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Sunday, June 27, 2010


When You're Not, You're Not

The old saying about momentum in everyday life is "When you're hot, you're hot, but when you're not, you're not." Many things seem to run in streaks for no good reason, as any veteran craps player will tell you, and right now, the Administration in Washington is on one of the most awful streaks you could imagine, both from the standpoint of performance and politics. Consider:

The G20 met this weekend with the President on the silly side of international economics, trying to convince the developed world to adopt his nonsensical stimulus strategy of incurring ever more debt to artificially increase consumption and public employment in hopes they will import more of our goods and assist the US, as well as their own, economies. Of course, stimulus has been a notable failure here, and where everyone is in deficit and watching their currencies disintegrate, would be a suicidal policy for the UK, much of the EU, etc. Fortunately, these countries seem to have leaders who recognize that they have to get their fiscal houses in order, and if that means swallowing a few years more of lousy economic performance, so be it.

Why in The Wide World of Sports people can't give the Steve Forbes/John Rutledge economic plan a chance (as Ronald Reagan and Margaret Thatcher did) and combine tax cuts and spending increases to make government smaller and more efficient I don't know. Tax regimes need to be much simpler too, if only so that economic strategies by governments can have more predictable results.

Right now, we are facing into a total disaster in 2011 and beyond because of this country's looming tax increases, especially on investment returns, and budgets that are just out of control. While the general public is all in a lather about TARP money (which will all be repaid eventually) public unions and pensions are bankrupting states, municipalities and the federal government. They have also become Mr. Obama's main constituency.

So the G20 basically stiffed the President; can you blame them? They can join the club.


Also stiffing the President was the flamboyant General McChrystal, who apparently determined that the feckless administration that he was working for was too inept to bear, and had the bad taste to tell Rolling Stone Magazine, confirmed (and then some) by his staff. Clearly, the General simply wanted out and lacked the grace to simply resign. The replacement, General Petraeus is no doubt a good choice, coming off the successful surge campaign in Iraq, but really, he is not the Savior either, and I have a feeling people will inevitably be disappointed. First of all, when you face a troop withdrawal deadline, you already have a strike against you since the Taliban knows it can succeed by running out the clock. Second, and perhaps more significant, Afghanistan is about the worst place in the world to try to conduct a counter insurgency. Mr. Obama may have pushed the campaign point that Iraq was the "wrong" war, and that the real terrorists were in Afghanistan. Maybe so, but Mr. Bush, who was dumb like a fox, knew the easily winnable war was Iraq and the morass was Afghanistan.


Then there's financial services reform. The conference committee was an entertaining spectacle, thanks to that great vaudeville act, Frank and Dodd. As policy, it was an exercise in demonization and window dressing. Unfortunately, the reforms settled upon have little to do with either the causes of the 2008 financial collapse nor preventing future fiascoes. Barney stubbornly prevented any discussion about what to do about the GSE's, Fannie and Freddie. There was a move to encourage proper mortgage standards, but where are the needed actions to remove official rating agency regulatory sanction? This is not to say that no good came from the Conference Committee. The bill is better than it might have been.

However, the real issue is how to get back to a reasonable regulatory regime, something that was lost when Graham, Leach Bliley replaced the New Deal regulations that separated commercial banking, investment banking and insurance. Putting the toothpaste back in the tube is always impossible, but the so-called Volcker rule was a step in the right direction. And that was weakened in conference.


Then, a federal judge decreed that the Administration's oil drilling ban was an overreach, and confirmed that on appeal. The Administration will no doubt appeal higher, but probably lose again, good news for the economy and the energy industry, bad news (politically) for Obama. Of course, it didn't take long for the Administration and media friend attack dogs to come out and try to impugn the judge because of his investments. This won't work, it will only feed the public's growing negative impression of Dems.

To make matters worse for the Administration, the Supreme Court landed with both feet against the so-called "honest services law" used to convict Enron's Skilling, other business leaders, and even Joe Bruno, New York's former Senate Majority Leader. These characters are not exactly role models, but neither are they history's greatest scoundrels. This law, like RICO and NY's Martin Act (exploited by Eliot Spitzer and his crony, Eric Dinallo, now a candidate for NY AG) is a catch- all that is used to criminalize routine political and business behavior that liberals don't like. These are the cases that give people in the Cato Institute nightmares. They should all be thrown out,. Congratulations to the Supreme Court justices for having the courage to defy this administration and congress to make the right decision and to do it decisively.


The US team did a good job at the World Cup despite losing to Ghana yesterday, yet another game that showed that our program has to improve defensively in order to contend. Not really a surprise considering how US tastes tend to be more aggressive, want more scoring in the game, etc. Until the rules are changed considerably though, you have to avoid falling behind in any World Class soccer game.

The other theme of this tournament is that referees have way too much influence over the result. A penalty call in the box is almost a sure goal, too strong a penalty. Worse, this nonsense of two yellow cards causing a suspension for the next game is too severe a penalty considering that cards are given out even for routine fouls.

To put some balance in the game, I still say the offside rule should be scrapped and teams should be allowed to substitute more freely. Until there are more goals, the US audience will continue to be limited for soccer, though enthusiastic.


As we near the All Star break, we are just delighted with the baseball season this year where there are great races in nearly all divisions. We have a three team race in the NL East, with the Phillies back on the beam now that Rollins is back, the Braves have lots of home games left, and the Mets are playing better and better. It looks like the Reds can give the Cards a race in the NL Central, though I expect the Cards to prevail. In the West, there are four teams in contention. San Diego's hitless wonders have the pitching, so do the Giants, but the dark horse is Colorado.

In the AL East, there is now a legit three team race, though all three have flaws that prevent them from running away. The Yanks are showing age in some spots, and unreliability in the rotation, and Boston has injuries. We'll see. In the Central, the White Sox are back in the race, and it should be a barn burner with the Twins and Tigers. And in the West, where no one is that good, I think even Seattle can get back in the picture with a good streak, if they don't trade everyone first. Otherwise, I expect Mike Scioscia and the Angels to overhaul the high scoring Rangers.


We are trying to preserve capital in this stinky market. On Monday, we sold 500 shares of FSI International (FSII) at 5.15. We bought these on 9/8/09 for 1.01. Really, how bad can a five timer be, even if you have to pay short term taxes. On Wednesday, we bought 200 Goldman Sachs preferred (GS.PR.D) at 18.74 for the IRA. With BP taking Goldman Sachs' place in the Dems' cross hairs, we felt better about picking up some shares at this depressed price. On Friday, we bought 400 shares of TATT, also for the IRA, at 6.74. Not proud of this one, but as FSII has shown, you never really know which average downs are going to work.

Thursday, June 17, 2010


Sweeping up the Cellars

After visiting the Eastern cellar dwelling Orioles and sweeping them, Jerry's red hot kids went into Cleveland to take on the doormats of the Central Division and darned if Los Metso's didn't sweep them too. Now it's time to move up in class and take on the Yank -a- Pups in their ball yard in the South Bronx. The Bombers should be motivated, with the memory of their series loss at CitiField still fresh in their minds, and given that they always seem to play well at home. It should be some fun. We need one of the games to split the season series with the Stinkees and finish the trip a more than respectable 7-2. Anything better than that is just gravy.

It's been a little different walking by open pubs in New York City early in the morning seeing their patrons watching the early World Cup games through bleary eyes. Tomorrow morning, the pubs will be full presumably as the USA team is back in action. Their tie with the UK (which could easily have been a win) gives US fans the once unlikely hope of making it through their preliminary grouping. Tomorrow may well tell the tale.

Caught the early Wednesday night show at Birdland to again see Dave Osvalt's Louis Armstrong Centennial Band. It really is amazing how Dave pulls together a top notch ensemble each week, and the word is out because the place was quite busy last night. The tourists have really discovered Birdland - maybe they've discovered our blog? Anyway, the gentleman at the table to my left was visited by all of the band members during the break, and others from the audience, so I introduced myself too. He turned out to be none other than the well known veteran jazz writer Dan Morgenstern, which is ironic since I am in the middle of reading a giant collection of his reviews, essays, liner notes, etc. Anyway while we were talking, another older gentleman arrived for a chat, who turned out to be veteran trombonist Bennie Powell, one time player with the Lionel Hampton and Count Basie orchestras among many others. So it was quite a night.

And the jazz was great too! Osvalt's band plays every Wednesday night at Birdland from 5:30 to 7:15, two sets for a trivial $10 dollar music charge and $10 dollar minimum. Recommended even for beginning jazz fans.

The administration propaganda machine trying to sell the public on the benefits of the health insurance reform plan is both awesome in its magnitude and sickening in its approach. With front person Kathy Sibelius seemingly able to say just about anything while keeping a straight face, the Administration keeps hammering at their key talking points - if you like your current insurance plan, you can keep it, the reform plan is "paid for," we can cover everyone for less cost. Of course none of this is true, and the people know that instinctively. In fact, the latest Rasmussen poll shows 58% favor repeal of the law, and 48% strongly favor repeal. No wonder the Administration has set aside $125 million to sell the plan to the public (one wonders where this money came from - is it campaign funds or taxpayer money?).

Given the propaganda blitz in progress and coming, it is important for opinion leaders to be able to articulate why the talking points are all lies. I rarely recommend Karl Rove's weekly column in the WSJ - he is just too partisan to be taken seriously on a lot of issues. But his piece today on the health care plan's unpopularity was really articulate in making the points that need to be made. Here are some excerpts:

That (if you like the coverage you have you can keep it) sounds good - but perverse incentives in his new law will cause most Americans to lose their existing insurance...The CEO of a major restaurant chain said under health reform, his company's health insurance will jump from $25 million to at least $90 million. It will be cheaper for the company to dump its coverage and pay a fine - $2,000 for each full time worker...Employees who lose coverage get to select a policy from the government sponsored...exchange. This will be subsidized by taxpayers, depending on the employee's income, and the worker will pay his share with after tax dollars. Families making less than $30,000 will be dumped into Medicaid. Because more workers will be dumped into subsidized coverage, taxpayers are likely to pay much more than the $1 trillion plus price tag claimed by ObamaCare advocates for its first ten years.

Health care plans would no longer be grandfathered if a business changes insurance companies, raises deductibles more than 5%, drops any benefits or increases co-pays. The Obama administration itself estimates that these draft rules could cost up to 80%of small employers and 64% of large employers their grandfathered status. This translates to between 87 million and 115 million Americans losing their current coverage.

To this, I will add that anybody who believes that existing insurers will be able to offer insurance at current premium costs (as Sibelius demands) when they cannot underwrite for pre-existing conditions and have to accept all comers (just as they get sick) doesn't really understand what insurance is. There is no price that can offset that kind of anti selection, and insurers will simply leave the business, just as doctors suffering reduced government limited reimbursements will leave medicine.

Obama's oval office speech concerning the oil disaster in the Gulf was just another feeble attempt to rewrite history and shift all blame to private industry, personified in this case by BP. Knowing the BP culture, we were not surprised to find them the most guilty of the involved parties. In truth, this is less a failure of the BP culture than of the Amoco culture that BP absorbed when they took over that oil giant. That's why I sold the stock after the Texas accidents that resulted in fatalities many years ago. Meanwhile, our anti-BP rhetoric is souring relations with the UK.

But frankly, the Obama rhetoric is infantile and insults our intelligence. Also, taking credit for controlling the spill rang hollow in the wake of frustrations expressed by Gulf region leaders at the failure of the Federal response.

The biggest knee slapper was the Obama complaint that the country had lagged over the decades in breaking free from fossil fuels and somehow again blaming private industry and lobbyists. In fact, there is no reason why any power plant in this country (that is not hydro powered) should be on anything but nuclear power, except for the lobbying by environmentalists and anti - development types who have prevented any new nuclear plant from being built in this country for decades. That's why we still depend on fossil fuels - coal, oil and gas. But Obama would never place the blame where it actually belongs.

None of this should be a surprise. Hillary Clinton had pointed out in the 2008 campaign that Obama's experience was that of a junior Senator. In fact, there is nothing in his background or experience to suggest competence for this job. So far, his performance has been exactly what should have been expected.

We shifted to the sell side this week. On Wednesday, we sold 300 shares of Newpark Resources (NR) for 6.91. These were purchased on 7/28/06 for 5.81. Today, we sold 800 shares of Hauppauge Digital (HAUP) at 2.50, purchased on 6/11/08 for 2.06. Both of these were IRA transactions.

Sunday, June 13, 2010


As Summer Nears...

Tomorrow is Flag Day, a designation unknown to many, unless you happen to work for the government of certain states (e.g. PA) where it has always been a paid holiday, if you can believe that. Nothing against Flag Day, but its purpose is to encourage folks to display the Stars and Stripes (dress rehearsal for July 4, of course), not to provide yet another day off for unionized workers already bankrupting the feckless provinces. Here, we will make the best of it by leaving the office early to play in the golf outing sponsored by my favorite pub, Gallagher's, and raising a substantial sum for a very worthy local civic cause. I would not be surprised, given the predilections of the "golfers" attending this particular outing, if a few cocktails were hoisted along the way, perhaps starting as early as the front nine (or maybe the first tee). Here's hoping for good weather, safe driving (on and off the course), and generous raffle buyers.

After a 5-1 home stand, the Mets (aka, Jerry's Kids) took to the road once again, and lo and behold, actually won three straight, an accomplishment even if it was against the hapless Orioles. Following today's finale, the Mets will visit Cleveland and the Bronx on this trip, so we are hoping for at least 5-4, which would make up for some of the sins on the prior trips. Interestingly, we are finally seeing some sensible moves in Flushing. One of them was to recall young Tejada and give him some playing time at second base, where he represents a significant defensive improvement over the injured Castillo. Eventually he will hit too. Another was to realize that young Murphy will not be displacing Ike Davis at first base (ever) and to try him at second and presumably third at triple A. Unfortunately his knee was injured in his second game there and his season is over before it really began. Otherwise, everything is hitting on pretty much all cylinders for now, and it looks like the Mets will still be playing meaningful games at least into July.

If the few actual supporters of Health Care reform haven't figured out yet that they were sold a bill of goods, they should start getting it soon as their doctors explain how badly they are being screwed by the Medicare and Medicaid systems, etc. Dems are frustrated they can't get the Medicare rate fix through, separate from Health Reform, after using the reduction in rates to score the big bill and claim it was "paid for." While historically, low balling the intelligence of the electorate has been a formula for success, it seems folks are just getting tired of the Dems going for the easy shots (in the face of the truth), whether the subject is health insurance, energy and oil spills, toothless sanctions for Iran, or financial reform.

Most legal experts and political pundits have been very skeptical about state led efforts to overturn the health reform law in the Courts, pointing out that the Supreme Court has, for a long time, taken an expansive view of federal powers under the commerce clause. However, if you read the argument in the Amicus brief at this URL (http://www.aclj.org/media/PDF/Virginia_Amicus_Brief_20100607.pdf), I think you might agree that it might be persuasive and the cases should be taken seriously.

In the meantime, the "repeal and replace" strategy is clicking as of the recent primaries. Organization Dems may think their chances improved with Sen. Lincoln's primary survival in Arkansas and with the emergence of a more extreme GOP candidate in Nevada, but they are whistling by the graveyard. Lincoln trails her general election opponent by more than 20 points, and Reid is doomed. The centrist Republican , defeated in the Nevada primary, was actually the weaker candidate, no matter what the Dems think. With Tea Party activism showing no signs of burnout and less than five months until the elections, the setting for a rout similar or worse than 1994's, is in place.

Great article in this week's WSJ by James Grant about the imminent collapse of fiat money, as Richard Nixon's disastrous decision to remove the last vestige connecting the dollar and gold convertibility in 1971 comes home to roost. The amazing thing is how long the dollar has persisted as a reliable currency, based only on faith and credit. However, we are now at a point where there is little to prevent hyperinflation of the major currencies (the Euro as well), although as Bob Prechter forecast, we may go through a deflationary period first.

This plus inane Fed policy and our totally incompetent administration in Washington has me believing that we are heading for a double dip recession, regardless of the soothing words you heard this week from economists. By the way, the financial reforms making their way now through Congress will be of no help since they don't really address any of the economic problems we have, and not even the failures of the banking system either. You just wonder how we can have achieved this incredible confluence of incompetence. This is not to say that we don't have people around who know better. Economists Steve Forbes, John Rutledge and Art Laffer, politicians like John Kasich, John Thune, and Paul Ryan can lead the way, but will they overcome the prevailing liberal majorities in time? In case they don't, it's time to scout out where you might retire to to live in capitalist freedom and peace. Lately, New Zealand looks more like an attractive alternative.

Since we haven't quite given up on US capitalism yet, we have been buying this correction. On Monday, we bought 20 shares of the inflation protected Treasuries (TIP) for the IRA at 105.84. Wednesday, we bought 100 shares of Archer Daniels Midland (ADM), a value buy at 25.05. Friday, we bought 2000 shares of Sirius XM (SIRI), a zero buy if ever there was one, at 1.01. Just a reminder - redwave musings is not an investment advisor, and this high wire act (especially the "zero buys") does not constitute a recommendation for anyone else.

Friday, June 04, 2010


Paul McCartney - political commentator

There is something ironic, not merely sad, about all this oil going to waste in the Gulf and destroying the environment. Meanwhile, our President is venting his anger at BP (the nerve of that company to pay a dividend to its own shareholders with its own after tax earnings) but doing little or nothing, as far as I can tell, about the actual problem.

This is in keeping with his administration's so far perfect record of not actually doing anything to solve any problem. The best example is the so-called stimulus, which so far has mainly stimulated the unemployment rate. The latest jobs numbers told a classic story about the hiring of public sector workers (temps at that) to take the census while the private sector languishes. This is before next year's tax increases (because the Bush tax cuts expire) even take hold. In short, while our companies have reported decent 1st Q numbers, thanks to cost cutting, the recession's double dip is now emerging as the probable scenario. Apparently, the financial markets agree, as the May swoon extends and worsens in June. We now have one ugly market.

The only jobs available seem to be the ones Obama's people are offering to potential Democratic candidates who might pursue primaries against their favorite sitting Congressmen.

At least, according to that sage philosopher Paul McCartney, this President does know what a library is and how to spell one. I don't know how Paul came to know Bush 43 so well that he found out he didn't know those things, but apparently he did. While Paul is a revered artist and living rock legend, I am not so sure I would look to him for deep and profound insights of any kind either. After all, Paul was the Beatle who wrote all the silly love songs. Paul is also the purveyor of the infamous "Paul is Dead" hoax, the survivor of a truly messy and expensive divorce, etc. etc. In other words, unless he is telling you how to screw the girl behind the Hertz counter, I wouldn't put much stock in his advice about anything, especially politics.


There aren't many conservatives in the entertainment business, but we lost one the other day when the Easy Rider co star, Dennis Hopper died of prostate cancer. Though the highlight of his career was in that counter culture movie with Peter Fonda and Jack Nicholson, I loved his performance in Hoosiers, a comeback film for him wherein he and the great Gene Hackman brought an inspiring sports story to life. A lot of guys can play the town drunk, but few can convey the pain of enforced sobriety for an alcoholic as effectively as Hopper did.

The other night, I attended a talk given by the youngish President of The Golf Channel, Page Thompson, at the Harvard Club. The Golf Channel is a Comcast subsidiary with great international growth prospects. Already, TGC programming is translated into Japanese and cablecast there. Can you imagine the potential audience in Korea, in India, in South America, in China?

It was a good night for me too. In the trivia contest, apparently I was the only person in the room who knew that the Women's Open will be at Oakmont this year, and that fact netted me a sleeve of Titlist Pro V's.


The Mets returned to Queens tonight following a 2-4 road trip, bad, if not horrible, and the only redeeming feature of the week was the continuing struggles of the Phillies. Taking advantage was Atlanta, which had a lot of home games coming to them. Mike Pelfry continues to realize his potential and Jerry continues to lead the league in games blown by a manager. K-Rod is working on his blown saves statistic. What more is there to say, really?

This post is a day late because my daughter wanted to watch the Celts-Lakers with me last night. When your young adult offspring is willing to spend a few hours with you, you don't pass up the chance. After all, between ages 14-25, your parents have to be the dumbest people in the world and it's pretty embarrassing to be around them. We enjoyed the game, had a beer or two, switching to the softball tournament on timeouts, and making lots of wisecracks about the announcers, officiating, etc. So my usual Thursday night posting time went by the boards.

Now I just wish pro b-ball wasn't so BORING!
On Friday, the 28th, we bought 50 shares of AES preferred (AES.PR.C) at 42.20.
This week, Tuesday, we bought 300 shares of BOLT for the IRA at 8.62. This is a value buy, originally recommended by "Full Service Broker." Yesterday, we bought 1800 shares of Bank of Granite (GRAN), a true "zero buy," at 1.14. Somehow, this bank still stays out of the clutches of the FDIC. Of course we sweat out every weekend.

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