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Sunday, May 31, 2009


The GM Fiasco

We continue to hear that GM will be declaring bankruptcy. with the bondholders belatedly agreeing to take the administration's meager offer so that the Government can become majority owner, and the UAW can safeguard as many jobs and shares as possible. So basically, this is a campaign payoff to the UAW in conjunction with a nationalization of the company.

The problem is that the company that emerges is doomed. The taxpayer will lose most if not all of his investment. And the UAW will eventually have to fall on the Pension Benefit Guaranty Corporation to salvage anything for Union members (though union leadership will walk away with all they can). Here's why.

The new GM will not be innovating anything. New products will be "green oriented" - translation - low performance, no sex appeal, no value. Dealerships will be disappearing like crazy. Why would buyers have any interest in a government run car company when you can buy a Toyota or even a decent Ford product? With no buyers and no sellers, this company will not be able to support even a reduced cost structure.

Did the bondholders really have a choice? I don't actually know. What I do think I know is that they will end up with worthless paper.


Yesterday was Benny Goodman's 100th birthday. The King of Swing, who died over 20 years ago, has been the subject of WKCR's Festival the last 16 days, when they played Goodman round the clock. You can hear WKCR in the NY area at 89.9 FM or worldwide on the web, wkcr.org.

The festival has been entertaining to the nth degree. It's amazing how well his music has held up, whether in the band band or in the small group mode. Besides being perhaps the greatest clarinet player ever, Goodman was one of jazz's greatest innovators, being the first to integrate the bandstand, touring the Soviet Union, and exposing great arrangers like Fletcher Henderson to a wider audience.

Goodman also brought jazz to the concert hall, most notably at the 1938 concert at Carnegie Hall. For a good idea of the risk involved and the excitement that resulted, see the biopic "The Benny Goodman Story" that starred the almost somnolent Steve Allen in the title role (supported by Donna Reed!).

Of course, Goodman was not unrivaled. Artie Shaw actually was convinced that he was superior to Goodman as a clarinetist and bandleader. While I would never deny Shaw's great talent, there was no reason for Goodman to take a back seat to him, unless the subject was how to bed the girl singer.


The markets continue to be of great interest, and our stock portfolio provided more interesting fodder this week. For one, Bristow (BRS) got favorable reviews from analysts after making a significant investment in a Brazil helicopter business. With oil prices going up again, our oil service stocks have been pretty lively.

First Niagara (FNFG) became among the first of the banks to repay its TARP loan, an admittedly small one. Taxpayers' investments in banks will do much better than their auto investments.

We also got a dividend increase from LOW, since the resale of all of these foreclosed homes is helping the home improvement businesses survive the housing debacle. On the other hand, specialty steelmaker Worthington (WOR) lowered its dividend. Perhaps the surprise is that WOR is continuing the dividend at all.

Last Tuesday, we bought 100 shares of Fastenel (FAST) at 32.07, a "zero buy." The next day, we sold 400 shares of Books A Million (BAMM) out of the IRA in what seemed like a well - timed sale since the market went pretty much straight down that day. However, BAMM was one of the few stocks that went up! We don't worry about those ironies since we sell only parts of our position at a time and have plenty of shares left in BAMM. The sale price on the opening was 6.49. We had bought 100 at 3.65 on 5/10/02 and the other 300 for 9.42 on 2/19/08. So we took a little loss and got no tax benefit for it, but we have nice gains on most of the remaining shares. We'll start the week with another sale tomorrow.

Sunday, May 24, 2009


Does Prez Obama really "get it?"

Lately, when I talk to the current crop of Democratic politicians and appointed regulators, one of their really annoying responses to any argument they don't really agree with is "I get it." This reinforces their absolute certainty that they are the smartest people in the room and is, I guess, supposed to make you feel better that they spent enough time and effort listening to your pitch that they "get" the drift. Invariably, the comment's real purpose is to close off discussion, with the unspoken conclusion being that they have listened to your pitch, understand your rationale, but intend to proceed according to their own notions regardless.

All well and good, except later on, you come to understand that they didn't "get it" at all. They can sort of read back to you the theme of your argument but they really don't have the nuances and the warnings about unintended consequences, etc. that really make your argument convincing. This is partly by design since their goal is to appear to be giving you a fair hearing without being convinced.

So when Obama met with incoming Israeli leader Netanyahu, and they discussed Iran, which is anywhere from 12 to 30 months away from having a deliverable nuke, depending on whom you listen to, he "got" that this is a big problem for everyone, especially Israel. But is that the essential message that Netanyahu was bringing him? I don't think so. The idea is not to convince Iran to back away from nukes before that 12 month period is over. Where Iran represents an avowed existential threat to Israel, "I get that" is not particularly encouraging. The question, pure and simple, is whether the US will countenance Israel's preemptive strike to remove the nuclear threat before it becomes operational. And if not, what will the US position be when Israel goes ahead anyway, as indeed it will almost certainly have to. This is a discussion and thought process that needs to be worked through, not curtailed. When Obama, Hillary, the idiot Biden, and the rest of this crowd "gets that," then we will be getting somewhere.


Speaking of "getting it," I guess the leaders of government at all levels were sound asleep during high school economics class the day they had the discussion about the inanity of raising taxes during a recession. Whether your text book was Samuelson, Hazlett, or any other professional economist, that little axiom would have been in their somewhere. In New York, every imaginable tax is being raised, and the so-called millionaire's tax is chasing the few that are left out of the state, including the windbag Tom Golisano, who brilliantly deployed his political contributions to enable the Dems to take over the State Senate, and now cries the blues about their inept budget and tax policies. So Tom took his money, what was left of it, and went to Florida where there are no income or estate taxes (yet). He has left his friends David Paterson and the de facto Governor, Speaker Sheldon Silver, to complete the job of running this poor old state into the ground.

Whether Florida will prove much of a haven is an open question by the way. With Governor Crist heading (he hopes) for the US Senate, the Dems are already licking their chops about their chances for taking over the Mansion in Tallahassee. Already, hapless Dem State CFO Alex Sink has thrown her bonnet into the ring. The question is which inept pol will be in the Governor's chair when the next big hurricane hits the state and proves what a fraud the current Governor's public homeowners insurance association is. Lacking adequate reserves and charging inadequate premiums, this is a fiasco (and state bankruptcy) waiting to happen.

The big problem all localities face on the state and local levels is that public employment has been unionized, all of the public pension plans are far too rich and underfunded, and the politicians lack the courage to cut any program or any significant expense. Note, the public suffers from no such lack of courage. Look at the results in California where the voters perpetrated a landslide against the tax increases passed by the legislature and trumpeted by the "Governator." They'll leave it to the pols to figure out the necessary cuts. But it's not happening, as those pols pull out every stop and loophole to avoid defunding anything. It will be interesting to see where this ends up. Schwarzenegger can't get term limited soon enough to minimize his embarrassment.

My prediction is that tax revolt fever will spread around the country, pitting the private sector against the public sector unions. It won't be pretty, but it is necessary to reduce the cost of government at all levels.


On that subject, the Obama Administration gets another "F" grade for picking now to press the issue regarding national health insurance and universal coverage. In Musings series on this subject we did a while ago, we made the point that we have by far the best health system in the world, though its cost is out of control. Using a single payer approach to rein in costs, as the Administration would like to do, trades one problem for another. Instead of a cost problem, we will have a system of care rationing, as in Britain, Canada, and everywhere else where health care has been socialized.

I wish everyone could read insurance veteran lobbyist Jack Bobo's column called No Free Lunch in the April 20 National Underwriter. He has a simple, direct writing style that is so effective in showing how weak the arguments really are for nationalizing roughly 15% of the economy. Here are a few selected quotes.

"...some of the key players in this issue favor the creation of an optional federal program similar to Medicare that would operate parallel to the current private system. This is just a step away from an all-federal system, as the two cannot co-exist.

"Much of the discussion and wishful thinking centers around cost control...Some of the ideas regarding better use of available technology may well be beneficial, but the greatest cost-saving opportunity is being totally ignored. I refer to the relentless assault on all aspects of the health care delivery system by aggressive law firms...Tort reform is essential and, like it or not, Congress needs to face up to it rather than just railing against drug firms and providers.

"...as the debate continues there will be some who point to systems in other countries as the better model to follow. This is...ironic as the British and a few other countries are trying to reverse their systems into a more private type...The CEO of a large Canadian company said to me, 'Our system would not work if we did not have the US system as a back up.'

"When our son was in high school we hosted a German exchange student for a year. When he arrived his teeth were in terrible shape so we sent him to our dentist to correct the problem. When the treatments were over, he expressed shock at the bill we paid, exclaiming that in Germany it would have been "free." I asked him why he had not taken care of his teeth before he left home. He replied that it took months to get an appointment and only a little could be done each time. He also did not factor in the taxes his parents paid for this not so available "free" service."


A great thing about our system is that when politicians here lose elections, they don't get exiled or put in jail, but hang around in some official capacity to regale us with their often humorous slants on life. So we still have John Kerry in the Senate to amuse us with his special perspective. Discussing the sad state of failing newspapers in the country, many of them Democratic supporters, Mr. Kerry said in a PREPARED STATEMENT that "If we take seriously this notion that the press is the fourth estate, or the fourth branch of government, it's time we consider its importance to democracy." Mr. Kerry said this in conjunction with a hearing he held on the future of newspapers.

The fourth branch of government? Who elected them? I guess Mr. Kerry slept through Civics class as well as Economics.


Negative dividend actions have certainly cut into investors' cash flow, including this investor. However, we are also getting a few dividend increases. Among those announcing increases last week, we own KNX, ABC, XEL, AAON, and RAVN. For reasons I don't quite understand, ABC also announced a 2 for 1 stock split even though the stock price is only in the 30's. There is no reason to split a stock where the resulting price will be less than 20.

Last Monday, I bought 200 shares of Standex (SXI) at 10.30, a value buy. On Wednesday, we sold 100 shares of Roper Industries (ROP) on the opening at 45.30. The shares were purchased on 9/19/01 at the split adjusted price of 18.22. We still have 300 shares left.

By the way, there were a couple of stock related comments provided by readers of our last post, and my response is also in the comments. You can peruse the dialogue by scrolling down to the end of the last post.

Saturday, May 16, 2009


Nancy vs CIA

As James Mason's character, the high powered attorney Concannon, questioned former nurse Kaitlyn Costello in The Verdict, "which is the LIE?" Mason's lawyer character may have been the "prince of f___ing darkness," (one of Jack Warden's many famous lines), but he was wrong to doubt poor Kaitlyn's veracity. However, I would take my chances cross examining Nancy Pelosi, who is not only a chronic liar, but not a very good one either. When the CIA note taker in 2002 very clearly recorded that the Congressional delegation that included Mrs. Pelosi was told about the extreme interrogation methods that HAD been employed, it strains credulity that there was really any question about the prior use of those methods, however infrequent. Pelosi knows her base is disposed to disbelieve the CIA so her barefaced lies seem to be politically expedient, but they will backfire. The prediction here is she will be out as Speaker by mid-summer. In the meantime, imagine how embarrassing this is for the current administations's CIA leader, Leon Panetta.

Meanwhile, the backtracking by the Obama administration on Guantanamo and other campaign cause celebs used to pound on the outgoing Bush administration is fascinating, if not surprising, to behold. Now, if the administration could only see the light on cap and trade, health insurance, tax policy, card check, school choice, etc. etc.

We shouldn't hope for that much, of course. This administration, and the Dems generally, have become European style Social Democrats (in fact, my suggestion is to actually change the name of the party, which has much more philosophical connection to Marx and Engels than to Thomas Jefferson or Andrew Jackson). Their cynical redistributionist approach has the added value of being politically expedient since we have now reached the point where less than half of the population actually pays income taxes! So, the longstanding Democrat strategy of removing incentives and keeping the poor poor (and Democratic voting) will not change. Americans will need to rediscover their cultural bias toward productivity, economic achievement and self reliance.

But how is that going to happen when schools (dominated by Democratic activist teachers and left wing professors) no longer inculcate those ideals? Do the schools still quote (probably apocryphal, but usefully) John Rolfe ("if you don't work, you don't eat.")? I doubt it. In general, our youth feels that the world owes them a job, certain other economic rights (health care, public transportation, housing, etc.) that former generations believed you had to work and save for. I know there are lots of people out of work right now. Some have a valid reason, whether it's health or age or disability. Too many are able bodied, young and healthy. They all seem to be Democrats and blame the government and Republicans for their lack of health insurance, gasoline they can't afford, and jobs that are not routinely easy to find in the field of their choice, etc. This does not bode well for the future of the country.

In the end, we get the government we deserve, and I am afraid we richly deserve the governments we have now, federal, state, and local. Worse, public service is a horrible life, given the abuse and negative publicity that seems to attach to it, and most people with real talent are avoiding it.


I am a dedicated reader of obituaries, though not yet for the reason that was famously stated by some ancient comedian ("to make sure my name is not there"), and I do often note the passing of not so famous folks who deserved to be better known. One such who passed away last March 4 was Horton Foote, writer of great plays and screenplays. He won Oscars for adapting "To Kill A Mockingbird" to the big screen, and also for an original screenplay, the wonderful "Tender Mercies." He was also a Pulitzer Prize winner for his stage writing.

I loved both of those movies, which featured perfect performances and direction, but started with great scripts.

Well the Mets have reacted to Musings' harsh criticism by charging into first place, mostly on the strength of a revived offense. Their defense continues to be sloppy, but if they fix that, this team will be on cruise control. Of course the truest axiom in baseball is that you are never as good as you look when you're winning or as bad as you look when you are losing.


As expected, we moved to the sell side for a couple of transactions. On May 6, I sold 400 shares of Books a Million (BAMM) at 6.38 (originally purchased for 2.37 on
6/3/03). Then on May 11, we sold 100 shares of Stiefel (SF) for 50.70. These were purchased for 31.33 (split adjusted) on 11/26/07. I expect to be moving back to the buy side Monday.

Monday, May 04, 2009


Musings Miscellany

Sorry for the hiatus, but it's golf season and I've been busy. 54 holes over the weekend despite the rain. Actually, we had a nice weather window on Saturday afternoon that inspired me to go back out after a morning round in the drizzle. Now, if I could only eliminate the double bogies and dreaded "others..."


Folks on the political right got all hot and bothered about Senator "Turncoat" Spector switching parties (again!), but he hasn't been acting much like a Republican for some time. In fairness, conservative Republicans are going to find it increasingly hard to win PA statewide contests. Case in point, the very capable Rick Santorum. We should also remember that Arlen Spector started out as a Democrat, switching parties when the opportunity came about to win statewide election as a Republican. He had a tough primary last time out, and there was no way he was going to win another GOP primary next year. The deal was (probably) no Democratic primary opponent, but it's a free country and someone may challenge him. If a decent candidate emerges, Spector will be toast in that party too. In any event, we won't miss him. Opportunist that he is, Peggy Noonan's insight that Spector's move tells you a lot about the relative strength of the parties is surely correct.


Justice Soutar has also been ethically challenged, in my opinion, passing himself off as a Conservative to obtain a Supreme Court appointment from Bush 41 (at the behest of John Sununu and Warren Rudman), only to perform on the Court as a reliable member of the liberal bloc. Soutar's decision criteria often was based on pragmatism, reviewing individual cases as if he were in some ordinary court rather than making constitutional interpretations. The media, which was pleasantly surprised by Soutar's liberal leanings, has been generous in its assessment, but I would describe the contribution he has made during his tenure as trivial and forgettable.


Back in the Lee Iacoca days, when Chrysler almost went under, my father and I had a $10 bet wherein I predicted the Company would go into bankruptcy and he said it would not. Clearly, his thinking was that the government would prop the company up which it did. Neither of us ever claimed the bet, though either of us had grounds for doing so. In the end, the government bailed them out and Iacoca did the rest, eventually providing the Feds a good return on its investment.

It was famously said by John Maynard Keynes that in the long run, we are dead, and so it is with Chrysler. Actually, its survival as a public company was over some time ago, and the unfortunate Cerberus investors stuck with the carcass had no hope for any kind of return. Officially, Chrysler is now bankrupt, but my father is not here to pay off, and his original point was proven. However, I am sure he would agree that in fact, the company was not viable.

The negative aspect of the bankruptcy that concerns me is that the "secured creditors" have found out that, not only are they not really secured (this happens in bankruptcies) but they have lost their place in line to less junior creditors (not supposed to happen) notably the UAW, major supporters of the Obama election campaign. Sadly, this episode is all too typical of the administration's arrogant disregard for contracts and the law, in this case, the bankruptcy laws. They don't seem to understand that this will impact the availability of credit on secured terms for borrowers of all stripes in the future.

As quarterly financials are reported, many companies are wisely slashing or eliminating dividends where they need to conserve cash. As an investor that prizes cash returns, the health of the companies I invest in is more important. If anything, companies wait too long to take negative dividend actions, fearful of the short term ramifications for their stock prices.

After years of profligacy and irresponsible corporate executive leadership, we are now seeing a very different and more competent set of actions. Besides dividends, we are seeing companies actively reducing debt, cancelling buy-backs, separating the office of Chairman from the CEO, reducing the size of parachutes and retirement compensation, and eliminating classified Directors. These and other reforms indicate that Companies are realizing that they need to regain focus on long term shareholder benefits that go beyond lip service. That will be a good thing for American business and for investors.

Jack Kemp was a quarterback who failed to make his NFL team as a rookie and got a second chance when the AFL was created. He made the most of it, hooking on with the LA Chargers (long since relocated to San Diego) and winning the starting job by virtue of a rifle arm. In a league dominated by wide open, big-play offenses, the Chargers with Kemp, wide receiver Lance Allworth, and running back Paul Lowe had more weapons than anyone else. Later, Kemp added more eye catching stats as the leader of the Buffalo Bills' offense. He stayed in Buffalo after his career, ran for Congress serving 9 terms, and unsuccessfully challenged George Bush for the 1988 Republican presidential nomination. Eventually, he served in the Bush cabinet with distinction, and ran for Vice President on the unsuccessful Bob Dole ticket in 1996.

Kemp was a very creative thinker, and was in the vanguard of conservatives favoring lower taxes to jump start a moribund economy. Ronald Reagan picked up on the idea, and that led to a prolonged period of prosperity for the country. Ironically, while Kemp was in the Bush cabinet, Bush reneged on his "no new taxes" pledge setting the stage for the 1991 recession and Bill Clinton's election.

Kemp was a little disappointing on the stump in 1996, since he seemed to lack interest in non-economic issues. In fact, he championed many great ideas during his career, notably the concept of enterprise zones. When Kemp died last Saturday, the country lost a citizen whose contributions to both politics and sports were more than noteworthy.

On April 24, I bought 10 more shares of Alleghany Corp. (Y) at 235.00. On April 28, we bought 100 shares of Loews (L) at 24. Earnings came out today and they were down, but the stock went up anyway. On April 30, we bought another 200 shares of CRDN at 17.53. All of those were value buys, so today it was time for a zero buy and that was the drug company AstraZeneca (AZN), 100 shares at 36.13. Unless tomorrow is a really terrible day on the market, we should be below 20% cash finally, and that means that a sale transaction is actually coming, the first of the year.

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