ultimately, prices should move up toward an equilibrium point 50-100% higher than today.

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