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Monday, November 28, 2011


Meet Grover

Yesterday, moving toward winter mode, I watched the Sunday morning news shows, an admittedly unsatisfactory alternative to golf, but one that's informing if not always entertaining. I can't take ABC's This Week anymore, George Will notwithstanding, so instead I watched Fox's effort with Chris Wallace providing a very fair interview with a representative from each side of the failed Super Committee. He gave Senator Durbin a chance to sound off, and he obliged unfailingly to use every possible soundbite to make the Dems' class warfare argument. Do they really believe this is resonating? Can I be that oblivious to its attractiveness? Whatever, even when Wallace gave Durbin the chance to repeat his support for Simpson Bowles (he voted for it as a member of that commission, which for some reason Obama disavowed), he found it necessary to qualify his support with the requirement that the Bush tax cut for those over $250,000 in income be repealed. I'm sure he didn't forget that the commission did NOT recommend that. The Dems have revived the "party line" in much the way it was applied to the Soviet ability to look straight in your eyes and say the most absurd things.

Durbin also rehashed the overstated party canard that Republicans on the Super Committee were dictated to on taxes by Grover Norquist, and were forced to adhere to the infamous signed pledge. Somehow, Dems ignored the very substantial revenue offer made by Republicans to eliminate deductions, especially at the upper income levels. That's because they didn't really want a deal, since they believe the sequester will represent another tool in their class warfare campaign next year.

The fact is, either the Supercommittee or Simpson Bowles could have been a done deal as fat as Republicans were concerned, with significant new revenues but without increasing (and possibly even decreasing) tax rates. As it was, no one wants a deal on the other side's terms. I certainly prefer the sequester to any decoupling of the Bush tax cuts based on income levels. As for the Dems' demand that extension of the payroll tax holiday be tied to an upper income tax surcharge, no thanks. If that's the offer, let the payroll tax holiday expire, as it was supposed to. After all, the payroll tax funds those beloved entitlements, social security and medicare. Isn't it a bit reckless to be reducing those particular funds given the unspeakable entitlement liabilities we face? What happened to Al Gore's social security lockbox anyway?

From there it was on to Meet The Press, whose guests were Senator Schumer, the tireless Dem motormouth, and, of all people to represent the GOP side, Grover Norquist. When I heard that, I wondered what kind of setup this might be. It started badly as NBC's usually insightful interviewer, David Gregory, lobbed softball after softball Schumer's way for him to swat with his class warfare bat. Obviously, such treatment was not afforded Mr. Norquist, but he surprised by answering every antagonistic question straight forwardly, responsively, and with strong economic reasoning. It was a most impressive performance and one that did the cause good. I especially loved his line that Democrats seem to believe that "the peasants aren't sending enough cash in for the king to spend." In fact, it may ultimately be that rather than a Dem talking point, Norquist's pledge may prove to be a GOP asset in the coming campaign.

You would think that watching the debacle in Europe, we could learn that what we were doing in the good old days was the straight and narrow, and that we had better stop parroting socialist Euroland before it's too late. Obamacare, 99 week unemployment benefits, growing entitlements without payroll tax funding, green projects of questionable environmental value that devastate growth and jobs, these are all actions that could lead us down the road to financial collapse. The regulatory nightmares the Obama administration, through the EPA, the FCC, the Justice Department, and the new Dodd Frank apparatus, is pinning on business is killing whatever recovery might have taken place.

It would be one thing if consumers actually benefitted from any of this regulatory activity. Actually, consumers are being hurt. If you don't believe me, ask anyone who has cell service from AT&T, forced to divest important capability and still won't be allowed to complete its proposed takeover of T Mobile. Ask the hundreds, even thousands of oil riggers put out of work in the Gulf by the administration's delays in allowing drilling to be resumed. Ask the 20,000 who won't be employed on the Keystone pipeline, or consider the layoffs that will surely occur in Detroit (again) when consumers reject auto manufacturers attempts to comply with new unrealistic EPA fleet mileage requirements and their attendant costs.

One thoughtful Democrat recently suggested in a letter to the WSJ that we're thinking about the deficit all wrong, that we should have a separate capital expenditures budget, and if we did, we could spend on these projects without incurring additional current deficit. I agree, I would like to see the government produce a GAAP accounting statement alongside its cash accounting budget. It would be a revealing exercise. But you need to do these things for the liability side as well as the asset side of the balance sheet. If you did, that means valuing the excess of the present value of future entitlement liabilities over the funds invested to support them. Believe me, our GAAP statement, which used to be pretty good since the value of Federal lands, parks and buildings is tremendous, would now be horrible because of our entitlement overpromising. Yes, by all means, let's do that. We could hire a Big Four accounting firm to put it together.

Of course, what's the point when the Senate has failed to produce a budget of any kind in the last three cycles?

We've been busy on the buy side while enduring the stock market's worst Thanksgiving week in 69 years. On Nov. 21, we bought 400 shares of Alumina (AWC), a value buy at 5.47. The same day, we also bought a zero buy, 300 shares of Genie (GNE) at 7.27. Last Wednesday, we bought 50 shares of AES Preferred (AES.PR.C) at 48.96. Friday, we bought Alcoa (AA), the American aluminum company at 8.90. Here's hoping the airline industry doesn't switch to plastic. Today, we bought 50 shares of NVEC, a zero buy at 54.69.

For new readers and old, it is important to remember that our investment system and transactions are not suitable for everyone, and may not in fact be suitable for anyone. We record them here for fun and for whatever benefit it is to know that one's investment decisions will be exposed to public view and even ridicule. Our system is explained in long ago posts that can be found in the archives. It is designed to implement a tendency to buy lower and sell higher. Following it tends to remove emotion from the decision process, and for some investors, that is necessary. Emotion is especially debilitating for the sell decision, and through a low commission discount broker, we are able to sell in increments that encourages some profit taking.

We do also employ a very good full service broker, and honor his recommendations by buying them first in his account and giving him credit when they pan out. We certainly discourage any reader from considering this section of the blog to be investment advice.

If you follow the financial sites, you are sure to see articles these days by Elliot Wave adherents warning about third wave devastation culminating in a 2012 retest of the 2008-9 lows. This could happen, bu keep in mind that I think Elliot Wave theory is more useful in trying to understand past market moves in context than it is as a predictive device. I would want to be aware of these ideas without being panicked by them.

Friday, November 18, 2011


It Could Happen

After 60 days of Occupy...Whatever, we still don't really have an intelligible explanation of what the protest is against, or what the protesters really want. A clearly sympathetic mainstream media has tried to spin their own interpretations of what they're against - income inequality, corporations, exporting of jobs, lack of accountability for the financial crisis, etc. To this outsider, it looks like an excuse for the non-working, the non-successful, the malcontents, the misguided, and the miseducated to go camping in the city, be a nuisance, live or relive the
60's (but without equivalent gravitas), promote socialism, and meet girls/guys. This week, the public had enough, and the police began clearing out the parks. So yesterday was "action day," and the result was more arrests, more embarrassment for the "movement supporters," and more public disgust.

We said early on that the longer this went on, the worse for Democrats and the Administration. We have seen nothing to change our opinion. In fact, despite the media slant, the latest polling shows opposition to the Occupy movement at high levels and growing. The public now realizes that this is not some benign demonstration, that it is costing taxpayers serious money in police and sanitation overtime.

As for the phony 99% battle cry, the fact is most of this country is still capitalist, not socialist. Income inequality is an expected result in our system; in fact without it, where is the incentive to get an education, to work, to outperform? The country does not guarantee equality of result, it only promises opportunity. The history of socialism is to deny both opportunity and success.

As an avowed capitalist, I would be happy to be in the 1%, but don't think of it that way. I think about being lucky to be in the 91% that's working and the 50% that's paying income taxes. Today, Rep. Michael Grimm of Staten Island came out with blistering criticism of the Occupy group and praise for the police and Mayor Bloomberg. You can expect to hear more politicians climbing aboard that bandwagon in the days ahead as the movement crumbles.

If the rudderless left, including Hollywood and the academic drones, want satisfaction for their complaint about the failure of any significant Wall Street or banking figure to go to jail for "causing" the financial crisis, I have a candidate for them. How about sacrificing John Corzine to the left's tender mercies? The former Goldman Sachs honcho, former Democratic Senator from New Jersey, former Governor of the Garden State, and most recently the CEO of the failed MF Global investment fund family has an almost unbroken record of haplessness. In addition to driving his firm into bankruptcy, there is now about $600 million dollars missing on Corzine's watch. Of course, since he's a Dem, offering him up is probably not what the crazies have in mind.

Mr. Corzine's contempt for the rest of us was evident during his tenure as Governor when his chauffeur, driving at reckless (and illegal) speed, involved the Governor in a serious traffic accident which Corzine was fortunate to survive, albeit with serious injury. It came out that the Governor set a fine example for the populace by not wearing his seat belt even as his driver nearly doubled the speed limit.

Until the $600 million shows up, color me suspicious.

In the internet age, young adults don't read newspapers or watch the news much on TV. How do they stay informed? Inconsistently, and I think the internet becomes their main news source, a scary idea when you review what passes for news coverage on sites like Yahoo.

Anyway, during the Jets pre-game Sunday, there was discussion about the Penn State fiasco, which it turns out my daughter knew nothing about. I was a bit shocked since it seemed to me you'd need to hide under a pretty big boulder to miss that story. Anyway, I explained that a former Penn State coach had allegedly been seen molesting young boys in the shower. She was incredulous. "I thought only priests did that," was her instant rejoinder.

10 years of Catholic education down the drain.

The Congressional Super Committee, as expected, is heading toward a crash on the rocks, an almost inevitable result given whom the respective parties selected to solve the deficit problem. I give it about a 30% chance to come up with anything like the $1.2 trillion in savings they are assigned to find. Of course the Dems have made repeal of the "Bush tax cuts" for those families at $250,000 or more income their sine qua non for agreement. This has been party dogma ever since the day the cuts passed. This is a non-starter for the GOP. Given the way the Senate breaks down these days, both parties can stop everything and neither party can pass anything. If, in fact, we get nothing, there will be some interesting effects. First, there is supposed to be sequestration, meaning every department of government, including defense will be cut proportionately to achieve the $1.2 trillion over ten years.

I have no problem with this result. $1.2 trillion over 10 years is a peehole in the snow compared to what the Obama administration has added to the deficit, by means of the phony stimulus and their other failed initiatives. We'll still be at higher spending levels than fiscal 2009 even if this cut takes place. That won't stop Dems from sounding the alarms as if the spending reductions might cause the world to end.

The second result is that not only will the tax cut for "wealthy" Americans expire, so will the cut for the other brackets. As I have pointed out on this blog ad nauseum, this will impact middle income taxpayers much more than wealthy ones, since the latter pay according to the AMT schedule already. All the increased rates will do to them is move some of their taxes from Form 6251 to Form 1040. Middle class taxpayers will actually pay more in taxes. That Dems support this is indicative of their belief that if they repeat something often enough, even if it's wrong, they can get you to vote for them if they can just make it sound like Republicans are out to screw you. I guess they believe the adage that no one ever went broke underestimating the intelligence of the people.

What a joke the Obama jobs plan is when you consider how many jobs we will lose and how much extra oil we will import from the Middle East because the Keystone pipeline will be delayed while yet another environmental impact study is conducted. This bow to the greens may actually result in no pipeline at all, since the Canadians seem to be figuring out that it is easier and more lucrative to sell the oil to the Asian countries than to us. This means the hydrocarbons will still be burned, but we will have nothing to show for it. Obama has no problem with this result if it buys him a few green votes.


So I'm listening to a new CD I got in the Washington area which I can't wait to play for our guests Sunday. In Alexandria is a famous Irish pub, Murphy's, where singer/guitarists on two levels serenade the hard drinking clientele with old Irish drinking songs. Needless to say, everyone sings along and a great time can be had.

At one of the pubs near my hotel in National Harbor on Saturday night, they import one of the Murphy's players to do much the same act (but not quite as raunchy or raucous). Anyway, the singer the night I was there was Rocky Guttmann and I guess he was pleased I put something in his tip jar because he handed me his CD at the end of the night. The CD is great fun and is called It Could Happen. I especially like the Guinness Beer Song. Use your imagination.

On 11/14, we bought 200 shares of IDT. Yes I decided to keep it on the buy/hold list. I think it's going to prove to be a good income stock. The price was 13.89, and it's a "zero buy." On 11/14 we bought 20 shares of TIP, as we still anticipate that inflation is a real risk. The price was 117.29. Finally, on 11/16, we sold 200 shares of ADPI, the stock that is the subject of a pending takeover at 19. Still some of these deals fall through, so it's OK to leave some money for the arbs. We got 18.71 per share for stock we paid 5.20 to buy on 12/17/07, in the IRA.

Today's buy order, adding to our FFEX position, was a limit order and didn't execute, as the stock ran away to the upside. A lot worse things can happen. We'll be back at it next week.

Tuesday, November 08, 2011


Special Off-year Election Edition

One thing you had to say about the late Joe Frazier, he never fought a dull fight. He was a relentlessly offensive boxer, liked to work inside, and had a lethal left hook despite being a little undersized for a heavyweight. He was also quite quick, really the only man fast enough to get to Muhammed Ali with any consistency.

Joe's weakness was defense, and he walked through a lot of shots to get his own in. Against a big puncher like George Foreman, the style could not work. Against Ali, it meant both took a lot of punishment, and their three great fights were a testament to that. A wise boxing journalist said both should have retired after the Manilla fight, since they had left the last of their skills in that ring.

As a man, Joe was no Einstein, but he knew the boxing game and was a good interview. He rose above Ali's taunting and always carried himself with class. Despite Ali's popularity, I knew lots of people who rooted for Frazier in those fights.
Has Herman Cain been unfairly treated as Clarence Thomas was (the victim of a high tech lynching)? I thought so at first, but it's starting to sound more like Bill Clinton now, with so many women coming out of the woodwork with similar stories to tell. No matter. I never saw him as the nominee and still believe the party will settle on Mitt Romney. The polls are showing a little boomlet for Gingrich, and maybe Perry could resurge, but Romney is every Republican's second choice, and that should be enough.

With respect to Gingrich, he is the most intellectually honest and thoughtful of all of the candidates, and Dorothy Rabinowitz wrote a persuasive column in the WSJ about his potential as the nominee in the WSJ this week. But Newt is bucking a lot of baggage. His own personal life has no shortage of embarrassing episodes, and his off-hand verbal pronouncements leave him susceptible to the gaffe. Also, he has no executive experience, unless you count being Speaker of the House as a management position, and not really a legislative one. He has higher negatives than Romney, and as much as I would look forward to a Gingrich administration, he is not nearly as likely to defeat Obama as Mitt is. In the end, Republicans will choose the candidate they think can win.

The next big political moment concerns the workings and deliberations of the "Super Committee" charged with attacking the deficit. Trial balloons are being floated almost daily concerning spending cuts and revenue enhancers. The odds are still heavily against any real agreement, which would trigger the automatic across the board cuts. How will Obama and Romney react? This is an intensely political exercise. In the background are Ryan and Reid pulling the strings for their respective parties. Getting those two to agree about anything will take some kind of magic, that's for sure.

The politics of the looming election year rest on more than the budget. Will the Iraq withdrawal prove to be well timed or a disastrous retreat? Why are we still fighting in Afghanistan, where the Taliban was removed from power and bin Laden is dead? Will Obama ever do anything about Iran's nuclear program. Or North Korea's? What about the seemingly stillborn peace initiative for Israel and the Palestinians? ? Will the Keystone pipeline from Canada finally be built?

Everywhere you look, we see the economy hamstrung by regulators, environmentalists, and other Obama allies. How long will the public abide the overtime costs attached to police protection for the Occupiers of Wall Street? There are minefields all over for the President and his reelection chances. Too many of them are of his own making.

The latest Rasmussen polls show Romney and Obama running about even and Republicans well ahead in the generic Congressional ballot. Given the distribution of the population, Dems need to have an edge to be really even. The message is that they are behind, and still losing ground.

So last night, after thoroughly enjoying the Louis Armstrong Centennial Band, featuring Wycliffe Gordon and Bria Skonberg, at Birdland, I had four options, all of which seemed attractive. I could go to Jazz Standard and catch a set or two of the Helen Sung Quartet. I could go up to Joe G's and hear Howard Alden. I could return to Long Island and either go to my favorite pub or actually go home and finish this post. But what I did was to go to Bar on Fifth at the Hotel Setai where for the expense of some overpriced, yet delicious, Pinot Noire, I heard the Helio Alves Trio. At least that's who was scheduled. But instead of the advertised Brazilian jazz set, there was only one Latin influenced selection out of the five played in the set. So I'm not quite sure who I heard, and they don't have any announcements, but what I do know is that I heard a very excellent and entertaining set by a really good pianist, accompanied by excellent drums and so-so bassist. They started off with a Monk tune, and for their third selection, played a really spirited version of Coltrane's Giant Steps. They finished the set with a soulful version of Autumn Leaves reminiscent of the Miles Davis treatment.

In two visits to Bar on Fifth, I have really felt comfortable and heard uniformly good jazz, with no cover and only a one drink minimum. There is food too and the whole bar area is very beautiful, with comfortable chairs and sofas. For true jazz devotees, the negative is that the music is largely ignored by much of the young crowd and there is certainly nothing like a quiet policy. So if you are interested in the music, it pays to sit in the vicinity of the players. I sat at the bar last night and that was fine. Definitely the place to stop for an ad hoc jazz experience nightly between 8 and 11.
If I were half as clever as P.J. O'Rourke, you wouldn't have to wade through all the politics and economics that dominate this blog. Instead you could read things like O'Rourke's April 2nd Journal article, where he had some fun with the idea of bicycle lanes springing up around Manhattan and other urban centers. With apologies to the dedicated bike riders in my readership, here are excerpts:

Bike lanes have appeared in all the predictable places - Amsterdam, Copenhagen, Berkeley and Palo Alto. But the incidence of bike lanes is also on the rise in unlikely locales such as slush-covered Boston, frozen Montreal, and Bogota, Columbia(where, perhaps, bicycles have been given the traffic lanes previously reserved for drug mules). Even Dublin, Ireland...surely unnecessary in a country where everyone's car has been repossessed.
Then there is the notorious case of New York City... Now New York has 670 miles of bike lanes - rather more than it has miles of decently paved streets. This is the work of the city's indomitable transportation commissioner, Janette Sadik-(Genghis)-Khan. Her job, judging by rush hour cab and subway rides and last December's blizzard is to prevent the transportation of anything to anywhere in New York. Bicycles are the perfect way to go nowhere while carrying nothing.
The bicycle is a parody of a wheeled vehicle - a donkey cart without the cart where you do the work of the donkey...The reason it took mankind 5,000 years to get the idea for the bicycle is that it was a bad idea. It is the only method of conveyance worse than feet. You can walk up three flights of stairs carrying one end of a sofa. Try that on a bicycle.
One excuse for bike lanes is to decrease traffic congestion...(But) you can't decrease traffic congestion by putting things in the way of traffic. The answer to traffic congestion is lower taxes so that legions of baby boomers my age can afford to retire and stay home. Bike lane advocates also claim that bicycles are environmentally friendly...but bicycle riders do a lot of huffing and puffing exhaling large amounts of CO2. But maybe there's a darker side to bike-lane advocacy. Political activists of a certain ideological stripe want citizens to have a child-like dependence on government. And it's impossible to feel like a grown-up when you're on a bicycle if you aren't in the Tour de France. All but the most athletic among us get on and off a bicycle the way a toddler goes up and down stairs. Wearing bicycle shorts in public is more embarrassing then wearing Depends. And it's hard to keep a straight face when talking to anyone in a Skitties-colored, Wiffle ball-slotted bike helmet that makes you look like Woody Woodpecker...
Bicycle riders must be made to bear the burden of this special-interest boondoggle. Bicycle registration fees should be raised until they produce enough revenue to build and maintain new expressways so that drivers can avoid city streets clogged by bike lanes...And riders' license qualifications should be rigorous, requiring not only written exams and road tests but also bathroom scales. No one is to be allowed on a bicycle if the view he or she presents from behind causes the kind of hysterical laughter that stops traffic.

On October 31, we sold 100 shares of Amerisource Bergen (ABC) at 41.82. We paid 13.77 on 11/15/01 (split adjusted). You would hope to triple over ten years in a growth stock. On 11/7, we sold 500 shares of Mellon Bank of NY Preferred (BK.PR.F) at 25.15. With the stock above par, why keep it given the regulatory risk. The company's business model is being attacked by lawsuits and attorneys general because of its "standing order" currency trading procedures, where prices are abitrarily set after the close. This is in the agreement with clients and has been the normal practice, but we have seen more often than we would like that in this re-regulatory climate, normal practices are "criminalized." We are not in preferred's to take risk, we are in them for income. We paid 24.85 for these shares on 9/29/05. If this blows over and the company remains intact, we can go back in it.

On 11/8, we bought 300 shares of Genie (GNE), the spinoff we received from IDT, at 7.88. Readers might recall that we bought IDT originally because of the venture that Genie represents, an energy play that includes an important project in Israel. I am not sure whether I am going to keep the basic IDT shares, but do intend to add to the Genie position.

On 11/9, we bought 100 shares of Protective Life Preferred (PLP), a new name at 22.87 for the IRA. Finally, on 11/10, we added 1800 shares of Frozen Food Express, (FFEX) betting on a turnaround against all logic. The price was 1.25, and it is a high risk value buy at that level.

We also took delight in the news that our slightly sleazy dental network company, ADPI, is being taken over at 19. We won't sell to the arbitrageurs just yet; maybe there will be an even better offer.

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