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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.

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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.

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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.

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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.

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