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

Friday, March 25, 2011


Musings From Austin, TX

They call Nashville Music City, but the folks in Austin beg to differ and they have a case to make for the Texas capital and home of the Longhorns. There are a half dozen distinct neighborhoods in Austin, each with its own feel and points of interest, but perhaps none more enticing to my particular brand of moral degeneracy then the East 6th Street nightly playground. Stretching about a half dozen blocks, the neighborhood comes alive each evening as the many pubs, bars and discos each blast their particular slant on blues, rock, and hip hop. The accent is surprisingly heavy on rock, with little or no country in evidence. This is probably because the patrons are largely of college age from U.T. and the other local schools, not so much tourists.

As on Nashville's Broadway, you simply walk in and out of all the bars, many of which have live bands til 2 AM. There is no cover, no minimum, you simply leave what you want in the band's tip jar. I heard a very good blues band (with open mike type participation in the drum seat) the other night at Blue Moon, and some real good rock bands the last few nights, playing mainly covers but adapting them to their own styles rather than trying to reproduce the originals. One very successful example at "The Stage" was a hard rock version of the Paula Abdul hit, "Straight Up." It was hot!

As in most places, the kids take over by midnight, and there were even lines waiting to get in at several bars. The weekend figures to be a little much, and I intend to do some other things (the business dinner circuit calls). Still, if I am looking for a late nightcap, it's just a 2 minute walk from my hotel to 6th.
Here's an update. Last night, I met a friend and we went with a third who knew a real good music bar on Fifth Street. We walked down to it,and I have to say that Fifth is as good as Sixth except the accent is on hip hop disco instead of rock. We went to a place called Antones that had a terrific band and to the rhthym and blues club back on 6th. But what a great town for music this is!

For all of Defense Secretary Gates' kvetching about what was involved with establishing a no fly zone in Libya, once the decision was made to do so, the execution turned out to be elementary, dear Watson. Though it occurred in the nick of time to prevent Ghadaffy's extermination of the rebel forces, it came too late to assure an opposition victory either. Indecision has become the defining characteristic of the Obama administration. In this chapter, the heroes were Prime Minister Cameron and Secretary of State Clinton, early and persistent advocates of the no fly zone. Also a tip of the cap to Medvedev of Russia and the Chinese who both withheld vetoes of the UN resolution despite Putin's opposition to the no fly zone.

Of course the precedent to seek the UN's sanction is unfortunate. Since when is it smart policy for the US to grant other countries a veto with respect to our foreign policy moves? The reasons to replace this Administration keep piling up.
I'm going to postpone my stock reports until I get home next week. Suffice to say we are enjoying the rally.

Monday, March 14, 2011


Pre-birthday post

The Japan events were horrific. Who will ever forget waking up Friday morning to those incredible replays of the tsunami carrying cars, houses, boats, everything inland. The power of nature is not something man has any ability to withstand.

We live on an amazing planet, a hardy balance of forces that makes life sustainable as nowhere else (yet) to our knowledge. Yet, even its minor squirms and stresses are enough to dislodge our foundations. With the effort it takes to carve out a comfortable existence and cope with the earth's belches and groans, one would think that man would realize he profits not from warring over scarce resources but from cooperating in our efforts to thrive and overcome. Clearly, in the short span of human history, this has never been the case.

But there are hopeful signs, and one of them is in the genuine outpouring and identification with the Japanese people. Though civilized, modern, and today peaceful, the history of the Japanese people has often been one of trying chapters for its neighbors and enemies. It is well that even former enemies today have a strong urgency to help them through their catastrophe.

One thing that helps no one is the urgency with which the environmental left seeks to exploit this episode to castigate nuclear technology and overstate the dangers posed by overheated reactors. An understandable explanation of what is going on in those reactors is provided today in the WSJ by William Tucker in "Japan Does Not Face Another Chernobyl." His message is not to say there is nothing to worry about. Surely, there has been a need to emit a minor amount of radioactive steam, and the reactors can never be restarted once they have been doused with seawater. But Mr. Tucker simply explains the difference between Japan and Chernobyl.

"The Chernobyl reactor had two crucial design flaws. First, it used graphite instead of water to 'moderate the neutrons...' The graphite caught fire in 1986 and burned for four days. Water does not catch fire.

"Second, Chernobyl had no containment structure. When the graphite caught fire, it sputed a plume of radioactive smoke that spread across the globe. A containment structure would have both smothered the fire and contained the radioactivity.

"If a meltdown does occur in Japan, it will be a disaster for the Tokyo Electric Power Company but not for the general public." The fuel rods will simply melt to the steel and concrete floor but no further.

Let's hope he's right. One thing is for sure - the people calling for panic don't know any better.

Radiation aside, the Japanese and their friends around the world will be challenged enough.

Another calamity of a much lighter variety is in the making and that involves the negotiations around a new agreement between the NFL and its players. I don't often takes the union's side in such disputes, but this is one time I would award them the lion's share of the $9 billion at stake.

Frankly, the owners have been looking to pick this fight since before last season even started. They are making lots of money, but are concerned that they will have to settle for these levels. They have no growth engine. TV seems maxed out, they can't raise ticket prices anymore, the merchandise is all selling out, etc. So to raise revenues and profits, the owners hit on the idea of replacing two of the four meaningless preseason games with regular season games. This would make the regular season 18 games long. I am old enough to remember when it was 12 (like when Jim Brown set a lot of his rushing records).

Trouble is, regulars don't play play much of the preseason anymore, since a few quarters of work is really all they ever needed to be ready. Preseason is mostly for looking at rookies and free agents, and gouging some money from the season holders who have to buy exhibition tickets too. By turning two more games into regular season games, the starters will have to play them. From the players' viewpoint, that means more injuries and even shorter careers and there is not enough money in the game to make that deal attractive.

The players have come up with a creative tactic - decertify their union so that they can successfully make the case that the owners' action will be a lockout (which is what it is). This will allow them to sue in court for failure to act in good faith. If only the Wisconsin public employee unions would switch to a decertification strategy!

So the owners have a rattlesnake by the tail. As usual the fans are the ones who stand to get hurt, since they have bought into the game emotionally if not financially. If there is no football this season, the owners say they will be fine, but that is just clear proof they are looking at this the wrong way. Yes, sports is a big business, but if owners expect fans to care about their teams, they owe it to them to put the teams on the field if its reasonable financially to do so. Believe me, it's way more than reasonable.


In the meantime, we've got the NCAA's to deal with. i was going to give you my brackets, but forget it, they are even less reliable than my stock selections. Instead, I'll give you Redwave's rules of the NCAA's, which hold up more often than they don't (no scientific evidence for that statement).

Rule #1 is that Conferences tell. It used to be that some of the better conferences, like the ACC, had tournaments and were spent when they got to the Big Dance. Now almost every conference has a tournament, so they're all equally spent. This means the top conferences should outperform the overrated ones. Top conferences always seem to include the ACC and the Big East. In some years, the Southeast Conference is a decent conference. Of course, a top team can come from anywhere, but the Big Ten, Big Twelve and Pac 10 are consistently overrated in basketball.

Rule #2, is that coaches tell, especially those with Tournament experience. You know who they are.

Rule #3 is speed tells. In what sport this side of chess doesn't it?

Rule #4 is that the premium these days is on good rebounding and three point shooting. Shooting 33% from outside the arc is arithmetically as good as 50% inside the arc. In college ball, the arc is not that far out, and you can do even better.

Rebounding is like Casey used to say about catching in baseball (without it you have a lot of passed balls). If you've ever coached a team that couldn't reliably clear its defensive board, you know what I mean.

The academic left is in an uproar because not only do they believe (apparently without any supporting evidence) that Bradley Manning, the wiki leaks source, is being tortured in his army prison brig, but worse, the media seems to be all but ignoring the "situation." The left has a hard enough time when rights, real or imagined, are abridged, but they could live with that if only the perpetrators were being appropriately ridiculed. The one thing they can't abide is when their howling protestations are being ignored.

In today's WSJ, their reporter quoted the unspecified concerns of those good old reliable reformers at Amnesty International before faithfully reporting that guards were checking on Mr. Manning's welfare as often as every five minutes and that he was forced to sleep in his shorts. On the Reality Based Community's left wing blog today, I asked if anyone had any information contrary or in addition to those reported in the Journal, which did not really sound torturous to me, and none did including my friend the blogkeeper. I said it seemed to me that Mr. Manning was being treated no differently than he would be in a hospital, where some nurses have perfected the art of waking you for medication or fluid drainage just as you finally fall asleep. For that wisecrack I was widely castigated but somehow not disputed. To his credit, Mr. Manning, like any good soldier has not actually complained about his condition himself. Perhaps he well understands that after his Court Martial, he is likely to look back fondly on his now current arrangement.


Pat Martino, the great jazz guitarist from Philly comes to Birdland this week with his organ group. The other personnel has changed, but no matter, you have to see and hear Pat to believe it. And there's no better venue to do that.


Friday, I bought 1000 shares of Hauppauge Digital (HAUP) at 2.03. Allegedly, this is a value buy since the company has no debt and trades at a little over two times book. However, this is a microcap and "book value" may or may not be an imaginary number. The company has been causing an on again, off again sensation in day trading circles by periodically announcing products that somehow hook up to your Apple equipment to allow you to watch TV from anywhere, as if that's such a blessing. Daydreamers like me envision Apple taking the company over, if for no other reason than to curtail those annoying product PR pieces.

Speaking of takeover dreams, one came true today when Buffet announced Berkshire was buying Lubrizoil (LZ), one of our long time holdings, which we reduced according to formula not so long ago, only to buy some of it back later. Since we like to sleep, we don't worry about profitable sales that cause us to fail to maximize profits. For every LZ sale that comes a little too soon, there are those we make by formula that come in time, thank you. So, there was happiness today for all of us LZ holders rewarded for our long interest in the company.

I kind of knew Buffet was likely to be targeting one of our holdings when he recently indicated interest in acquisitions, but frankly I expected it to be ITW rather than LZ.

Today, we bought 200 shares of ENI at 19.49, a zero buy.

Thursday, March 10, 2011


Inflation is here, there and Everywhere

Sorry for the long lapse between posts, but we were traveling last week to Albany and Washington D.C., frequent haunts for those of us who get paid to educate legislators and regulators about issues important to our businesses. Of course, world events continue apace, lately moving so fast that the picture seems to be changing before I can even set pen to paper (figuratively, that is). A review is in order.

When last we posted, the GOP Governors, and even an enlightened Democrat or two, were busily trying to rein in, and even reverse, public employees, their unions and their unaffordable benefit packages, particularly pensions. Most important, as we strained to point out, is the political imperative to break down the mandatory requirement of public employees to join those unions and provide a significant amount of cash in the form of union dues. Those dues eventually become cash campaign contributions, perpetuating Democrats and union leaders in their positions where through "collective bargaining," the taxpayers are victimized by the farce of a negotiation between two parties who want the same thing - more and more government workers and cash to keep the cycle going.

The tools chosen by Governors in Wisconsin, Indiana and Ohio have been direct restrictions on collective bargaining, with the ultimate goal of passing "right to work" laws allowing public employees to work without joining the union. The former enables local governments to control their expenses; the latter curtails the campaign cash cycle. Both are ultimately necessary, and that's why in Wisconsin this week, Republicans found their way around their State Senate's quorum technicality by removing the expenditure provisions from the proposal and simply holding a vote on the collective bargaining provisions. Ironically, this was the opposite approach, though similar in method, to that used by US Senate Dems to pass the health reform bill last year, by making it part of budget reconciliation. In both cases, the normal process was legally, and perhaps spiritually circumvented. Predictably, the progressive left has been howling like stuck pigs over the Wisconsin tactic, which was somehow OK when they used reconciliation to get what they wanted.

The left believes they, and the President will have a campaign issue over this next year, but if things go as they have in Indiana, where Governor Daniels fixed his budget mess last year by reining in public unions, the Dems will have a problem on their hands. What the public will remember is that Wisconsin Dems left town (actually, left the state) and were not part of the solution. The fact is that though public unions have grown as private unions have shrunk, only about 13% of Wisconsin workers will be impacted and many of them have had it with union dues too.

So we're pretty happy with this denouement.

There is a less happy outcome looming in Libya where, due in part to the inability of this Administration to take effective action, or even make a decision, the long time dictator "Khadaffy" is gradually putting down the rebellion that threatened to send him on a permanent vacation in beautiful downtown Caracas. This will predictably lead to a purge perhaps as bloody as the one that Bush 41 allowed to happen in Iraq in 1991. For those who only know history as reported by progressives, the body count in that one was in six figures, compliments of the late unlamented Sadaam.

There are lots of blameworthy people in the Administration but the one person I might absolve, pending more facts of course, is one Hillary Clinton, who from the beginning has provided the only adult supervision in this administration. I am sure she has learned, as did Colin Powell, that the career bureaucrats in the State Department are all but unmanageable. If she has in her pronouncements often sounded like she is off her boss's message, and the last to get the memo on the policy prescription of the day, I would ascribe that to her propensity to say the right and honorable thing, a trait no one else in authority seems to possess.

All this may seem strange coming from this blogger, especially given my low opinion of her during her husband's administration and again in the 2008 campaign, but we try to call them straight and true here and give credit where it's due. I think a lot of us on the right thought (because of Hillarycare) that she was a phony New Dem, but we were wrong. Hillary has done a good job as Secretary of State, and would have done a significantly better job as President than the current incumbent.


Elsewhere in the Middle East, everything seems to be gradually coming apart, with the result that oil prices are skyrocketing, and gasoline pierces $4 a gallon in the US, perhaps headed for the $10 routinely paid in much of Europe. The Obama administration relented and issued the first permit for an oil well in the Gulf since the Big Leak, but just one. So we have no oil wells coming on stream, no nuclear plants being built, and we wonder why we are dependent on foreign sources. The latest shot fired by the environmental lobby is to cast doubt on the methods by which oil and gas are extracted from shale, though doubt is all they have - there is no evidence yet of any contamination the process actually causes.

As if this wasn't enough to stifle the nascent recovery, we also face the prospect of inflation, evidenced by increases in the prices of virtually everything except homes, which continue to go down in price (the one thing the economy needs to go up!). No surprise there, since the Fed has had inflation cooking in the oven for over two years and redwavemusings has been sounding the alarm for at least that long. Now, there are inflation alarms going off in China, South America, virtually everywhere, since currency is being debased virtually everywhere. As sovereign debt goes up, central banks crank out inflation to reduce the value of those debts - governments' solution to debt crises since Roman times or even earlier. It's just amazing that Bernanke can go before Congress and simply obfuscate (a fancy word for lying) the truth about the inflation reality, but that's what he does. Hopefully, he will be heading out the door right behind Obama. I don't think we will be able to ride out his full term with him in charge at the Fed.

For investors, this presents a quandary since in the short run, stocks don't like inflation and bonds always hate it. So do preferred stocks. But in the long run, common stock prices reflect inflation - hence the name equities - so they are a decent inflation hedge. Precious metals are the best. Currency is the worst. Being in some cash is not so terrible now while you wait for better stock market entry points and for interest rates to go up (when you can commit cash for a longer period). But as a long term investment, your cash will lose its value in the coming inflation.

I know this is 180 degrees from the oft quoted (here) Bob Prechter, who is still predicting a deflationary bust. If only Prechter were as good at economic forecasting as he is at writing and at selling newsletters!


On March 1, we sold 100 shares of Gulf Island Fabrication (GIFI) from the IRA at 31. We bought this as one of our Tulane portfolio stocks on 3/6/2009 for 9.04. If you don't believe that, you can find the post in the archives where we reported the purchase. Anyway, two year triples are good inflation hedges. On March 3, we bought 100 shares of Graham Corp (GHM) for the IRA at 20.96, a "zero buy." On March 7, we sold 100 shares of Xilinx (XLNX) from the IRA for 35.15. We paid 19.80 on 8/11/2006. Yesterday, we bought 100 shares of MetLife preferred (MET.PR.B) for the IRA for 24.89. Why do we continue to buy preferred's in an inflationary environment? There are several components to managing a portfolio beyond stock picking and timing (and I don't try to time). Asset allocation is awfully important. After a certain age, there has to be an allocation to fixed income. The only thing Keynes may have been right about was his conviction that in the long run, we're all dead. For me, and for many individuals, preferred's are a better alternative than individual bond purchases. Of course, for the vast majority of investors, insured CD's and bond funds are better than trying to pick any individual issue.

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