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Sunday, September 20, 2009


Off to the Scene of the Crimes

Headed out Monday for a meeting in D.C. this week, though actually on the outskirts in National Harbour, MD. That still puts us close enough to the gang that can't shoot straight, aka the current administration. Last week's foreign policy misses, the waffling on a needed Afghanistan surge in the face of objections from the passivist left and the abrupt change in direction concerning the European missle shield (to satisfy Russian objections while steaming our allies) continues a trend the Obama team put in place quickly. That is, disappointing our friends (Honduras, Columbia, Mexico, Chinese capitalists, Iranian protesters, now Poland, Ukraine, Georgia, and of course, Israel) while gratifying our termentors (Venezuela, Cuba, Iran, N. Korea, Russia, etc.). Such moves do nothing to dispel the concerns expressed by the fringe right that Obama was some kind of Manchurian Candidate. Of course, they are also consistent with Democratic foreign policy leanings for at least the last 40 years. You would have thought they might have learned something from the successful Reagan/Bush prosecution and windup of the Cold War, but alas...

The most aggravating of these gaffes continues to be the failure of Hillary's State Department to correct its absurd policy in supporting the ousted Honduran President Zelaya. The most dangerous is its inability to contain the Iranian nuclear program.
Yesterday, VP Biden came to (and disrupted) our meeting, since the security procedures that accompany him cause lockdown for hours. He gave the expected talk about the health care bill, 45 minutes of partisan ranting and half-truths that convinced no one and earned surprisingly few applause stoppages. This Administration is kidding themselves if they think that they can sell this proposal. Time to try for something much smaller that preserves the private side (what's left of it) of the health industry. I'll provide more detail about his speech and my reactions to it in the next post.


What a great night I had Tuesday, jazzing in New York. No need to recount the weirdness that led up to it (suffice to see that using on-line reservation systems to score tables at jazz clubs can be a most unrewarding experience, even when there are seats to be had), but I saw a really good organ quartet at Smoke where I was a first time visitor, and then saw Marion MacPartland and friends at Dizzy's followed by the after hours set which was performed by the Helen Sung Trio.

Smoke is a small but homey club and restuarant on the upper West Side with sensational acoustics for jazz and a darned good German pilsner on tap. Ths whole quartet was good but I especially liked Paul Bollenback on guitar and Jim Snidero on sax.

Marion MacPartland has some difficulty with the arpeggio's and faster passages but woulds't we all had her chops in our nineties! No matter, when her friends include Nicholas Peyton, whose trumpet playing has grown so much more assured and solid while retaining that beautiful tone since the last time I saw him. He's the best around, that's for sure. Also had Ken Poplowski on clarinet, and them playing together with Ms. MacPartland's trio, it was pure joy.

We've written about Helen Sung before and she is simply getting better, as are the drummer and bassist in her trio. These young musicians are so good, and what a bargain to see them at Dizzy's in the After Hours slot.


I hate saying good things about Swarthmore grads, but U.S. District Court Judge Jed Rakoff's decision to throuw out the settlement fining B of A regarding the Merrill bonuses was right on the money. When the stockholders were victimized by the payment of these bonuses, how can the appropriate remedy be a fining of the corporation, i.e. a monetary penalty for the stockholders, the victims of the alleged fraud? That the AG's and SEC bureaucrats feel this is appropriate demonstrates perfectly the bankruptcy of their prosecutorial strategy of extorting settlements instead of seeking verdicts against the actual perpetrators.


In a rare brilliant insight, the Census Bureau reported that the recession appears to have cut families' earnings and increased the ranks of those in poverty and uninsured. I would never have guessed that could happen!

Equally perceptive was the observation by Governor Paterson that those awful, outsized bonuses paid to financial executives had yielded significant state tax revenue, now missing. Seems that without the bonuses, the Governor has found an additional deficit hole he can't close. Funny how that works.


Following our purchase of HDIX Monday for 6.31, we sold 200 shares of Books a Million (BAMM) from the IRA on Wednesday for 12.51 (bought on 12/15/08 for 1.90) and on Friday, sold 300 shares of Marine Max for 7,49 from the taxable account. 200 of those shares were purchased on 10/26/07 for 14.24 and the other 100 on 10/12 08 for 3.01).

We'll review this week's transactions when I get home.

Monday, September 14, 2009


Baseball/football Overlap Season

President Obama's speech before a joint session of Congress was up to his usual standards in terms of oratorical quality and presentation, but its content, while clearly inspirational to the "progressive" converted, was filled with inaccuracies and hyperbole. (For several examples, see the WSJ op ed pages for the last few days). No wonder, unable to contain himself, Rep. Joe Wilson of South Carolina committed the unfortunate faux pas of giving a loud and premature review of the speech, and its alleged lack of candor. Mr. Wilson duly apologized but the outburst overshadowed other more reasonable (and more timely) criticisms of the speech, giving the media another chance (as if it needed one) to paint the GOP in the worst possible light.

Nevertheless, with time, Mr. Wilson's honest appraisal has captured the imagination of Obama's critics and the resistance to the government takeover of the health industry continues at full strength. As we write this, the gang of 6 on the Senate Finance Committee continues to negotiate a compromise bi-partisan plan and they may get the camel's nose in the tent that way, though the bill will be initially panned by the progressive wing of the Dems party. But history has shown that federal programs only grow in size and cost. Make no mistake - the GOP will be waving the white flag if it supports a compromise plan.

In the end, I predict they won't, though the Dems may invoke a 51 vote rule through budget reconciliation procedures to get a bill through.

Meanwhile, the dollar continues to swoon as federal debt goes through the roof. The administration has been compounding its economic errors through misguided tariff and trade policy and by encouraging the public to recover its borrowing and spending appetite with programs like cash for clunkers. Our people have the good sense in times like these to ratchet down spending and increase saving (reducing borrowing). The long run cure for our economy and for the dollar must be based on the reduction in overall debt levels, but while corporate America raises money through equity offerings to pay down debt, and while people try to act rationally, the expansion of public debt at both the national and state levels is overwhelming.

The economic numbers have been stabilizing and the immediate threat of economic crisis seems to be passed, but in fact, we are in real danger of a second leg down, the dreaded "W" formation. The second leg down will be triggered by defaults of adjustable rate mortgages and commercial mortgages and the damage they will do to still fragile bank balance sheets. Ironically, the stock market may do OK on a nominal basis since prices in dollar terms can go up while still reflecting less value due to inflation. If we get deflation first, which some bears are predicting, there could be a market break before stocks recover on an inflated price basis. But the old days, when credit expansion and spending were key to economic prosperity, are over and that is no longer the formula. Washington, and the inept economists the Dems prefer (like Galbraith) think we are still in the 1960's. They are dead wrong.


The NFL started this week and my team is 1-0. The Jets manhandled an unimpressive Houston team on the road yesterday, and reading today's papers, you would think it's 1969 again. Let's not get too carried away just yet, fellow long-suffering fans of Gang Green. It's only one game - a good one, I'm happy to say, but it doesn't prove much of anything except that our team was a lot better prepared than our opponents for the opener.


Having seen a lot of the Phillies recently, I don't have the belief I had last year that they will be the best in the post season. To win the post season, you have to have a "shut them down" bullpen and the Phillies don't, unlike last year. In the National League, I think the Cardinals have the edge over the Rockies. In the American League, the Yankees have been the best team, but they can't seem to beat the Angels. If the Yanks can somehow avoid the Angels in the playoffs, they can get to the Series, but otherwise, I like the Tigers who now seem to have the best pitching.

In the Series, I would not bet against the Cardinals, who have the best player in baseball, but if anyone else represents the NL, the AL team will have an easy time, no matter which one it is.


On Tuesday, I bought 2000 shares of FSI International (FSII) at 1.01, an average down to be sure, but a value buy with no debt and trading well below book value. We got 30% in three sessions, but have given some of that back the last two. On Friday, we bought 100 shares of Wells Fargo Preferred (WPK) at 20.73. Today, we bought 400 shares of Home Diagnostics (HDIX) at 6.31, a zero buy. The formula told us to average down with BBI, but I want to better understand the new business model and why it should work. Of course BBI went up big today after a successful debt refinancing, so it's dangerous to overrule the formula.

Sunday, September 06, 2009


Labor Day Weekend Edition

Item: Obama offensive aims to revive agenda, rebuild popularity: This week, President Obama goes before a joint session of Congress and in front of national TV cameras to finally put some meat on the bones of his health care proposal in the form of a more specific list of just what it is the administration favors. Up to this point, it has been left to Congressional committees to draft the bills while the administration alternately endorses and then disowns various elements of the plans, depending on the latest poll results. Since this strategy has not been working, the time has come for the Obama people to actually define their plan.

Unfortunately for the President and his supporters, the whole enterprise rests on a false premise, namely that there is some combination of planks that can ultimately win majority support, and that most people want change in the first place. The fact is that most people are insured through their employer, that they like it that way (since it minimizes their cost), and that they have learned to buck the managed care system and find a way to receive the medical treatments they agree to with their doctors.

No matter how you slice it, the Dems' plan is to provide some kind of public approach that necessarily brings everyone under its umbrella (eventually) so as to provide universal (and mediocre) coverage to all and maintain some kind of cost structure. We all know that means rationing, and we also know that some rationing occurs under the present system. But having ceded medicare and medicaid to the public sector (with their limited outlays to doctors and providers), the private sector and its workers have drawn the line and said we want to retain what we have. Though this leaves several million uninsured folks out of the system at least temporarily, the majority of the working public does not care enough to consider changing the system. They are satisfied that the uninsured can get health care through the emergency rooms, at the non-profit hospitals, and that many need only sign up for medicaid.

The number of uninsured that you hear quoted, some 45 million, consists mainly of illegal aliens, young people who opt out of insured plans for which they are eligible, and people between jobs. The solution that would be acceptable would be a lower cost approach to bringing all of these people into the system, but that would take away a major issue for the Dems without accomplishing their real goal of expanding public sector (unionized) jobs. So it won't happen, and neither will tort reform, which has the potential to take real costs out of the system by obviating the need for defensive medicine.

More and more, it looks like Dems will settle for no action this year, and seek to "blame" Republicans for that in 2010. That may turn out to be blame Republicans will welcome.

President Obama also plans to address school children this week, and while that should be non-controversial, it is anything but because of the teachers' guide the administration is putting out in conjunction with the aired message that turns out to be fairly political. This strikes a sensitive spot with conservative leaning parents who already suspect unionized teachers of being partisan in their approach to discussing politics in class. So it has become yet another irritant hurting Obama poll numbers, as if he needed another.

Item: College football season begins and with it a spirited near upset by Navy of highly ranked Ohio State, and a great road win to start the season for Alabama at Virginia Tech. Also, a big road upset for BYU at Oklahoma. My reaction of course is, so what, since college football has nothing to do with college, especially at the Division 1A level where it is big business as well as a cheap farm system for the NFL. The "student athletes" are highly exploited, having little opportunity to keep up academically if they are even inclined, and the NCAA enforces its arcane and overly complex rules unevenly, punishing the mediocre programs for trying to move up the ladder and making sure that athletes receive little or nothing of value for their participation.

The industry also feeds the country's notorious gambling habit. It amazes me that my friends are happy to bet the opening week, giving 20 or more points on games between two teams both with 0-0 records. If one must bet that week, wouldn't it make sense to take the points on every home dog? Just a thought. But I don't bet sports.

One other point about colleges. I have more than a few bones to pick with them, including my own alma mater, and those annoyances came foremost to mind as the 2008-09 annual giving season ended last June 30. I did give to my daughter's school, but really, why would I or anyone support schools where there are speech codes, curriculum with ridiculous or highly politicized courses, where costs, especially for faculty are completely out of control and passed on to the few families paying full tuition (or worse, borrowing it), and where investment managers blew off tens of millions of endowment dollars investing in hedge funds, Madoff, and other questionable areas.

One of the ideas that selective schools trumpet that really rankles me is the concept of "need blind admissions." The idea that the admissions staff should select a freshman class while shielding its eyes from the ability of students to pay strikes me as the most irresponsible business practice I've ever heard of. Now I agree that there is a place for scholarship students at any college, but wouldn't it make sense to budget accordingly? That is, shouldn't you shoot for a certain percentage of scholarship students and a certain percentage of paying students so as to know what your revenue might be? And what's wrong with favoring legacy students (children of donating alumni), especially paying ones, to fill out out the pool of non-scholarship students?

Somehow, if a surplus of scholarship kids get picked, the alumni are called upon to make up the lost revenue through donations even as their own kids get turned down. This is madness! I know a classmate whose daughter did not get into our alma mater despite her obvious qualifications; so the school lost both a paying student and a regular alumnus contributor.

Strong letter to the College President to follow.

Item: Governor Paterson aide Clemmie Harris found to have no NY nexus. Mr. Harris, who makes a high five figure salary on the staff of the Governor, has a Pennsylvania home address, and has been living at NY taxpayer expense out of motels and the Governor's mansion while doing some kind of work for the Governor. He is, of course, an old friend of Dave. When asked how he came to be registered to vote in PA rather than NY, he said that he wanted to vote for Obama in a battleground state rather than in a sure state. As if that was a valid excuse. While we're at it, can I change my registration to a battleground state too? I am sure I could obtain an absentee ballot and I hate to waste my vote in NY.

It's bad enough that this creature is stealing from the all but bankrupt citizens of NY, but in addition, he went on to promise to register in NY! What the press failed to ask is whether he will withdraw his PA registration when he does. Probably they thought such a question might be insulting, but I would not have worried about that. My expectation is that he will vote in person in one place and by absentee ballot in the other. As my Dad you used to joke, on Election Day, vote early and often. And people wonder why conservatives worry about voter fraud.

Thursday night, I had the very good fortune to see Counting Crows, with special guest Spearhead and Augustana in Central Park. The nearly 4 hour show delighted the sold out crowd, where kids, parents, and the youth of America danced and sang along with Crows' front man and composer Adam Duritz as he and the great band (usually featuring four guitars!) ran through about 14 of their great songs and joined with the guest bands as well. It was just a perfect evening and Adam actually seemed supremely happy for once in his life. Can't wait to see the Crows again.

It was an interesting week for stock market followers. The market swoon on Tuesday surely had many worried that the historically awful month of September would lead to Armageddon (again) but somehow, the market rallied back Thursday and Friday to end the week with a manageable loss. For the Musings portfolio, it was at best a mixed performance. On Monday, we looked prescient, selling 200 shares of BAMM for 13.85, a great price for shares purchased 6/3/03 at 2.37. But on Wednesday, we had a brain fart, blindly following the zero buy formula to buy a thousand shares of Bank of Granite (GRAN) at 2.00 even while the FDIC was preparing to begin a 60 day period of close supervision for management. The stock ended the week at 1.49 and I am reevaluating what to do with the shares. This is not a stock for readers to buy without the most rigorous research. Finally, on Friday, we received our money for the Axsys Technology takeover for our remaining 300 shares. The takeover was at 54. We paid 17 on 3/29/06, a great recommendation from our full service broker!

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