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Thursday, April 29, 2010


Who are these guys?

The same Mets who were panned in this space not long ago - well actually Mets management was panned - just finished a 9-1 homestand to go from last to first. We'll see how things go on the road starting in Philly tomorrow night. It's hard to believe that the players are enjoying playing for Jerry so much that they can overcome his nightly strategic and tactical gaffes, but they are. The aptly named City Field (like playing on an open field, practically) is perfect for this club which has some speed but only warning track power. I expect them to hit a few more dingers on the road, but goodness knows how many they can give up when the other team can reach the fences.

Anyway, it's fun to get a few wins under our belts, even if it means that Jerry's job is now secure through the All Star break. Let's hope for a 500 road trip and then maybe we'll start to believe.

There was more frivolity in D.C. this week, highlighted by Tuesday's 11 hour marathon grilling of Goldman Sachs leaders by Senator Levin's committee of would-be vigilantes. Rumor has it that the US attorney in Manhattan is beginning a criminal investigation of Goldman, notwithstanding that the main product of the hearing seemed to be an undermining of the SEC's civil complaint. Of course, political grandstanding is common to both parties, it's just Dems are so much better at it.

The histrionics surrounding financial regulatory reform served another administration purpose, namely to push the daily revelations about their lies about health insurance reform off the front pages. It now turns out that Treasury actuaries have determined that the new legislation is going to cost, not save, a lot of money, which anyone with an IQ above 75 had already figured out, including those Dems in Congress who swore the opposite. Now states are starting to figure out what the high risk pool is likely to cost, and many are opting out. When you add those to the ones already suing to overturn the law, you get a nation half in rebellion.

It has been the media's assumption that the lawsuits have no chance, but an excellent op ed in today's WSJ made a reasonably strong argument for the constitutional case against ObamaCare. Nevertheless, conservative lobbyists I know continue to espouse the "repeal and replace" strategy, which is really a three year effort. Also not impossible, by the way. In fact, Dems were counting on people to warm up to the health bill the more they learned about it, but the opposite is what is happening. The more they learn, the more they hate it.

On the other hand, the controversy surrounding Arizona's new law concerning suspected illegal aliens is much more nuanced. I perfectly understand why the law was passed and why the border states are concerned. After all, Arizona has been hit by a wave of kidnappings, and amnesty is not the right answer for handling illegals. This country has usually had quotas for immigration, sometimes discriminatory and unfair. An open borders policy is simply not practical.

On the other hand, there are low level jobs that go begging in this country that immigrants want to fill, and the right way to deal with this program, espoused by both Presidents Bush and Obama, is to provide a path to citizenship for Latin American immigrants.

Unfortunately, one of the things our public schools used to do extremely well, but no more, is to help assimilate immigrant populations. Now English is taught as a second language and citizenship and history courses are taught from a revisionist and multicultural perspective, so the assimilation function is not performed so effectively anymore. That will make it harder for immigrants to succeed here, and harder for them to be accepted.

The UK election is next week and the surprise is not that Prime Minister Brown is self destructing but that the Liberal Democrats and their leader Nick Clegg are being taken so seriously. The possibility of a "hung Parliament" is very much alive where none of the three parties has a clear majority. However, I still think the Conservatives will eke out a majority.

Wednesday of last week, I sold 100 shares of Ladish (LDSH) for 25.06. This represented a small gain from the purchase price of 23.94 on 9/10/08. This is not unusual given our first in, first out approach. Later purchases were averaged down. We sold 200 shares of Marine Max (HZO) on Friday for 11.85, from the block we bought on 11/10/08 at 1.54. This was well timed since HZO reported pretty mediocre earnings this week. Also on Friday, we decided to bail out of Transocean (RIG), pending an outcome on the sunken drill rig and the oil slick in the Gulf. Who knows how earnings will be impacted and the litigation costs coming out of the accident? So we sold all our shares, taking what my original stockbroker would call a "cash position." By this we mean, take our profits, move to the sidelines, wait til the dust clears, then decide whether the stock should be restored to the buy/hold list. We sold the taxable account shares - 86 of them - for 89.49, a mere 94 dollar profit for stock we bought in 2008. We did better with the IRA shares, selling all 76 for 89.66. That gave us a profit in excess of 3,000 dollars, though we had acquired a few of the shares way back in 1999 when Schlumberger spun them off.

Wednesday, we finally moved to the buy side, following Tuesday's market rout, buying 200 ENI (the symbol, not the company) at 19.64, a value buy.

Time for our periodic disclaimer - the investment transaction reports listed here are not recommendations, and neither redwavemusings not its author are investment advisors. The securities mentioned here may not be suitable for readers, or for me, for that matter.

Tuesday, April 20, 2010


Goldman Stinks

We have been critical of Goldman Sachs in the past, pointing out that it had long ago abandoned its customer centric culture in favor of a ruthless traders' mentality where profit maximization seemed to trump all other considerations. Those who deal with G-S do so (hopefully) with their eyes open and with due caution. Fortunately, virtually all of these customers are institutional and/or professional investors, something the SEC seems to have forgotten in its ill conceived lawsuit announced Friday. Whether G-S is guilty of unfair dealing, or fraudulent behavior is highly debatable and in any event, will be nearly impossible to prove to a jury. The fact that the decision to sue was made on the basis of a 3-2 party line vote is itself indicative of the hardball, flagrantly political tactics of the current administration in all venues.

Neither this lawsuit, nor the financial regulatory reform bill making its way through the Senate amounts to any more than an oblique foray against the behavior that brought about the financial crisis in 2007-2009. We are already hearing that Dems are ready to abandon the goofy pre-funded account to be used to bail out systemically risky banks (perpetuating too big to fail even as Dems claim the opposite). This makes sense since banks would have passed along that cost, meaning that taxpayers would still have paid for the bailouts. So now we are simply left with a system where Federal regulators could take over and bail out banks without due process to be paid for ... how? In short, more power to the federal government, less free enterprise, with no compensating good.

We have posted previously about how the financial crisis came to occur and who was at fault, and you can find that in the archives. But keep in mind that the banks have paid back most of the TARP money. To the extent taxpayers have paid for bailouts, it is basically all Fannie, Freddie, and AIG. Even GM is starting to pay back - and that is one I would not have predicted. Now that's a big part of the deficit, but the reason the deficit is exploding is not TARP. It's the lousy economy, totally mismanaged by this administration, and the stimulus which is mostly wasted.

And it's going to get worse. Much worse.


When I was in school, some of my more enlightened social studies teachers would familiarize us with current events by having us review the New York Times on occasion, then the country's best newspaper, very objective on its news pages and fair and balanced in the op ed section. Alas the Times editorial standards deteriorated decades ago, and today, the best paper by far is the Wall Street Journal, which maintains objectivity in its reporting and an avowed rightward slant in the op ed section ("free people, free markets") but at a standard of quality unmatched anywhere else. If we could somehow get people, young and old, to read those op eds every day, people would not be so easily snowed by this gang of thieves in charge right now. Thankfully, we do have talk radio that has done a good job of alerting Americans to the danger.

But if you read the Journal every day as I do, you might have seen these brilliant pieces:

Last Thursday, "A Message from Henry" contributed by Mike Donahue, a financial adviser from California. "Henry" is an acronym for "High Earner, Not Rich Yet." Here are excerpts: I'm in the 23% federal and 10% state income tax brackets. I pay a 1.2% property tax on very expensive California real estate. I am subject to the Alternative Minimum Tax. I am self-employed and subject to a 15% payroll tax on the first $100,000 in income and an 8.75% sales tax. If I have a gain from investing, I pay a minimum of 15% federal and 10% state tax but can only write off $3,000 per year if I lose. And now the government wants me to pay more?...Since I graduated in 1983 I have been in straight commission sales and have had many 60-70 hour work weeks. No secure salary, no pension - just me profiting through helping others...The first 20 years were tough, but it's finally starting to pay off. I have more than most only because I've worked harder than most and because I am a saver. It was not easy...Why then does the government feel entitled to take my money and give it to others? Call me cruel. I don't care. I give to whom I choose - but since so much is confiscated (and wasted in the process) I have little left to give...Life is hard. You learn when you fail and you make changes when things hurt. Why then is the liberal agenda trying to make sure nobody feels any pain?..What has happened to personal responsibility and accountability?..I am not for equal outcomes regardless of effort. If Congress continues to buy votes at the expense of social mobility we will no longer be a great nation. The truly rich will stay that way but many "Henrys" like me will quit... If you take the incentives away you will lose Henrys."

In Friday's Editorial "Too Big to not Get Right, the Journal (most likely Paul Gigot) gave a pretty balanced assessment of the Dodd bill, as follows:
"The main author of the Senate bill, Chris Dodd of Connecticut, says the latest draft of his bill to reform financial regulation 'will end bailouts.' We wish that were true. This evolving legislation still allows regulators to deploy unlimited sums to rescue financial giants and with too much discretion. Still there's reason for optimism, because as flawed as Mr. Dodd's bill remains, it has been improving in each draft... Mr. Dodd is moving slowly toward restoration of the freedom to fail in American financial markets. The hardest work is still to be done. To force Mr. Dodd's rough draft on to the Senate floor would constitute behavior as reckless as anything we've seen on Wall Street."

The weekend edition brought an enlightening interview with New Jersey Governor Christie concerning his attempts to reign in state spending and hold the line on taxes in an already overburdened state. Editorials educated on the Start Treaty's implications for missile defense and the nomination of the very liberal Goodwin Liu to the already radical 9th Circuit Court. The message was that this could be a preview of the Obama nominee to replace Justice Stevens. Along that line was a review by Professor John Yoo of Stevens' opinions on terrorist trials and the implications for national security.

Yesterday's section was perhaps best of all. Mary Anastasia O'Grady chronicled the shocking and embarrassing behavior of our Ambassador to Honduras, Hugo Llorens and of Fulton Armstrong, staffer to Senator John Kerry (Dem MA) and the Senate Foreign Relations Committee. Their insistence that the legal deposition of President Zelaya (ordered by Honduran Courts) be labeled a coup, and Mr. Armstrong's longstanding ties to Cuba, including his relationship with Cuban spy Ana Belen Montes, are the stuff that has made those of us on the right suspicious of the motives of those on the other side of the aisle. Professor T. H. Breen contributed a history of the battles at Lexington and Concord in honor of the 235th anniversary. Editorials focused on the Goldman Sachs case and Israel's disillusionment with the Obama administration (get in line). "As for Iran, yesterday brought reports of a secret memo from Defense Secretary Robert Gates to the White House arguing that the Administration lacks a strategy for coping with Iran's drive to gain a nuclear weapon...For all the current talk about Israel costing American lives and treasure, the striking fact is that the U.S. has NEVER had to go to war to defend the Jewish state. That's because for 62 years Israelis have [provided for their own defense, in an alliance with the U.S. that has reflected American values and - in both the Cold War and the war on terror - advanced American interests. The Obama administration seems not to grasp this point; which is why these are anxious days for Israel and its American friends."

There was also a letter from Virginia's attorney general explaining the constitutional grounds for challenging the health reform bill and another letter explaining Eric Holder's role in taking heat for Obama on the use of civilian courts for terrorist trials.

Today brought more info on the arming of Hezbollah by Syria, and an editorial and a column on the SEC's culpability in failing to uncover the Stanford ponzi scheme, where it had a real consumer protection responsibility. Also, a scientist's explanation for the ash storm that has resulted from volcanic molten material meeting icy glaciers.

If an informed citizenry is our best defense against authoritarian government, the Journal is certainly doing its part.


In other happy news, the Musings portfolio has now surpassed its previous high point, having retraced the entire plunge resulting from the financial meltdown. We have the formula to thank. And the formula keeps demanding that we sell. Last Wednesday, we did buy 50 shares of AES preferred (AES.PR.C) at 44.55. Then Friday, we sold 200 shares of FNFG from the IRA, since our holding was swollen by the merger with HNBC. We got 14.63 for shares purchased on 4/12/04 for 13.38. Yesterday, we sold 500 shares of FSI International (FSII) at 4.12 (purchased 10/3/07 for 2.05).

Tuesday, April 13, 2010


RIP Freckles

As the last hours of "24" wind down, the character Renee (AKA Freckles, for those who watch on HD) suffered the curse of James T. Kirk, namely that the life expectancy of any woman who sleeps with the show's hero (in this case, Jack Bauer) is mere minutes in TV time (real time on "24"). The show's twists and turns are legendary but this season takes the cake. In a mere 18 hours, Renee had sex twice with two different characters, cut off a terrorist's thumb, accidentally stabbed Jack, seemed to go off the deep end, and rescued who knows how many good guys before being fatally shot by a sniper. What a day! It seems certain that the show's already high body count will substantially increase over the final six episodes. Can Jack survive? Chances are he will since a theatrical production may be in the works.


One person who should definitely NOT survive, at least not in his current post, is hapless Mets manager Jerry Manuel. If the definition of insanity is doing the same thing repeatedly while expecting a different result, keeping Jerry on is clearly just that. This team will never play well as long as good, smart play is not rewarded and bad play is not punished. Early cases in point - the guys who pitched well in spring training are not here. Barajas hits two homers one night - and rides the pine the next day. The young shortstop Tejada looks great as the Mets actually win a game Friday night, but rather than keep him around and give him a chance to play second base (instead of the hopeless retread Castillo) he is optioned when Reyes comes off the disabled list. Instead of keeping young Ike Davis around to play first base with Murphy hurt, we get the aged Mike Jacobs, and Tatis playing out of position. It just goes on and on.

And while we're at it, we might as well send Omar packing too.

We said right here on this blog that the Health Care Reform vote meant the end of at least 50 Democrats on Capitol Hill, and the dominoes are falling even before we get into election season. The latest to drop was Bart Stupak, who gave up his anti-abortion stance in exchange for a meaningless Presidential executive order, and with his followers, assured passage of the bill. Bart says he would win re-election, but the truth is that he would have been an underdog in BOTH the Democratic primary and the general election. If the left thinks one of their guys can win in Bart's district, they must be smoking too much pot. So this is another seat that will flip to the GOP.

This 2010 election is important not only because Republican majorities in either or both houses will stop the Obama Socialist crusade in its tracks, but because control of the state legislatures will determine who gets to gerrymander the Congressional districts for the next decade. And it is setting up very well for a decided shift to the right.

Incidentally, conventional wisdom is that parties need to avoid primaries since they are expensive and since they provide talking points to be used against the winner in the general election. This may be true for incumbents (hence, the Shumer strong arm tactics to prevent any primary opponent emerging to take on Gillibrand) but for challengers, primaries represent an opportunity to increase name recognition and energize party supporters. It also provides a chance to eliminate weak campaigners from contention. So I do not view competitive GOP primaries as disunity or a problem, as the liberal slanted media would have you believe. Challenger primaries are a healthy sign, showing that candidates believe they can flip a seat and want the opportunity to run.

Since so many of us, especially the younger folks, now get their news from the internet rather than the newspapers, I think it is worth noting that the same subtle media bias exists there, or worse than in the print media. A consistent offender is my beloved Yahoo News, where the reports are so often slanted, but where they are presented as being objective. To make matters worse, the once reliable AP has over the years become a subtle (sometimes not so subtle) mouthpiece for the left, and Yahoo and other internet sites are heavily dependent on AP feeds.

A good example was the reporting on Health Care Reform, largely written and/or supervised by my old college news editor Dave Espo. I am sure Dave would tell you he only reported facts, but I know that Dave has a career agenda and that includes advancing liberal causes, though he would say he is communicating about important policy issues. Readers need to be aware of these biases and be careful to separate the fact from the opinions, which belong on the op ed pages.


It's interesting, but little reported, that while insurance is now "mandatory" in Massachusetts, it is nearly impossible to obtain since Governor Patrick (soon to be retired by the voters) turned down rate increase requests by the state's few remaining health insurers (almost all of which are non-profits). The rate increases are needed since it is economical for younger individuals to pay the fine rather than pay for insurance until they get sick. Then they sign up for insurance, incur their needed medical costs at the insurer's expense, then drop the insurance! In short, all the assumptions upon which Obamacare is based are being disproved in Massachusetts. Instead, what is happening is exactly what its critics said would happen - the field is being abandoned for government provided insurance under unaffordable conditions.

With the market in a slow motion, upward trend, many are utilizing the buy/ write strategy of selling call options against their holdings. I will save an elaborate description of the strategy for another post, but would only say that this is not the conservative, almost riskless approach its adherents claim. I did employ this tactic for a while in the early part of the decade, but got burned in all kinds of ways that I will also describe in a future post, including my infamous Enron adventure (how's that for a teaser!). The bottom line - rather than putting a floor under losses, the buy write strategy puts a ceiling on profits. That can lead to a lot of losing decisions made out of frustration.

My own theory was that since most options are losing bets that expire worthless, it might be a winning bet to stay on the sell side. That puts the time decay element of options positions in your favor. What I learned is that in fact, options are a parimutuel bet on either side, with the house keeping too high a takeout (between commissions and spread) to allow anyone consistent performance. That's my position and I've got the stories to prove it.

Earnings season has kicked off, as usual with Alcoa's report, which gets undue attention, something it doesn't need given its indifferent performance. Today Fastenel reported, showing a nice profit, all of which was paid out in its semiannual dividend. Hopefully, it can earn a similar profit next quarter and actually increase shareholder equity. Meanwhile, we've been selling. Last Tuesday, we sold 600 shares of FSI International (FSII) at 3.75. We had bought 100 shares on 9/12/07 at 2.50 and 500 on 10/3/07 at 2.05. On Thursday, we sold 400 shares of Newpark Resources (NR) for 6.01, purchased on 8/25/04 for 5.50. Yesterday, we sold 200 shares of News Corp (NWSA) from the IRA at 15.29 which were purchased on 2/9/09 for 6.97. That's a nice quick double.

Tuesday, April 06, 2010


Spring has Sprung

It's golf/baseball season, never mind that hockey and basketball still have over two months before they crown their champions in the heat of June. The weather turned and we got two rounds in over the weekend, and tomorrow will approach 90 degrees in New York as "global warming" temporarily reasserts itself. The Mets are 1-0 and all is right with the world.


Today, a Federal court came to the entirely sane decision that "net neutrality" as promoted by the out-of-control FCC is unconstitutional or at least not within their purview to enforce, as any conservative would have told them if they had bothered to listen (actually, the two conservatives on the FCC did). Of course the FCC majority, like most good Democrats, reviewed the decision, determined it was incorrect and vowed to pursue their policy objective nevertheless, never mind the illegality. We're getting pretty used to progressives (invariably, the smartest people in the room) ignoring decisions they don't like.

I realize there must be readers of this blog not as conservative as I, but aren't you getting the least bit embarrassed by Dems who week after week, on issue after issue, stare right into the camera and lie? Republicans may be a lot of things that are far from perfect, but as Hawkeye Pierce famously said, "we'll be the ones with our hands on the Bible."

Eventually, no matter how good your intentions, lying catches up with you in an open and free society, at least. Nixon could only lie for so long before his 60+% majority faded and he had to resign. Everyone knew Jimmy Carter lied about the honesty of the Chavez re-election and that sapped the credibility out of his election watchdog organization's work. People have a surprising ability to discern the truth. So said another fictional character, Paul Newman's hired expert witness in The Verdict, and the truth will out this November when a slaughter of epic proportion will occur, ending the Obama initiatives for all practical purposes.

Not a moment too soon, either, since this administration is bankrupting us at home, emasculating us internationally, and providing daily evidence supporting those crazies who have questioned from the beginning whether he really has US' best interest at heart.


Of course, such times bring out the right wing crazies too, and they are rarely in short supply, So we have the militia arrests, and who knows what else in front of us. The economic recovery looked a little stronger this week, but my sense is that the difficulties coming, with continuing unemployment, deflation followed by hyperinflation, and a taxation caused double dip recession, means further dislocation and unrest in our future.


That's the bad news. The good news is there's lots of great music around town, and plenty else to do in Fun City as summer approaches. Redwavemusings, will try to be upbeat and provide info and ideas about things to do in New York. We've also got a trip planned to Seattle in August so hopefully we can keep readers at least mildly interested.

This spring, over the next six weeks or so, we will be seeing the closing of two of Redwave's few favorite TV shows - "24" and "Cold Case." Both are tired and recycling plots, a sure sign that enough is enough, but it's been a great run for both. 24 is not really cut out to succeed in reruns, but you will have plenty of chances to see Cold Case. It's amazing how many shows I have discovered in syndication, the latest being The Office, one of the few shows that invariably leaves me laughing out loud.


This market is grinding upward slowly, climbing the wall of worry and rewarding the musings portfolio as it does. Whether we deserve it or not doesn't matter. On
March 31, we bought 200 shares of ENI (that's the symbol, not the company) at 19.83, a "zero buy." Then on 4/2, we sold 100 shares of Carmax (KMX) from the IRA at
25.94. The purchase price was 13.60 on 7/28/08. That was a buy that we made on formula and on faith. Ask yourself who was investing in car retailers that summer. That's why you take the emotion out of the game.

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