.comment-link {margin-left:.6em;}

Thursday, February 25, 2010


The Health Care Summit

Yesterday was the Health Care Summit and because we have access to C-Span from our desk top computers, I was able to monitor pretty much the whole thing. Republicans acquitted themselves very well, avoiding any hint of sarcasm or flippancy, sticking to the facts and making a strong case for a restart of the process. On the other hand, Dems did a horrible job, in my opinion. To make their point about the urgency of the matter, they relied on anecdotes that all too often simply pointed out the absurdity of an entitlement that is never enough (a couple tried to point out how unfair insurers were when benefits were curtailed after the policy MAXIMUMS had been paid out!). Towards the end, their major talking point seemed to be that since Medicare is going broke, and since Medicaid is causing both federal and state governments to go broke, an expanded entitlement was desperately needed. I guess they forgot that when those programs were debated, opponents warned they would be fiscally untenable. Now that those predictions have come true, shouldn't we have learned that the new proposal will also be bankrupting, once we set aside the gimmickry that CBO was asked to score (where ten years of fees and taxes are measured against six or fewer years of benefits).

Very effectively addressing the budget gimmickry was Rep. Paul Ryan of Wisconsin, the ranking member on the Budget Committee. Responding to Mr. Ryan's straightforward explanation of why the numbers did not add up was Dem Rep. Xavier Becerra of California, whose defense of CBO was both an obfuscation and an evasion of the point. As Mr. Ryan explained, as impartial and competent as CBO is, they can only score what is put in front of them. Mr. Becerra typified everything that is wrong with today's Dems, displaying a morally dishonest and flagrantly political attitude. Worst, he cynically and arrogantly exhibited contempt for the intelligence of viewers. Since viewers are better educated than ever on matters political, as has been previously discussed on this blog, this is a suicidal approach for Dems to continue to take.

By the way, Mr. Ryan's Roadmap for fiscal health can be viewed at the following website: http://www.roadmap.republicans.budget.house.gov/

Besides Mr. Becerra, a number of other perennial Democratic nincompoops distinguished themselves today: VP Biden, who never disappoints those of us who believe he can always find ever more ridiculous comments; Mr. Jay Rockefeller, the would be heir to Senator Kennedy on health issues, who does indeed regularly expound on all of the liberal toxic ideas but without the late senator's charisma; Nancy Pelosi's pet pit bull, Henry Waxman of California, who seems to set off my bathroom or kitchen reflex as soon as he starts talking; and of course the ethically challenged leadership group (Pelosi, Reid, Dodd, Rangel, et al) about whom nothing else need be said. These folks did have the salutary effect of making Obama look serious and presidential by comparison, even as he took up more microphone time than all the Republicans combined! The campaign just never ends. But he did concede that the minority was raising points about which you could have a debate.

One thing Americans seem to understand better than Dems is that no matter how much we may want to have something (e.g. universal health care), if we can't afford it, you have to accept a suboptimal solution. This is something Europeans and Canadians are learning through bitter experience. Businessmen live with this fact of life all the time. Once you get that, you can discuss seriously what to do next.

So where does this go next. There was a lot of talk about Dems jamming the bill through the Senate on budget reconciliation (even though Reid simultaneously argued for the reconciliation process while claiming he had never mentioned it). I don't think it will happen. In fact, I don't even think Pelosi can pass the bill in her House again. Some are saying she can't even drum up 200 votes for the Senate bill. The Blue Dogs, having watched the Massachusetts special election results, are itching for a second vote on Obamacare so they can change to "no." Though they will have been for it before they were against it (see Bush v Kerry), it gives them a better chance in November than a simple yes vote recorded for Obamacare.


Dems seem to perform a little better on the SEC than they do in Congress, and somehow Republican Commissioners get lost on the wrong side of issues there. The recent ruling, triggering the uptick rule for short sales once a stock has a 10% loss for the day, was a well thought out compromise adopted by the SEC on a 3-2 party line vote. This allows short sales to proceed without the uptick rule until a stock really starts to get beaten down. This is an anti-cyclical remedy and an eminently fair one.

It was the pro-cyclical aspects of short selling and CDS collateral requirements that sent the stocks of AIG, Merrill Lynch, Bear Stearns, Lehman, and Morgan Stanley, among others, to oblivion in the 2008-09 financial crisis and the needed reforms must address procyclicality. The other sensible reform is the Volcker rule, separating government guaranteed banking operations from proprietary trading operations. Those two sets of reforms alone would constitute most of the re-regulation needed. We only need modest reforms on executive pay and consumer protection if you ask me, and the laws are already on the books to prosecute fraud such as what occurred in the mortgage market. Too big to fail is a red herring. None of the really big banks would have failed if bears had not been able to drive them to surrender. Of course, I expect Congress to ultimately miss the mark and go too far on regulatory reform.


I was thinking the other day, for no particular reason, maybe because I was watching all the Russian and Arab terrorists communicate in English on "24," that it never bothered me that the Yul Brenner cowboy character in The Magnificent Seven spoke English with a Russian accent. I guess if it didn't bother Steve McQueen, why should it annoy anyone else?


Time to catch up on stocks, et al. On Feb.9, we bought 100 shares of Goldman Sachs inflation protected preferred (GS.PR.D) at 20.56 for the IRA. On Feb. 11, we added400 more shares of AWC, our Australian aluminum company, at 5.85, a value buy. Then on Feb. 16, we sold 200 shares of Marine Max (HZO)for 10.81 (100 shares purchased in Oct. 2008 at 3.01, the other 100 in Nov. 2008 at 1.54. If you don't believe me, you can find the record of those purchases in the musings archives). We also let most of our Home Diagnostics (HDIX) shares go since it actually costs less to sell them than to tender them with my discount broker. We also got 11.51, a penny above the coming takeover price. So we sold 503 shares from the IRA (103 purchased 3/20/09 at 5.00, 400 purchased 8/14/09 at 6.31) and 1200 from the taxable account (400 purchased 2/4/09 at 6.38, 400 purchased 3/2/09 at 6.60, and 400 purchased 12/11/09 at 5.67). We are quite willing to pay capital gains taxes this year at the lowest rates we are going to see for the foreseeable future. On 2/19/09, we started putting some of that cash back to work, buying 100 shares of ENI (that's the symbol, not the European energy company) at 21.40, a zero buy. Then on 2/23, we bought 40 Treasury Inflation protected shares (TIP) at 103.66. Though deflation may be a near term concern, we still believe that inflation is the real worry, in the intermediate term. Yesterday, we bought 400 more shares of AWC at 5.31.

So even though the dollar is recovering, we still don't trust it. We are cranking in some inflation protection and international exposure for the portfolio. I think this is prudent since we are still heavily weighted in US stocks and currency.


Friday, February 19, 2010


No, I did not give up blogging for Lent

Sorry for the delay in posting, but this week has been just filled with activity, and somehow that did not include much time sitting in front of this computer. Here's a partial report.

After the usual Friday night cavorting at the neighborhood pub, it was the Saturday card game, plenty of reading etc. On Sunday, we played catch-up on some statistician work related to my golf rotisserie league, and then it was a nice Valentine's Day dinner out with the spouse. We lucked into a neighborhood restaurant where the food was better than we remembered and there was also a quartet playing reasonably good renditions of some jazz standards (considering no cover charge, and local). Monday it was back to the bridge table with a pickup partner who was just shaky enough to keep us from having any realistic chance to scratch out any masterpoints. However, I bid and made a nice slam for a near top against former national champion Harry Stappenback (at 6'10", the world's tallest bridge master) so that pretty much made my day.

Tuesday was back to work, but then a late night starting with Bebop class, and then the second show at Jazz Standard, a really memorable quintet featuring Sheamus Blake on tenor, Bill Stewart on drums, and the outstanding Dave Kikowski on piano. Exhilarating.

Wednesday is always a late night, but this one was very pleasant, as I fulfilled my United Way pledge by taking co-worker auction winners out to the Penn Club. Tonight, I worked late then saw legendary Eric Clapton and Jeff Beck at Madison Square Garden.

Beck kicked off the show with a half hour set and I am sorry to say, I just didn't get it. Like a lot of performers at the Garden, he seemed to feel his group needed to be loud, louder, and loudest. Worse, they didn't offer much that was bracing, though they seemed to please the Beck loyalists in the audience. I found his playing slow, one-note tedious, and obsessed with his vibrato gadget. A cover of The Beatles A Day in the Life had nice orchestration but Beck simply played the melody line, no chords, no speed, and no improvisation. He did the same thing on Pavirotti's favorite aria, collapsing on his knees at the end in self - satisfied feigned exhaustion. You'd think he had sung the damn thing.

After that, the headliner went on, starting with some nice laid back blues tunes from a sitting position, then gradually picking things up. Clapton's guitar work, in contrast to Beck's, was sophisticated yet effortless. His voice is still serviceable and always in tune. Midway through the 100 minute set, he was joined by Beck for the remainder, and the presence of the master seemed to bring Beck's skill level up to what has been advertised. Together, the two set the place on fire, playing about half blues and the rest completely enchanting and uplifting rock of the highest order. Somehow, Beck's extravagances seemed to work alongside Clapton, and had the effect of making the latter's polished performance that much more enjoyable.

So it has been quite a week. I have not given up blogging for Lent. Just going through a phase, I guess.

Quote of the month, from a Middle East analyst: "Yemen is like Haiti with guns."

George W. Bush was notorious for making recess appointments, but he had good reason, since Democrats routinely prevented his nominees from coming to the floor for a vote. He was even able to maintain a UN ambassador hated by Democrats in the position for years under recess appointments. Under current rules, even one Senator can put a hold on a nomination, which surely represents some kind of tyranny of the minority. Now Mr. Obama is getting the same treatment from the likes of GOP Senator Shelby, so it appears that once the Senate recesses, he is going to jam some controversial nominees down GOP throats by means of recess appointments. I can't really blame him for that.

It is probable that our current President is as good as any we have ever had with a teleprompter, even Ronald Reagan. Though he has made countless speeches in his first 13 months in office, he has been much more reluctant to engage the press in the freelance atmosphere of a press conference. The impromptu one he called recently was his first since last summer.

Interestingly, George W. Bush, to me at least, was just as bad a speaker with a teleprompter as without one, that is to say, very bad. His father didn't like giving press conferences either. Best President ever without one in the TV era was clearly JFK, and he loved trading quips at press conferences, which were held often and televised during his tenure. FDR was pre-TV of course, but reportedly, also outstanding with the press. Strangely, most Presidents seem awkward at press conferences, they are not very good off script. In addition to Bush father and son, I would include in that class Ike, Nixon, and LBJ. Jimmy Carter was a walking train wreck in every respect, of course. And Bill Clinton was pretty good, with the unexpected personal mishap lurking behind every corner adding to the fun.
NY's unelected, hapless, and hopeless Governor announced this week that if the state runs out of cash as expected this spring, it might have to delay tax refunds for some appreciable period. I could be mistaken, but it seems to me that if you owe money that you borrowed or that was advanced to you, and can't pay it back when it's due, they call that bankruptcy. For states and municipalities, they call it Chapter 9.

I am going to hold off reporting this week's stock transactions until next week's post, given the hour and the bodily need for sleep. Let's just say we have had a very nice ten days in the market, the correction has ended, and we took the opportunity to raise some case. In particular, we sold most of the HDIX position to arbitrageurs, who for some reason bid the stock up to a penny above the takeover price. Don't they read the WSJ?


Monday, February 08, 2010


Post #200

When we began this blog, in the midst of a vitriolic election campaign (is there any other kind lately?), we had no idea that we were beginning a substantial volume of written essays or any other continuing enterprise. And, in fact, enthusiasm waned early on, and there are always other priorities. But the blog returned, there were more elections, matters political, economic and athletic to write about, and motivated by the urge writers feel to build a written record and some very loyal readers, here we are creating a 200th redwavemusings post. The journey has also been a satisfying learning experience. Even working in a mode that is basically second derivative commentary, you do some research to get your facts straight, and lots of reading to inform a post. Readers have also informed this blog using many constructive modes of communication, including comments, e-mails, mailing of articles, etc.

Also, there are few better ways to try to organize one's own thinking about difficult subjects than to write about them and try to do so with a little quality and pizazz. So the blog continues, with basically weekly posts, since I just can't seem to squeeze them in any more often (though there is no lack of subject matter, that's for sure). I hope readers will continue to enjoy, comment, critique, and spread the word.


Here are a couple of interesting quotes from my favorite paper, WSJ. This one from a Letter to the editor:

"As Wall Street counsel for Freddie Mac at its creation, I am bemused by the enveloping ironies besetting that organization as it wanders far from the 1970-71 vision of its creators...And now the intoxicating quality of debt for a government sponsored enterprise has led to a viper's bite. The press still refers, repeatedly, to the 'implicit' guarantee of the United States in spite of the explicit disclaimer by Congress of any such guarantee. Mirabile dictu...So now Freddie has tripped over its own reliance of so - called government debt by selling securities it guarantees, and then buying them back with a different form of Freddie debt to skim the spread, this time with on-balance sheet leveraging. Now the same home loan has been leveraged twice. And, as a corollary, banks rely on their holdings of GSE debt to lower their risk-based capital requirements, and this additional leveraging resonates throughout the system..."

The writer was Stuart D. Root, and the interesting thing about this perceptive description of the inflating housing bubble is that it was published on June 25, 2003!

Bret Stephens is one of many sharp columnists gracing the op ed pages of the Journal these days, and I especially loved this quote from his Jan. 26 column, Obama and the Copenhagen Syndrome:

"The president from Oprah nation, says Newsweek, suffers from an 'inspiration gap;' the prevailing wisdom is that he's too cool and detached for his own political good. Are they kidding? Should the president now take squealing lessons from Howard Dean?"


Well, I hope you all caught some of the Tea Party Convention last weekend. It did remind me of certain libertarian conventions I had seen in years past, with an equal amount of silliness, perhaps more intensity about their objectives, certainly a group that takes themselves seriously. The guy interviewed in 18th century costume, expounding on the Constitution, was definitely a trip. C-Span does a nice job, always reporting, never commenting.

The speeches at these minor conventions are usually more interesting and on point then the campaign style boredom that passes for platform speeches at the major party conventions. This was no exception. Even Sarah Palin did well, and as if to demonstrate her improved confidence and policy chops, she took questions at the end (OK, they were prepared questions, not spontaneous from the audience). Still an improved Sarah versus the 2008 campaign's repetitious stump speech.


What a good Super Bowl! The game was a corker, and halftime was even better, with the Grandpa rockers from The Who tearing it up on a spectacular stage. Even the pre-game was OK with Queen Latifa and Carrie Underwood. All in all, a great time was had by all, especially at "Dr. Dick's" house where I attended his annual Super Bowl party.

It's not hard to identify the good Doc's house, since it is the only one in the neighborhood that still is decorated for Christmas. Rich still had his tree up too (don't worry, it's an artificial one). Not everyone has a detached garage with a real juke box, a heater, and a hot water tub. One of the attendees even took a soak at halftime! With everyone bringing something, though not necessarily coordinated, we had a delicious surplus of sausage based dishes and chips with various dips. Thankfully, someone came through with chili and rice too.

It was a great way to spend America's most informal holiday. Dr. Dick enjoyed hosting the party so much, he's thinking of having us all back for a Fat Tuesday celebration. We'll see. That would conflict with my Bebop class at Lincoln Center, I'm afraid. Busy, busy, busy.


In case you were wondering what Iran has to do to finally earn any wrath from this Administration in the form of stronger sanctions, so am I. We have passed repeated deadlines, and now Iran flaunts its uranium enrichment plans right in everyone's face. Mr. Obama, hear this, you need to get serious or the Israeli's will take matters into their own hands. Sooner rather than later.


We are enduring one of the truly crummy markets, what we hope is a mere correction in this bull run (within a greater bear market, presumably, that started in 2000). The market can't figure out whether to worry about inflation or deflation, so it has decided just to worry. In fact, the short term problem is likely to be deflation, which has been staved off by the most aggressively undisciplined fiscal and monetary policies in our history. The longer term problem is inflation, and probably hyperinflation. We stayed busy last week though. On Monday, we bought 200 more shares of Quanta Services (PWR) for the IRA at 18.41. On Wednesday, we sold 700 more shares of FSI International (FSII) at 3.05. We had paid 3.16 for 600 and 3.10 for 100 in July of 2007. On Friday, we bought 100 shares of Enersis S.A. (ENI) at 21.37. This is a new name and another attempt to diversify away from the dollar.
We also enjoyed hearing the news of the takeover of Home Diagnostics (HDIX) proposed at 11.50, cash. This deal will be closing quickly.

This page is powered by Blogger. Isn't yours?