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Monday, October 26, 2009


Chi-town and other stuff

My Chicago visit was blessed with good weather and I was able to revisit my favorite sites around State Street, as well as find a few new places to go back to.

The Irish Pub Fado was pretty much how I remembered it - that is, busy and entertaining regardless of the time of day, lots of football, baseball and soccer on the tubes, decent pub fare (including a "Full Irish" type brunch available at all hours), and consistently friendly bartenders.

You sure wouldn't know there was a recession on to visit downtown Chicago. Saturday night, I got turned away at three jazz clubs (well Chicago Blues is now more of a funk club), and there was over an hour wait for any kind of table at Chicago Chop House. Finally, just before midnight, I got in at Champagne Pops or whatever it's actually called on State and saw a delightful quartet for a set and a half led by singer Ava Logan. Besides having a nice voice which is unfailingly in tune, Ms. Logan has an extensive repertoire and knowledge of jazz tunes. She has a regular Saturday night gig at the place and I was told (accurately, it turns out) to get there early because she is packing them in.

On Sunday night, I visited tourist spot Andy's Jazz on Hubbard, which was having a surprisingly entertaining and well attended open mike night. It was so much fun, we went back Monday night and saw a group with several horns and a rhythm section that included a Japanese singer/pianist as leader, which made for some very amusing lyrics. Somehow, "Georgia on My Mind" became "Osaka on My Mind." Oh well, it was a very spirited and pleasing arrangement.

The blog is creeping toward 3000 hits, and I'm sure it hasn't helped that I am only getting to do 3 or 4 posts per month. It's not for lack of things to write about, that's for sure. The Obama administration and Congress are endlessly perfect objects for ridicule and there are always so many intriguing things going on. But that's what also makes it tough to put aside the time to post. I guess if it weren't for work, golf, bridge, the WSJ, jazz, etc. etc., I would post every day.

Speaking of my favorite paper, the WSJ is the only major daily that actually posted an increase in circulation the last quarter, and has surpassed even USA Today in pure count (forget the New York Slimes, long since dusted). The WSJ has an intensely loyal readership, and continues to produce consistent quality for the money, even under Rupert Murdoch's News Corp.

Today's Journal had a priceless column by satirist Joe Queenan, an acquired taste I'll admit, but one who is occasionally devastating. Titled "'Man Up, Obama' and Other Nonsense," it began thusly:

Earlier this month, New York Times "visual op-ed columnist" Charles M. Blow blasted Barack Obama for his refusal to stand "up for his convictions." The thrust of the article - an unoriginal idea if there ever was one - was that the president needs to heed those who "worked tirelessly" to get him elected and institute the reforms they were counting on. Ram through that public option. Clean up the mess in Iraq. Extricate us from the "quagmire" in Afghanistan. Rebuild New Orleans. Reform Wall Street. God almighty, you've been in office almost 10 months now. What's the hold-up?

I am glad I have a private office so when I laugh out loud at this stuff at lunch time, no one can hear. Anyway, I urge you to read the rest yourself, just go to WSJ.com.

Another interesting topic recently has been the question regarding What's Insider Trading, should it be a criminal offense, how does one separate it from legitimate research? The WSJ can always trot out some academic who puts forth the argument that insider trading is actually a good thing, since it makes markets more efficient. I'm not there. I think there is some clearly manipulative and illegal insider trading, but lots of cases do straddle a very vague line between what constitutes legitimate info versus illegitimate info.

I often think back to Oliver Stone's Wall Street, an indictment of Ivan Boesky style tactics, which like most of Stone's work is polemical, preachy, condescending, and downright sophomoric in its dialogue. Somehow, despite all this, Wall Street is an entertaining movie, probably because Michael Douglas is so good (and there are good supporting performances by Josh Mostel and Martin Sheen). However, I always thought that while there were clear examples of illegal insider trading and stock manipulation depicted, there were also some pretty questionable ones. For example, when Bud Fox trails Sir Larry Wildman around, watching him take a business lunch and then a plane to Pennsylvania, he and Gekko work out that Wildman is making a move on Annacott Steel. So Gekko establishes a position. Frankly, I don't see anything illegal there. They had no direct or explicit information that had yet to be made public. They simply watched what was going on and made the right inferences, without any guarantee they were correct. I think that was legal, though the methods may have been unconventional.

Another close call was the initial decision to trade on the Blue Star information about how the Street would react to the accident report Bud learns about from his union boss father. But was Mr. Fox simply repeating a rumor, or did he actually have information about that decision? How would he get it before it was made public? If he did, and he was temporarily an insider, he was breaking the law by passing the info to his son, a stock broker, and his son repeated the crime by passing it on to Gekko (who broke the law by confirming it and trading on the info). If it was merely an unconfirmed rumor, it could have been fair game.

Of course, gaining access to confidential legal files, and trading on that info, as Bud Fox did in another episode, is another matter entirely.

Well the Yankees overcame the Angels jinx this year, thanks to their own excellent play, some loose defensive play by the normally reliable Angels, and some friendly umpiring. Now they draw the suddenly hot Phillies, whose bullpen, their major weakness during the regular season, has revived. The Series will be played in two very hitter friendly parks, but the ball doesn't carry as well in the cold, so it should be a good series. Each team has a dominant player, Howard and Rodriguez who are both coming in hot, and each team has enough starting pitching to get by. I think the Yanks staff is deeper, their lineup is deeper, but the Phils have the confidence that defending champs on a roll get. So I think it's a toss-up, but as a National League fan, I'll be rooting for the Phillies, who I make a very slight underdog on the basis of the odd home game being in the Bronx. In case you haven't noticed, the Yanks are 5-0 there in the the post season.

On Thursday, I bought 300 shares of RBS preferred at 9.25. On Friday, I bought 8 shares of Allegheny Corp (Y) at 260.87. Today, I bought 100 shares of Flir Systems (FLIR), a new name at 29.28 and a zero buy.

Saturday, October 17, 2009


No World for Old Men

The other day, a customer came to our office with a complaint, an infrequent but not rare occurrence, and it's one of my jobs to help folks in that situation. After hearing him out and giving him advice regarding the next steps, it was time for him to leave but you have to realize, this gentlemen was 86 years old, pretty alert but yet not quite all there, and he needed some help. He had taken the subway from Queens, got out at 6th avenue and walked to our office at 3rd and 42nd. This is quite a hike for a senior citizen. I was not about to let him walk back across to
6th avenue, so I suggested he go downstairs, take the 6 train up to 63rd and change to the E or F train there. He was up for that, but it's easier said than done. So I walked with him all the way to the turnstile, from which you could see the entrance to the stairway to the 6 train.

He took out his metrocard and ran it through the reader, and it showed an insufficient amount for his fare. He took out all kinds of papers, including a second metrocard, ran that through with the same result. At that point, and with papers threatening to fly everywhere (not to mention a zillion people also trying to use the turnstiles), I quickly reached into my back pocket, yanked out my metrocard and ran it through, pointing at the same time to the stairwell for the 6 train, and off he went. I watched until he was out of sight, still carrying all his papers and metrocards and just hoped he would safely arrive where his car was parked in Queens (the thought of him driving is a bit scary).

This is not to make fun of our senior citizens. Quite the contrary, it is to simply observe that in our world that is so heavily reliant on electronics, on things that happen quickly, soundlessly, in small print, often using remote instruments, etc., that it must be such a difficult environment for older people whose senses are not nearly as acute as they had been, and who are thinking, seeing, hearing etc at a slower pace, if at all. And this is occurring when there are more people than ever achieving octogenarian and nonagenarian status than ever before.

When my father was 80, he was still in almost complete control of his environment. He could still drive, perform on stage in amateur productions, pay his bills, and earn some commissions as a financial planner. Over the course of the next seven years until he passed away, he gradually lost the ability to do all those things. It was difficult for him to experience and difficult for us to watch, but my observation is that the world is getting away from older people who aren't even sick. It's just getting too complicated, too fast, and too small. As the baby boomers massively move from middle age to senior citizen status, the world will have to find a way to make accommodations. There's an investment theme here somewhere, and if you can find companies making products to ease this transition, those are stocks to consider.


For once I agree with David Tice. Not only is gold going much higher, but the Obama administration is way off base on its solutions oriented toward reviving spending, including consumer spending. The correct long run solution to our economic problems is reorientation to more savings and investment, less credit formation and less spending. This is true both in the public and private sectors.

“We need to get away from a consumption-based economy," Tice says. "Yes, it's going to be tough [and] accompanied by very bad economic statistics and a lot of unemployment. Yes it's going to be painful [but] we cannot simply continue to have foreigners or the Fed buy our Treasuries, agencies and mortgage-backed securities, etc. We have no real choice."

But with policymakers and politicians seemingly unwilling to make the hard choices, Tice is sticking with dollar alternatives like gold, gold miners (he declined to specify) and foreign currencies, including the euro, Swiss franc, Norwegian krona and Canadian dollar. – Aaron Task, Tech Ticker

I am not sure I agree about the Krona and the Canadian dollar, but I sure like the Swiss frank and am also doing some research concerning the Aussie dollar. In addition to the investment options posed by Tice, I am wondering about stocks and bonds denominated in the acceptable currencies.

All of this is right in line with my last post. Though the health bill still has major obstacles, it is the straw breaking the camel’s back for dollar denominated instruments, including US stocks. If the only problem were inflation, stocks can reflect that in their prices. But when the public sector makes it impossible for the private sector to earn its cost of capital, then it’s time to look for the exits.

I am heading to Chicago tomorrow, the US city most like NY and a personal favorite. I can't wait to blog about the places I will go to hear jazz, eat, etc. Believe me, there are worse things than working the weekend.

On Wednesday, we bought 200 shares of Pulte Homes (PHM) at 10.91. Today, we sold 300 shares of Marine Max (HZO) at 8.22 that were purchased on 10/22/08 at 3.01. I know, these would have been long term gains if we waited a week but I follow the formula and purposely minimize the tax influence. It's not looking like I am going to have a lot of taxable net gains this year, so I made the decision to go ahead. The stock was clobbered today anyway, so I don't look so bad - 8.22 looks like a good price right now. I love to more than double in a year at any tax rate. It took guts to buy this stock when we did, but the reality is that formula decision making, removing the emotion, leads to some very good results like this one.

Tuesday, October 13, 2009


The Next Bubble - The Public Sector

Yes, another bubble is inflating, but this time it's not another asset bubble like stocks or housing or tulips. It's another credit bubble - the public sector. Public debt, securities issued by Federal, state and local governments, is completely out of control and vastly overrated in terms of safety. The likelihood of outright defaults in the state and municipal debt areas is very high, but a federal default will likely take a different form - debasement of the currency. Already, in the short but inept tenure of the current administration, the dollar is down by a double digit percentage against a basket of other currencies. While the Bush administration was notorious for talking about a strong dollar while allowing it to weaken, the Obama mob has doubled down on that strategy. The excuse usually given for such a goofy policy is that the weak dollar helps exports and reduces the trade deficit.

In reality, dollar debasement is an insidious inflationary tactic that reduces federal debt in real terms even as it increases in nominal terms. Since Obama budget deficits are headed toward the sky and the tax base is exhausted even before tax increases resulting from expiration of the Bush era tax cuts and the federal takeover of the health care industry, there is really no other way for the administration to keep the debt service from swallowing the whole of government revenue. Of course, the implementation of necessary spending reductions are not on this crowd's radar screen.

Though most signs point toward a gradual and sustainable recovery, the Obama administration will assure a double drop recession (drip is too mild) by allowing, even pushing for these tax increases.

Given that situation, what is an investor to do? Keep in mind the situation is rapidly nearing a tipping point since the private sector is shrinking so fast, it will no longer be able to produce the revenues that support the public sector (which produces nothing net of tax expenditures). My view is that the enactment of federal health care, which, no matter what you hear, will spell doom for private health insurance and the 17% of the GNP it supports, means the end of stock investing as a stable and profitable exercise in this country. At that point, we will liquidate the portfolio. Where to put the proceeds? There will be few choices, since US cash will not be viable for obvious reasons. However, other, more stable foreign currencies can be a haven. Also precious metals and land. In short, the few things that might hold their value in a world where governments, and specifically ours, can no longer be relied upon to preserve the inherent value of capital.

After all, what businesses will invest in employing people, building production capability, or risk taking in a country transitioning to full blown socialism?

The politicians better wake up and fix what's happening and soon. What is occurring today in high tax states (capital flight) can also happen on a national and international scale. That will be a very sad day for the US and for our children and future generations.


And while we're at it, Olympia Snow today wins the Arlen Spector award for proving what true conservatives already knew instinctively - the GOP is better off without such moderates and being a minority party than it is having them in its ranks, falsely sporting the Republican label when in fact, they are likely to cave on all the big issues. Better that she and Senator Collins just cross over to the other side of the aisle and see if they can win a Democratic primary, rather than exhaust GOP campaign funds in a Republican party primary and then in a general election between tweedle dum and tweedle dee. Frankly, Pennsylvania Republicans are chomping at the bit to oust Spector (if the Dems don't do it first via their primary). Look for Snow to be cast adrift as well.

Speaking of awards, the biggest laugh of the week was the Nobel Peace Prize going to President Obama as he (ineptly) prosecutes two wars and has the country in grave danger of future hostilities with Iran and North Korea, and maybe even Venezuela. Of course, the left wing Norwegian panel that grants the prize will never fully comprehend the role appeasement plays in leading to hostilities. Somewhere, Winston Churchill and FDR are rolling in their graves, but not with laughter.

It's more fun to talk sports. In baseball, I had three of the series figured out but the one that I got wrong involved the Cardinals, whom I picked to go all the way. Of course, they had game two in the bag until a dropped fly ball (lost in the lights) cost them that one. If they had gone back to St. Louis even, well you never know.

The Yankees had lots of good fortune against the luckless Twins, but if the Twins had won a game in that series, it would have been their first against the Yanks this year. On paper, NY figures to beat the Angels, but the games are played on the field, and there, Mike Scocia's Angels have had the Bombers' number for years. The Angels are in the Yankees' heads the way the Yanks are in everyone else's, and I expect it to play out that way again, even though the Yanks have the odd home game. The pick here is Angels in 6.

In the NL, the series is a toss up on paper, but again, on the field, the Phils have been the most resilient team in recent years. With Ryan Howard again dominating, I think the Phils will top the over achieving Dodgers in 5 or 6 games.

The Jets and Miami treated Monday night football fans to a really entertaining game last night. They may not be the best teams in football, but both of these clubs seem to be progressing and they sure played hard and comparatively mistake free.

More disturbing for the NFL is the pathetic performances turned in Sunday by its bottom echelon teams. Really, the Raiders, Rams, Panthers and a few others are just beyond awful. By the way, the Bills really phoned it in too, losing to a pitiful team. Also what was the Jaguars' excuse? it's one thing to not be a contender and another thing to not even be representative.

At least we have Giants - Saints to look forward to. Should be a fun game to watch.

On October 6, we bought 700 shares of Frozen Food Express (FFEX) at 2.95 a value buy. On Friday, we bought 1900 shares of Blockbuster at 1.08, a zero buy. The Blockbuster deal with TIVO is a business model that finally makes sense with the promise to outperform the Netflix model without taking them on directly. With this approach, the closing of the retail outlets makes sense. My original idea years ago that led me to Blockbuster was that the stores were undervalued as a real estate play, a strategy that would be laughable now.

Also on Friday, we bought 200 shares of Aegon Preferred (AEH) at 16.77. Yesterday, we bought 100 shares of Lindsay (LNN) at 38.39. All the buying represents redeployment of the proceeds from the Axsys and CDIC sales.

Monday, October 05, 2009


One More Song About Movin' Along the Highway

Sorry it was so long since my last post, but the traveling has continued, and surprisingly, some hotels haven't figured out that a business office with a computer can be a source of revenue from those of us poor deprived who don't carry laptops. So visiting Cortland, NY for parents' weekend, followed quickly by a return upstate (but much more upscale) to Cooperstown, NY yielded lots of fun but no posts. More travel is on tap too as I am headed for Chi-town on the 17th, and Florida in November. My advice to regular readers, if you haven't figured out how to do this already, is to set up your internet account to alert you when a post hits from this and your other favorite blogs. That reduces needless and disappointing visits (of course you can always review old posts in the archives if you're desperate).

The regular baseball season has ended, a long one for Mets fans, but the playoffs are always of interest, even for those whose remaining mission is merely to root against the Yanks or whoever. The AL is not set since Detroit and the Twins have a play-in game tomorrow, but in the NL, I like the Cardinals to beat the Dodgers and the Phils (narrowly) over Colorado. Keep in mind though that in a baseball short series, either team could always win with decent pitching and some breaks.

We're also a quarter of the way through football already and hockey has begun (did anyone notice?) with basketball to follow shortly. For sports fans, there are always games to watch (and bet); bread and circuses for America's golden age.


Whether our golden age is in its waning days has been the subject for more than a few commentators, looking over their shoulders at China and India, watching the dollar's value dissipate, and our politics degenerate. I am really just not in the mood for another diatribe about the Administration tonight. Let's just stipulate for the record that this miserable bunch of charlatans is on track to do worse than the Carter bunch, the Nixon bunch, in short all of the worst in our history. If Iran wasn't such a serious problem, I just couldn't stop laughing at the ineptitude that has us begging for any concession (even non-concession concessions) in the "negotiations" just begun. Just read today's WSJ op eds and columnists if you want the full queasiness. I don't expect my liberal friends to really dig into John Bolton's accurate, if neo-conservative, portrayal of the negotiations, but maybe you could review Mary Anastasia O'Grady's column and see if you can find any justification for the State Department and the Administration siding with Chavez's and Iran's national/socialist, anti - semitic allies in Honduras.

Mark Levin really cracked me up last week talking about the Obama speech wherein he proclaimed that Americans have been waiting for nationalized health care since Theodore Roosevelt and Harry Truman. Levin literally screamed, "No, we have not been waiting, we don't want it now, how many ways do we have to say No, No, Hell No before you get it?" The country's frustration is palpable and the path is set for a rout by the Republicans in 2010 that will make 1994 look like a walk in the park. All that remains is for conservatives to find a Gingrich like leader and the swing districts will all flip.

So there you go, I did it anyway, even though I wasn't in the mood, I just can't help myself. Unlike some, I wasn't unhappy Obama went to Europe to beg for the Olympics, (the last thing we need, by the way) since at least it took him out of the country for the better part of the day. When Chicago was first one eliminated, it made me even happier.
While in Cooperstown, I had the uniquely enjoyable experience of playing a round of golf with the delightful Hall of Fame knuckleballer, Phil Niekro, our Association's
guest speaker for the event. Phil is a spry 13 handicapper at age 70, which is a surprise until you remember he was still pitching in the majors into his mid to late 40's. Despite playing for a bunch of mediocre teams (and some worse) Phil won over 300 games, with just enough velocity to keep hitters honest while basically getting them out with the trick pitch. I am happy to report that he also has a Hall of Fame personality and heartily recommend him to other groups looking for a pro athlete oriented speaker. Have your meeting at the Otesaga in Cooperstown, where Phil is always happy to visit and always welcome.


For September 21, knowing I would be in the DC area, I had set up some transactions that all executed while I was away. We bought 200 shares of Pfizer (PFE) at 16.53, a value buy at this miserably low price. We also sold 80 shares of PCP from the IRA at 101.41, all shares we had bought last year in four separate transactions, taking a small loss. We have a nice gain on our taxable shares and won't be rushing to take that. And finally, we got our money for the thousands of shares we owned in CardiDynamics (CDIC), the subject of a takeover I did not vote for since I think the price (1.35) was too low. We took a big loss on this one, the purchases occurring over many years at all kinds of prices. We had taken some profits on this stock years ago, but nothing like the losses we booked on the takeover - about $27,000, mostly taxable.

That leaves us with a small taxable gain year-to-date but a small loss on the taxable side, and that's OK.

On September 29, we added to our preferred stock position buying 50 shares of AES Preferred (AES.PR.C) at 43.67.

We've got a limit order in on the buy side, but nothing else has executed yet.

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