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Thursday, December 24, 2009


Christmas Present From Hell

This morning at 7 AM EST, when many of us were still asleep enjoying Christmas Eve off from work, 99 US Senators and Vice President Biden gathered to put the final wrappings on their version of the Health Care bill, and then 60 Dems who voted for it left town to face the music in their home states where an average of 60% of the people now feel this is a bad idea. First, leadership gathered for a self congratulatory victory lap before the press, and for the umpteenth time, tried to sound confident that Americans will like the bill once they come to know it better. Of course, all evidence so far is that the more Americans find out about the bill, the more they hate it.

The only Senator who skipped the vote was lame duck Kentucky Republican Jim Bunning, a solid Conservative who unfortunately doesn't speak so coherently anymore, and may not be thinking all that much more clearly. To give the benefit of the doubt, the Hall of Fame right hander may have been trying to make a statement about the futility and absurdity of it all, especially where Dems only needed 50 votes this morning. There were some who were thinking that with the cloture vote behind them, Majority Leader Reid might have allowed up to ten of the Blue Dogs to cast a no vote for show, but apparently, he decided it was not safe to open up that possibility and have more of them wanting to vote no than he could handle. So the Dems instead enforced party discipline, a signal I guess, that they will be able to pass this thing once it comes out of conference.

And what comes out of conference is very likely to be...the Senate bill. That's because there is no margin for flips in the Senate, so substituting a House provision, even on abortion spending, is considered too risky. This dynamic has the interesting result of putting the burden on Speaker Pelosi to enforce party discipline, and it may be a bit of a challenge. On the left, there are many in the House who are objecting to the absence of anything that even looks like a public option. On the right, the Senate's abortion spending prohibition is not as strong as the one that passed the House (no matter what Ben Nelson says) and it may not keep pro life members in line. Given that the vote was measured off on the House bill (I think it was about 220-215), Pelosi has some maneuvering room - she allowed as many Blue Dogs as she could to vote "no" last time while still keeping a majority. It will be interesting to watch as she balances the left and right forces within her party on the final vote.

A new development today is that the AG's office in Texas and nine other states are considering a court challenge regarding the bill's constitutionality. Apparently, these states are upset about the sweetheart provisions obtained by Nebraska and certain other states. And in New York, there is consternation that loudmouth Sen Schumer, number two in the leadership ranks in the Senate, could not get any kind of reasonable deal for NY given the pounding the state will take via Medicaid unfunded mandates. As for hapless Senator Gillibrand, she is a waste of space.

These folks are really going to get an earful when they get home now, and of course, that is why Reid made sure he got the vote in before the Christmas recess. Wait til they hear that so many of their constituents have already begun the countdown to November, when many of these bozo's will be voted out of their seats. We've already had one blue dog cross the aisle in the House, seeing the 2010 handwriting on the wall. Prediction here is quite a few others will follow.


While Obama care staggered over the goal line, no amount of oratory can cover up the fact that Copenhagen was an unmitigated disaster for anti-development, climate change alarmists. It wasn't so good for the third world politicians either. Though a deal was announced to transfer some wealth to the third world, they got no specific commitment from anyone to follow through, the conference was shown to be nothing but a transparent money grab, merely using climate change as an excuse, and there was not even a set of Kyoto type greenhouse gas targets agreed to (should be noted that no one honored their Kyoto commitments anyway).

On the other hand, the conference was a great victory for the planet's people and for capitalism. There are so many better ways to help the world's indigent than to give them funds to repair climate change damage. Most would prefer running water, indoor plumbing, and a reliable power supply as opposed to tradeable CO2 credits. In this country, cap and tax probably won't arrive in Congress at all. The Gore/Greenpeace crowd poo-poohed climategate, but I believe these results became inevitable when those fabulous hackers exposed the politics of climate science to the world.


Despite the lack of any meaningful public support from the Obama Administration, the Iranian opposition continues to build momentum, and I would be surprised if the current regime is still in place by year end 2010. Of course, we don't really have any good idea how chaotic things could get once all hell breaks loose. Let's just hope it happens before the clerics finish leaning how to assemble a nuke.

Taking down the Iranian regime will have beneficial impact in far-flung areas of the world. One of them is Latin America, where it will remove one of the foundational elements propping up the Chavez regime in Venezuela.


I am in dithering mode concerning investments. My feeling is that final passage of the health bill will make it less attractive to play with stocks. Question is, do we initiate the escape now, when final passage seems all but certain, or wait until the actual event. It's one of my weekend ponders, quite frankly. For the time being, it's business as usual. On 12/17, I bought 100 shares of Flir Systems (FLIR), a zero buy at 30.28. On 12/21, my IRA bought 25 shares of Con Ed preferred (ED.PR.A)at 88.10. Wednesday, the IRA bought 300 shares of Gencor (GENC) at

Tuesday, December 15, 2009


The Daily Double - Healthcare and Financial Reregulation

The Obamacare campaign in the U.S. Senate is like watching a daily soap opera, with its endless plot twists and turns, one day's enemies are the next day's allies and so on. C-Span junkies must be in their glory. As predicted here, Landrieu and most of the other Blue Dog Dems have long since folded up their tents, leaving Ben Nelson, railing about abortion funding and only Independent Senator Lieberman seriously objecting to the concept of the federal grab and overspend. Even Senator Lieberman says that if Reid can fix the Medicare expansion (that he once favored!), he could be on board. This is why Dems say 60 votes are still within reach.

However, they are not quite there yet. First, Nelson will put forth an abortion amendment, and when it fails, we'll see if the bill's safeguards allow him to be in favor. The bigger battle will be over the medicare expansion to age 55.

Apparently, Reid is ready to give that up quickly (it is SUCH a lousy idea), but simply jettisoning it will leave no public option other than the "insurance exchanges" and no one really understands how they will work. That will be OK with Lieberman who won't support a public option, but then, what will liberal senators from deep blue states be bringing home? Just some insurance reforms, but we really don't need a thousand page bill replete with taxes, mandates, penalties, etc. to do that. So we will have to see if the Dems really can drum up 60 votes. Right now, it looks like Dems will do whatever it takes to get this bill through the Senate and into a Conference Committee where the real mischief will be done.

But first, the bill needs to be scored by the CBO, and that's a challenge when you're dealing with a moving target. My guess is that Dems will learn that there is no deficit saving here, quite the opposite, and I'm not sure what they do with that information. One of the reasons the bill scored so well last time around was the inclusion of the CLASS Act, a phantom long term care benefit that front loads premiums and back loads claims. Senator Thune put forth an amendment to delete it and got 51 votes, a clear majority but not enough to take it out (you need 60 votes to do anything these days). The Dems couldn't take it out and still score the bill well, but in fact, CBO has updated actuarial information and is likely to reduce the net savings from CLASS. This could be an unpleasant surprise for Reid and the Administration.

Meanwhile, Obama keeps playing the Dems propaganda game, that is to say lying. He keeps saying the bill bends the cost curve (which way?), addresses the uninsured (by giving away the insurance - we could do that through Medicaid), and that the people have been waiting for us to pass national health care (but all the polls show the bill is intensely unpopular and getting worse). The last thing this hapless Administration needs is a credibility gap to exacerbate its woeful performance.

Apparently, it doesn't matter to Obama either what's in the bill, as long as he can say he passed something. What a stiff we elected!

The second half of the daily double relates to financial re-regulation. The Barney Frank version passed the House the other day, somewhat narrowly, and now we move on to the Senate. The Chris Dodd bill in the Senate is almost the polar opposite of the Frank bill in terms of its mechanics, though it springs from a similar philosophy. What both bills attempt to do is to cover up the culpability of Congress generally, and Frank and Dodd specifically, for their role in causing the recent crisis, while making the big banks and the i-banks the whipping boys and taking the opportunity to grow the federal bureaucracy.. The "solutions" in the bill are akin to treating symptoms without addressing the causal agent. No matter, this is all about politics and trying to stay in the majority. Good luck with that boys.

Building on this agenda, Obama took the financial CEO's to the woodshed yesterday, telling them they cannot oppose the re-regulation effort. Whenever I hear political strong arm tactics like that, I cringe, knowing that the speaker is utilizing power rather than logic. In the long run, those tactics never work. This was reminiscent of JFK's temper tantrum early in his term when he blasted the steel companies for raising prices and "causing inflation." Needless to say, the rollback in prices that resulted was temporary - supply and demand determine prices, not politics.

Not that the banks and i-banks weren't part of the mess, but the solutions (break 'em up when they get too big, rein in pay, force banks to lend, etc.) have nothing to do with either the economic failure we have witnessed nor enhancing any recovery that might be taking place.

It is useful to review the steps that nearly brought our economy to ruin:

1. Frank, Dodd, Fannie Mae and Freddie Mack demanded that the market provide low cost mortgages, even to those who could not afford them.
2. To fend off the phantom year 2000 recession, Federal Reserve Chairman Greenspan lowered interest rates to absurd levels and kept them there much too long.
3. Powered by low interest rates, banks of all stripes conspired with mortgage brokers to expand loans, often with little or no documentation, to unworthy borrowers. They immediately offloaded this risk by selling the loans off to securitizers.
4. The mortgage industry went off on a fee bubble, generating as large a volume of mortgage loans as possible to feed the securitization frenzy.
5. Issuers of securitizations convinced the major rating agencies (for more fees) to rate these products AAA, easing their sale in the secondary and tertiary markets. The rationale was that home values would continue to climb, thus securing the loans even in the event of borrower default.
6. Investors of all stripes reached for yield buying the securitizations. Mark-to-market accounting allowed them to book paper profits on these instruments as the market bid them up.
7. AIG and others sold "insurance" on these loans in the form of Credit Default Swaps, convinced they would never have to make good.
8. When home values actually began to fall, the whole thing unwound. AIG quickly unraveled, and mark-to-market accounting's procyclicality exacerbated the collapse.

So please tell me how either the Dodd or Frank bills address this sequence of events. On the other hand, the following reforms might actually accomplish something.

1. Regulate derivatives - trade them through an exchange, to modify counterparty risk.
2. Repeal Graham Leach Bliley and restore the separation of investment banking, commercial banking, and insurance.
3. Require Boards of Directors to be truly independent of management and to represent shareholders. Separate the role of CEO from Chairman of the Board, as in the UK (that's how to get executive pay right, as opposed to the heavy handed approach we are seeing now).
4. Limit the application of Sarbanes Oxley to large companies.
5. For securitizations, consider what needs to be in place if the loan needs to be unwound. Certain duties and obligations should not be transferable so that default situations can be better addressed.

On Prime Minister's Questions last week (broadcast live on PBS Wednesday mornings and rerun on Sunday night at midnight), a Conservative back bencher opened the session by chiding Prime Minister Brown about his alternately characterizing Spain as a member of the G20 group, and then not (several times recently). He concluded his question thusly: "The strain in Spain seems mainly in his brain." The humorless Brown attempted a straight answer, but even he could barely contain laugh - out - loud amusement.


We made up for lost time in Frisco on Friday with three transactions. First we sold all 996 shares of I 2 Technologies (ITWO) at 18.50, near the coming takeover price, but this way, we get all cash instead of some stock we don't want. We took a comparatively small loss of $2,760 - I say small since we made quite a bit on our December 2008 average down. This could have been a much worse fiasco. We bought 400shares of Home Diagnostics (HDIX) for the IRA at 5.67. Then finally, our 600 Avocent (AVCT) shares were tendered for 25, a gain of $1,488. I think this price was too low, but life's too short for silly class actions. Take the money and move on. So we've got a fair amount of cash to deploy for the balance of the year. in the taxable accounts, we will be very near even from a capital gains standpoint for the year - bad news for Governor Paterson and Treasury Secretary Geithner.

Thursday, December 10, 2009


Frisco Musings Again

Yes, we were back to San Francisco on business for five nights at the economical and surprisingly comfortable Adagio Hotel - there were TWO CD players in my room - although the convention hotel was the ritzier but much less visitor friendly Hilton. Though this trip delayed the 192nd edition of redwavemusings, the world went about its monkey business as usual - if anything, things have been getting loonier. To wit:

Somehow, Tiger Woods managed to drive his car directly from the driveway in his gated community into a hydrant, then a tree (apparently he wasn't sure whether to hit an iron or a wood). Apparently, this followed an argument with his wife over some infidelities on his part, which the press managed to overlook for years (while they seem to know about every other celebrity's) and his fellow players wisely covered up also (probably because they are not all as squeaky clean as their images either). Anyway, Tiger quickly owned up to the circumstances of the accident, admitting it was his fault (presumably exonerating the hapless fire hydrant) though he has been less prompt concerning the circumstances of his affairs and his wife's violent reaction. Now, the tabloid press has sprung to action and is outing Tiger's female flames on a daily, even hourly basis. Of course, many of them are outing themselves, hoping for that fleeting fifteen minutes of infamy so they can cash in. All of this will ultimately cost poor old Tiger an 8 or 9 figure endorsement number, which would be tragic if his bank accounts weren't worth about ten figures already.

The climatologists of the world are meeting in Denmark this week, and it is fitting following the revelation of Climategate that the meeting has already taken on a distinctly political, and not scientific tone. What this all really seems to be about is the third world trying to extort as much dough as they can from the developed world and the BRIC countries, under the guise of UN concerns about ocean levels and flooding, man made droughts (that's a good trick), etc. But, as one GOP leader brilliantly summarized, there is no way we should be allowing the EPA or the UN to regulate a gas we exhale all day! So whatever Obama and his cronies agree to, there's a good chance Congress will never ratify, just like Kyoto, and nothing will happen. Frankly, all the UN is good for is to stimulate the NYC economy. If it didn't do that, we should move to disband it, or simply cancel our membership and let it go somewhere else.

Speaking of nothing happening, we get a different spin on the health care fiasco every day, agreements that are immediately disavowed, etc. The only thing that gives hope to the libs is the stubborn party line that says reform is inevitable, it has to happen, therefore it will. But what if it doesn't? What if there is nothing on health care, cap and tax, energy independence, card check, etc. etc.? What if neither the first, second nor third stimulus, the TARP slush fund, compensation control, re-regulation of financial services or anything else restores jobs and gets the economy going? Then the Libs' honeymoon will be a short one and it will be 1994 or something like it, i.e. Armageddon for Dems, in November 2010. Actually, 1994 saved Bill Clinton's Presidency, he was forced to curtail tax increases and reduce spending via welfare reform, and that bought him a budget surplus in the second term. Is this Obama's grand plan? Liberal Dems are getting pretty frustrated with the demise of the public option, the inability to move on card check, and the escalation in Afghanistan. Could Obama be a closet conservative? Nah!

And today, the war escalator went to Norway to accept the Nobel Peace Prize, a classic irony if there ever was one. Despite taking considerable time out of a busy calendar and incurring a significant security expense (much bigger than the actual prize), Mr. Obama seems to have miffed the population by skipping lunch with the King. When you're hot you're hot and when you're not, you're not.

Then there was all the sports stuff I missed, like seeing Alabama finally beat Florida, the Giants and Jets fight their way back into the playoff race while the Pats and Steelers backed up to the field, baseball trades and signings, and perhaps most amazing, the Nets won a game. I did see the end of a typical Lakers win with Kobe banking in a three pointer from outside the arc, just an off balance heave that only a Celtic or a Laker could make.


Meanwhile, I must report that while Frisco is still one of the best and most beautiful cities to visit, it is a recessionary mess. Homelessness and panhandling were always a problem there, but now every block is a gauntlet. There are an awful lot of empty storefronts, including the Virgin Megastore I used to go to, and the restaurants didn't seem as busy as they were in Chicago. The weather, usually OK in December, was COLD - worse even then in June! I still loved going to Foley's Irish House where I made a new discovery - Anchor Steam beer on tap. They had very good music there each night. Also saw a very good jazz quartet at the Jazz Bistro near Union Square on Friday night. There are lots of places to go, but I like to walk and they were close enough to do that.

By the way, I flew Virgin America for the first time and recommend it. Comfortable plane, friendly service, and kind of a hip atmosphere. TV and other entertainment on the back of the seat in front of you, like Jet Blue. Good fare, too.


On 12/2, we bought 100 shares of NVE Corp (NVEC) at 37.50, a zero buy. We took a break for the trip, but started to catch up today, selling 200 shares of Kaman at 24.11 (KAMN). I could see the market was going to be up this morning based on the futures, but this is a thinly traded stock, so it's best to let the market establish a price and sell after the opening. We got a better execution than we would have at the opening. 100 of these shares were purchased 5/24/1999 at 13.75, the other 100 on 1/8/2002 at 15.75. We also bought another 100 of the same Goldman Sachs preferred for the IRA as last time (GS.PR.D) at 20.81.

Tuesday, December 01, 2009


Thanks musings readers - 3000 hits

I was pleased to see when I signed on tonight (necessary to get into posting mode) that we were still just short of 3000 since I prefer that a reader have the honor. No doubt, this post will attract click 3000 and that's kind of neat considering we have done little to publicize this blog, don't take advertising, etc. We have also maintained a degree of anonymity, a necessity considering my lobbying activities, but regular readers know the identity of the author of course. You might wonder about the propriety of offering our URL to your friends and those you enjoy debating with on economics, politics, sports, music, etc.

The answer is, that would be fine, we are anxious to spread the redwavemusings gospel of free people, free markets, and expensive (quality) music and sports. That said, lets just say the blog is written by "redwave" and leave it at that for now. But feel free to recruit new readers within that limitation and we will get to 4000 hits in no time. More importantly, we'll get the conversation going about our favorite topics, hopefully both with folks who agree with us and those who don't. Your comments are welcome. So would be some advice about how to set blogger so that comments could come up more easily in a pop up window. After all this time, I still haven't quite got that technology figured out.


Sunday at the Meadowlands was great fun, starting with hero sandwich and beer at the tailgate, and an entertaining Jets win (if not especially artistic). Watching Saints - Patriots on the tube last night was quite a contrast. The speed of the teams, particularly the Saints, seemed otherworldly compared to the plodding, turnover ridden squads we saw Sunday. For so many years, elite NFL teams were characterized by dominant defenses, but with the rule changes of the past few years designed to give QB's better protection and receivers an easier start on their patterns, aerial offensive displays are now the mark of the best teams. It does make for a more entertaining game, that's for sure. Somehow, the rulers of pro hockey and soccer have got to figure out how to inject more scoring into their games, as football has done. For hockey, I suggest reducing the size of the goal crease, for soccer, eliminate offside already.

A great victory for democracy has been won in Honduras, with the successful election and recognition of the winner by the U.S., which belatedly figured out who the good guys were (if Obama and friends read our blog, they would have known a long time ago). The administration seems to have jettisoned the source of some of the bad advice it was getting on Latin America, and the "all's well that ends well" result means another tip of the cap to Hillary Clinton in her mission to actually run the State Department (instead of vice versa) and to provide adult supervision for a very green (in the sense of inexperienced) administration. The big losers, of course are Chavez, Ortega, Castro, the OAS - and they really deserved it.

Another winner, who in my opinion should get a Pulitzer, is WSJ columnist Mary Anastasia O'Grady, whose brilliant, courageous writing on this subject alerted us all to the administration's misguided policy and undoubtedly played a role in getting things on track. Even in the internet age, the power of the pen is awesome in skilled hands backed by clear thinking.


The Obama administration has such bad instincts on foreign policy that it is heartening at least to see that they have the capacity to change course when they realize that what they are doing is clearly not working. So in addition to the happy ending in Honduras, we now see that they realize they blew Iranian policy completely, that engagement with the regime was a stupid unproductive idea, and that the bad guys only respect strength. Of course, this administration thinks sanctions are the answer, and to their credit, it now appears that Russia and perhaps even China are lined up to vote for economic sanctions. In the end, the prediction here is that only a military strike against the Iranian nuclear facilities will curtail Iranian weapons development. The sooner the better, it says here.

I wonder if anyone in the Administration realizes that a real opportunity for regime change was missed by not getting on the anti-government protesters' bandwagon when they had some momentum. Instead, our failed policy of engagement gave the mullahs credibility at a critical time and it was exactly the wrong answer. This was reminiscent of Bush 41's missed opportunity to support Iraqi's in overthrowing Saddam immediately following the first Gulf War.

As for Afghanistan, Obama applied his usual analytical (i.e. tortuously slow) decision making process before announcing a troop surge tonight - one that was recommended to him from the start of his administration. I could easily quibble that he has not committed enough new troops, that the arbitrary time limit is a mistake, that he is giving too much credit to our NATO allies who are contributing only token support, etc. etc., but let's instead be grateful that he has arrived at a reasonable answer and try to forgive the dithering. As for his call for unity behind our troops, my response is that we conservatives always support our troops in harm's way unconditionally - something the left can't say, that's for sure. If there is any disunity with respect to this war effort, Mr. President, it's coming from your own party, not from Republicans nor from Conservatives.


I'll have plenty more in future posts to say about Climategate of course, but for tonight, I'll simply refer you to today's excellent WSJ op ed piece by Richard S. Lindzen, "The Climate Science Isn't Settled." And tonight, word that the leader of the effort to scuttle dissent at East Anglia's Climate Research Unit has resigned in disgrace, bracing for those of us who have fought the good fight against CO2 regulation at many a drunken barroom debate with environmental types, who proudly pronounce the debate over, never in doubt about the certainty of their flawed data. It almost never gets any better than this.

Last Wednesday, we sold 100 shares of TMO at 47.61 (purchased 11/23/98 at 17) from our IRA. On Monday, we bought 800 shares of Newpark Resources (NR) at 2.62.

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