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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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