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Sunday, October 31, 2010


Halloween Musings

This morning's news shows seemed to have a little better grip on reality, but there were still the subtle biases that an alert viewer could catch. In one instance, Charlie Cook on NBC talking about several House races that would give an early indication Tuesday night, remarked that if all three went to the R's, it would be a "really bad night." Meaning a really good night for me. And several stations over the weekend, including the notorious CNN, while acknowledging good new polls for R's in Illinois and PA, said R's were acknowledging defeat in West Virginia (none that I know of) and probably would lose in Washington and California. Well maybe California, but D's are a toss-up at best in Washington.

I have been analyzing the polls very carefully, looking for trends in individual pollster's results, not just overall. This recognizes there are wide differences in polling techniques and accuracy. I may be a cockeyed optimist but I see Dems gaining important ground almost nowhere. In fact, I see undecideds breaking against incumbents as they usually do, helping R's in close Senate races in Washington, Nevada, Wisconsin and Colorado.

Of course, the only poll that matters is Tuesday's. R voters will be out in force. What will D turnout be? Will minorities come out? Youth (probably not, unless in California)? Independents are coming out to throw out incumbents and vote for R's, for the most part.

I was happy that Mark Kleiman visited our site and left a comment on our last post, even though it did not address the issues, only the author. Sadly, this is all too typical of the arguments D's make, as anyone who has watched the debates knows. Nevertheless, I have to say I agree with Mark that my characterization of him as a "political scientist" did not really do him justice. Today, in the academic community, a political scientist is one who typically studies and writes on very narrow, statistically focused questions. Frankly, the obsession with data has driven a lot of would be theorists to other disciplines.

Mr. Kleiman is really a public policy expert, with writings and expertise in a number of policy areas but especially drug policy and decriminalization questions. He is currently very active on the California Proposition 19 decriminalization proposal. Perhaps his argument with being positioned on the left side of the political spectrum (as I did) is based on the fact that on this and several other issues on which he is an expert, he is in the middle of the road, at least within the academic community. I do tend to agree with him on drug policy. However, political positioning is a matter of perspective. In the academic community, you have to practically be a communist to be left of center (not exaggerating much, either). And on most issues, Mark is, in my opinion, a committed liberal at least. But you can decide for yourself by visiting his entertaining blog, The Reality Based Community.

The Jets looked out of synch today, especially on offense, and this continues a pattern I find surprising, namely that teams don't do well after the bye week. You would think rest and healing and an extra week to prepare for an opponent would set teams up for a prime performance, but apparently the disruption of the usual practice routine means more.

Twice during the game, Jets receivers lost the ball on seemingly completed passes after going to the ground. Whether or not these interception calls were technically correct, I think you will now see hard battles for the ball after receptions until the league decides that the play is over once the receiver goes down.

The other thing all should note is the well known matter of teams performance changes being so drastic from year-to-year. In a sport where the average pro career is barely more than 3 years, we shouldn't be that surprised, but nonetheless, I wonder if fans have really yet caught on to the improvement in the Rams, the Chiefs, the Raiders, and the Lions, among others. Of course, the Cowboys have been unmasked as a fraud, but does everyone yet appreciate the decline of the Broncos, the Cardinals, and the Vikings?

The Pat Martino organ quartet has come so far in two years, and I heard them Wednesday and Friday night at Birdland where they played to packed houses. Perhaps more amazing is that Birdland had a packed house Friday for the early show by the Birdland Big Band, which they do almost every week, emptied it after that show and refilled it for Pat! In New York, at least, jazz continues to be very healthy and provides an economical and entertaining alternative to the Broadway theatre for tourists and residents alike.

As for the quartet, Pat's guitar playing is as good as ever, but he allows much more space than previously for Eric Alexander on tenor and Tony Monaco on organ, both of whom thrive in this setting. Of course, with the gig ending last night, Eric will return to his usual gigs all over the City, particularly at Smoke. He is definitely worth listening to in all of his various combos.

On the 29th, we bought 100 shares of Hartford Preferred (HIG.PR.A) at 24.62 for the IRA. I promised a recap of my results with Books A Million (BAMM). I bought my first shares in 1998 and over the years made 18 purchases of shares, spending over $42,000. The proceeds received for those shares exceeded $104,000. We also received about $6,800 in dividends. Don't ever let anyone tell you that dividends are not meaningful. So in all, counting taxable and non-taxable accounts, we cleared almost $70,000 on this stock. You can't fall in love with any stock though, even your winners. I really have become concerned that the retail book store business model could be blown up, so until I think otherwise, BAMM is off the buy / hold list. I don't think BAMM's various specialties, such as religious publications, can protect it from this trend.

Time for the periodic disclaimer: neither Redwavemusings nor its author are investment advisors, and the securities mentioned on this site should not be considered recommendations. The investment actions described here may not be suitable for readers or anyone else.


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Thursday, October 28, 2010


Are We Really The Enemy, Mark?

Loyal readers know that I have been frequenting a far left blog site, The Reality Based Community, hosted by a college classmate, the sometimes insufferable but well known political scientist professor Mark Kleiman. Lately, Mark, who is beside himself as he reviews the opinion polls that show his beloved Dems about to head off a cliff next week, has been hysterical about an incident that occurred recently in Kentucky, when a MoveOn.org activist approached Tea Party candidate Ron Paul in what was perceived by Paul supporters to be a possibly menacing way. The Paul operatives forcibly separated the female activist from the candidate and shoved her to the ground, in the process stepping on her head and / or shoulder. The claim is that she suffered a concussion, though on the tape showing her interviewed after the incident, she seems clear eyed, speaking calmly and clearly, and unbruised, complaining only of a "slight headache." Be that as it may, the whole incident was regrettable, both the instigation by the activist and the overreaction by the Paul people.

However, none of this rises to a level I would call violent, or prosecutable, but to Kleiman and his followers, the Paul people were storm troopers. Kleiman refers to Republicans, conservatives, tea partiers, even libertarians as "the enemies." Funny, but we on the right don't think about libs that way. Misguided, yes, occasionally threatening to our constitutional republic's way of life, but not enemies. That term is reserved for the people who would do us harm, Al Queda, the Iranian Mullahs, North Korean dictators, and Latin American communists.

I think the mindset of the baby boomer left, formed back in their college days, is one of self hate. They really think their country has always behaved badly, do not believe in American exceptionalism, do not believe that even where America is less than perfect, we all want to do the right thing. We may disagree about what that is, and how to achieve the solutions, but in our view, it's not out of a desire to conquer the world or take what's not ours. Of course there are thieves and bad guys here, and they infest every political party and persuasion, just as they do everywhere. But we make a special effort to expel them, in my opinion.

Where we have extreme blots on our record, like slavery we ultimately realized the magnitude of that tragedy and made the extreme and noble sacrifices to remove the taint. More Americans died in the Civil War than in any other.

The liberals of the previous generation, our parents, were driven by a completely different mindset. They bought into the mythology of FDR and the depression, which was really only ended by World War II. Their liberal beliefs were shored up by a period of long prosperity under Democratic administrations that enabled LBJ's Great Society programs, which they believed would really help the country's underclass. They just never got that when you give a man a fish, you make him dependent. Better to teach him how to fish, give him a rod and reel but tell him from now on, he has to catch his own damn fish or starve. You would think that Ronald Reagan and Newt Gingrich got that point across, but baby boomer lefties can't learn anything from the enemy. Besides, a dependent underclass is their source of political power.

So you can't convince boomer leftists, but you can have fun with them, and I do by commenting on Mark's blog. It's so easy to get under his skin. For a more eloquent explanation of their mindset, and how Obama fits in, read today's brilliant WSJ op ed by Stanford Fellow Shelby Steele, "A Referendum on the Redeemer."


Speaking of the referendum, the Dems had their little rush and their friends in the media gave them lots of opportunity to exult on the Sunday morning "news" shows, but the reality is that most of their candidates had peaked the week before, and the latest polls do nothing to make me believe that the GOP will come up short Tuesday night. Charlie Cook says the GOP will net 39-60 seats in the House, and I don't discount the possibility of achieving the high end of that range. Most have written off any chance for a majority in the Senate, and I tend to agree. The consensus is for a gain of 5-7 seats by the GOP. Yet, the last few days have seen Republican improvement in senate race polls in Washington, California, West Virginia, Pennsylvania, Illinois, and Nevada. All of these are close races within the margin of error, and where there are incumbents, the usual phenomenon of undecideds breaking against them seems to be happening. So, who knows? By the way in recent years, the Rasmussen polls have been the most accurate. There are a lot of suspect polls out there where bias creeps in.

Here's your guide to what to watch for Tuesday night.

Not all of us are political junkies, so some want to know which are the early trendsetting races so they can go to bed. For that, watch Indiana, where the polls close early (6PM). It's a given that Coats picks up the senate seat, but you want to see how easily. If he is over 55%, my advice to Dem supporters is to start drinking heavily. There are 3 Indiana house races to watch. Indiana 2 is rated a toss-up though the incumbent Dem, Donnelly leads by 5 points according to the latest local poll. However, he has not reached the magic 50% in any poll, and this district elected Republicans until 2006. In Indiana 8, I don't have a poll and it's an open seat that the GOP has a good chance to take over for a gain. Their candidate is Larry Bucshon who survived a tough primary against a Tea Party candidate. In Indiana 9, incumbent Dem Baron Hill has only a 2 point lead against Todd Young. If the GOP wins two of these three seats, you can go to bed reasonably sure you will wake up to find that Boehner has replaced Pelosi as Speaker.

For those staying up later, watch Ohio 1, the Chabot - Driehaus (incumbent Dem) rematch, OH 15 where Stivers might be unseating incumbent Dem Kilroy, NY 1, an especially bitter race between Foley and Altschuler, NY 23 where Owens won in a fluky special election, Ill 14 where incumbent Dem Foster is in a toss up with Hultgren, and finally, the North Dakota at large seat where long time Dem incumbent Blue Dog Earl Pomeroy is in a toss up against Rick Berg.

In Senate races, beside the aforementioned 6 races see if Linda McMahon can come within 10 points of Blumenthal in Connecticut where returns come quickly. That will tell you a lot about turnout dynamic. Other races to watch closely, and which may keep us up late are Colorado, Florida, Kentucky, and Wisconsin. Missouri and Ohio are looking pretty good right now, so those will be confirmation of the trend if the GOP margin is solid.

As for Governors, I have interest in Ohio, where Obama has made at least a dozen campaign stops to try to save Strickland, Florida (a real toss up), Illinois and PA.

As for turnout dynamic, it was best expressed by Mark Lavin the other night talking with a caller about his need to show up at the polls in California despite being only luke warm about Carly Fiorina: "Look," said Mark, "I'd crawl over broken glass to vote against Boxer."
I promised a profit report on the Tomkins takeover. We cleared about $3,700. On Oct. 22, we bought 300 more shares of Pulte Homes (PHM) at 8.13. I hope I know what I'm doing. On the same day, we bought 100 Met Life preferred shares (MET.PR.B) at 24.95. We also sold our 2400 share position in Books A Million (BAMM), some at 6.16 and some at 6.17. We booked a profit of about $5,600 but the real story is our history with this stock which we will summarize for the next post. But this time, we did remove it from the buy/hold list since I fear Kindle technology will kill the bookstore business model, and i am not willing to endure another Blockbuster experience. On October 25, we bought 100 shares of Devon (DVN) at 65.61, a value buy. It was not all that long ago we were selling Devon shares for over a 100. Yesterday, we added a new name to the Redwave portfolio, Honeywell (HON) buying 50 shares at 46.59. I love the fact that the company is using its excess cash to overfund its pension plan. Much better than buying in stock or making unwieldy acquisitions.

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Friday, October 22, 2010


Early Voting Under way

We have talked about early voting before, and it is under way in a number of states, which means it is already too late to change the momentum in many races. Dems have taken heart because some races seemed to be tightening up, but in reality, the momentum in the last week will shift away from incumbents since the undecided vote often breaks for the challenger. Where incumbents have not reached the magic 50% mark, they are likely to lose. This could be bad news for Barbara Boxer, Patti Murray, Harry Reid, and even Barney Frank. Even if they don't all lose, some big timber is sure to fall.

Maenwhile, the campaigner in chief is spending an awful lot of somebody's money touring the country on behalf of desperate Dems. One can only hope that Dems will be paying some of these bills and that the public is not funding the entirety of this campaign effort. If we are, something is wrong with that.

Maybe Obama should also be returning his salary for the last few months too, since again, he hasn't been concentrating on the people's business. That would bother me more if I didn't think things are a lot worse when he's actually woking.

I loved the Ohio poll that asked voters who they would vote for in a mythical Presidential race between Obama and Bush 43. Of course, George W. won. His rehabilitation is going faster than I thought it would.

I also don't really think that Obama's campaign efforts are having any positive effect, except perhaps for Republican opponents. All the photos of Sen. Murray smiling broadly alongside the President can only be helping Rossi. As for the cheering crowds, anybody going to see a Murray rally was going to show up election day for her anyway. The Dems might as well try to get their base out, though they can forget about the student vote if you ask me. No student is coming home to vote and most apparently were not interested enough to request an absentee ballot on a timely basis.

The only thing keeping this from being the rout of the century is that the GOP again has quite a few inept candidates, and they aren't exactly a popular party either. So Latino's continue to be turned off by Republicans, a crime since culturally, they are a better fit for the Republican party than they are as Democrats.

Dems hated the Supreme Court decision that opened up campaign financing for corporations and other private associations, but that still hasn't stopped the public employees union AFSCME from topping all contributors this cycle (exclusively to Dems, of course). This is a reward for the conveyance of the stimulus money to states to fund programs paying salaries to AFSCME members. Deficit or no deficit, the public is right to be outraged by the scandalous cycling of taxpayer money from the administration to union members and then to Democratic campaigns, which is what the stimulus program amounted to.

Incidentally fourth on the list of top contributors is the SEIU and fifth the teachers union, NEA. Can you imagine the imbalance that would have existed had the court not found a way for business and conservatives to participate meaningfully?


Sorry for the delay in getting this post out and the missed week, but I have been on the road 10 of the last 11 days, first to Richmond, then Orlando, and without a handy computer. We'll be posting a little more frequently in the runup to Independence, er, Election Day.

In Orlando, I got to see the NAIC, following hours of closed door wrangling, pass their formula for calculating mimnimum loss ratios (mandated by the Health Reform Law) on to HHS. They did this knowing that the formula, requiring claim costs to be about 80% of premium or more, will inevitably drive more carriers and virtually all agents from the market. Driving doctors to the wall is the role of other parts of the bill, particularly the medicare cuts that have already forced doctors to limit their medicare participation.

Some wonder how the administration and Congress could be so stupid to pass a bill that it is now clear to all but the most devoted lefties will never work. But they are not stupid. Failing to obtain single payor, they wanted to put in provisions that would render the health system dead. As private insurers and providers exit, the only alternative will be the public option - single payor. This is absolutely by design.

The truest words spoken in Congress this year were by the then pilloried Joe Wilson, who in the middle of Obama's speech to a joint session, interrupted, no doubt unable to control his own honesty: "You lie!"

No one should be surprised by the firing of Juan Williams, the outstanding moderate liberal commentator, by NPR, for his remarks about his true feelings of concern when flying with passengers wearing Muslim garb. I don't consider this firing a free speech violation. Mr. Williams is being fired, not arrested. I believe in the right to fire at will, without cause, as long as it is not discrimination along the lines that are forbidden by the civil rights act, and where there is no such pattern. I would certainly give NPR the benefit of the doubt here, not believing for a second that Mr. Williams was fired for being black.

However, there is an issue here, and that is that NPR, like PBS is significantly taxpayer funded. The reasons for this have long since become separated from the stations' mission, which has morphed from (allegedly) an educational one to one that seems to promote various left leaning positions. If anything, NPR has been more flagrant in this respect than even PBS. The explanation provided by an NPR spokesperson was that an NPR news analyst is not a commentator and may not take personal public positions on controversial issues. That one had to set off gales of laughter even in the hallways of NPR. Do these people ever listen to their own station?

The truth, of course, is that you are aloud to express such positions, as long as they conform to what the management promotes as politically correct.

To its credit, Fox News (not really a news organization according to Dems) announced that they will be increasing Mr. Williams' air time on that network, where he has been a consistently excellent spokesman for the moderate left point of view and helps to actually provide a little of the "fair and balanced" programming that organization claims.

Full disclosure: Mr. Williams is a graduate of my alma mater, Haverford College, and one of whom we are justifiably proud.

On 10/8, we bought 20 shares in the Gold Trust (GLD) at 130.80 for the IRA. In effect, two more ounces. On 10/14, the cash came in for our 1000 shares of Tomkins at 20.53 per share, bought at various times for various prices, which I will break down in the next post. I do believe we wound up with a nice gain from this takeover when all was said and done, mainly due to a nice average down buy in 2009. Details in the next post. On 10/11, we sold 100 shares of Dover (DOV)from the IRA at 54.54, for which we paid 49 on 6/14/00. On 10/15, we bought 100 shares of Lowes (LOW) at 21.84.

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Thursday, October 07, 2010


The Fed's Inflation Target

Monetary economics guru Milton Friedman must be doing pirouettes in his grave following the Fed trial balloon that it is considering raising its inflation target from 2% to as much as 4% annually. Friedman never had much patience for Federal Reserve monetary policy maneuvers anyway, believing that its job could be better performed by computers programmed to maintain a stable currency. A steady hand and well known policy objectives would be in marked contrast to the Board's lurching overcompensations, pumping up the economy here, cooling it off there. Even the successful application of Federal Reserve tools by Alan Greenspan over a long tenure did not impress Friedman who was sure that eventually the Fed's policy biases would lead the economy in the wrong direction. The bursting of the stock market and residential real estate bubbles were two episodes that proved the wisdom of Friedman's observations.

If anything, the hubris of "Helicopter" Ben Bernanke is much worse. Fearful of deflation (a phobia resulting from his long study of the Great Depression), Ben has allowed the monetization of Federal debt, seeing the ocean of liquidity as the needed policy response to a chronically under performing economy and falling prices.

If only Ben had spent as much time studying the disastrous tenure of his predecessor Arthur Burns who assured that Jimmy Carter would only be a one term President. Burns chaired the Federal Reserve from 1970-1978, a period that spanned the Nixon recession (with price controls that failed to stem stagflation) and the Carter malaise. By the time Burns was removed and Paul Volcker was forced on Carter, with the mission of breaking inflation's back, no matter the economic cost, the stage was set for Ronald Reagan. His economic and tax policies combined with Volcker's monetary discipline to restore the US to a strong growth mode.

I think that the combination of Ben's monetary fairy dust and the Obama administration's total breakdown in fiscal discipline must result in inflation, perhaps as bad as the double digit inflation of the late 70's and early 80's. We might, in the worst case scenario, incur a period of hyperinflation a la some banana republic or Wiemar Germany. If that happens, only precious metals and disciplined currencies (Swiss Frank?) are safe places for your savings. Even equities will not be able to keep up.

It doesn't help that Treasury Secretary Geithner's response is to talk the dollar down and lecture the Chinese about currency policy. Right now, dollar boosting and a commitment to the soundness of our currency should be one of the foundations of our economic policy. But this gang that can't shoot straight wouldn't have a clue about that.

In fact, Obama's every instinct on economic policy seems wrong. We should be spending less and taxing less, not spending more and taxing more. We should be doing everything we can to expand international trade, not berating corporations about outsourcing. We should be making it more profitable to do business, not adding regulatory friction to every imaginable business transaction. And so on.

The Fed should have one objective, currency stability. It was a mistake for Congress to add the objective of maintaining econmoic growth to the Fed's burden.

The Dems will pay a heavy price on November 2nd but unimaginable damage has already been done, and conservatives can only reverse so much with Obama holding the veto pen. Still you have to start somewhere, and this will be a good step. It looks to me now that the GOP has about an 85% chance to win control of the House, and I think the Senate is coming in just about even. If it's 50-50, the Dems will still control since Biden has the tiebreaker. So I still think the GOP is only a 40-45% chance to control the Senate. That's close enough to give Progressives the willies. I'm having some fun with them, leaving comments on my buddy Mark Kleiman's blog site, www.samefacts.com.


When Tea Party candidates upset a number of establishment Republicans in various primaries, it should have been expected that these relatively untested candidates would make some amateurish mistakes during the general election campaign. Sure enough, we have seen Carl Paladino and Sharon Angle make some whoppers (including today - what were you thinking Sharon?) And of course, O'Donnell has a lot of interviews on the public record that are fodder for opponents.

As these things happen, the traditionally liberal media (including the Associated Press), desperate to see things turn around, will publicize these faux pas even as they hide and protect their favored candidates from similar scrutiny. While some voters will be put off by these miscues, most have already decided whom to vote for by now. As the Dems pour on the most vitriolic attacks and outright lies about their opponents, they are having the ironic effect of galvanizing support for Tea Party amateurs. This is why you see GOP momentum building again.

Dems are damned if they do and damned if they don't. Take the subject of debates. I think Andrew Cuomo is smart not to debate Paladino. He has a big lead and can only lose in the expectations game. However, it does feed the overall impression that he is spending the campaign in hiding. On the other hand, we see what happens when a Blumenthal debates McMahon. Aside from the fact that McMahon won on points, any such debate will usually make the non-establishment candidate look more acceptable than (s)he has been portrayed, and make it easier for people who agree with her policies to vote for her.

As Sean Hannity would say, 26 days to Independence Day.

My hat is off to Governor Christie for crashing the tunnel project. It's about time a public official acknowledged that there is a project that we simply can't afford and chose to cut our losses rather than just raise taxes or worse, kick the can down the road by floating yet another bond issue.

By the way, we can't afford Obamacare either. It's about time Republican candidates began talking about that fact. More than 60% of the electorate agrees by the way.

Another prediction - The Republicans will regain control of the New York State Senate.

Meanwhile, has anyone seen ad number one from U.S. Senate candidate Dioguardi? Is D'Amato sabotaging his campaign too? They are making it all too easy for Gillibrand to return, basically providing her mentor Chuck Schumer with a second vote.

On Sept. 29, we sold 100 shares of Lubrizoil (LZ) at 106.10, a nice gain from the 30.50 we paid on March 10, 2004. On October 1, we bought 100 shares of Goldman Sachs Preferred (GS.PR.D) at 21.44 for the IRA. On Oct 4, we bought 800 shares of FSI International (FSII) for 2.73, a value buy. Today, we bought 100 shares of FLIR at 25.01, a zero buy.

As per our opening item, the market is moving with gold and oil, and in direct opposition to the dollar. In other words, equities are being traded as an inflation play. Another interesting point is that the public has been largely out of the market, and is not interested. When was the last time somebody gave you a stock tip at a cocktail party (not counting other redwavemusings readers)? I'll bet Cramer's ratings are down too. When you see stock mutual fund inflows increasing (and bond fund inflows decreasing) and start to hear more chatter about stocks, that is likely to be a sell signal. The public is always wrong.

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