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Monday, January 30, 2012


Groundhog Day is Coming...Again

OK, let's get the Republican Presidential sweepstakes out of the way first. Romney has the ship righted again for the moment and should win fairly comfortably in Florida tomorrow. The prediction here was that that would end it - we'll see. Newt is pretty invested in this thing personally so he might not be quite willing to give up the ghost yet, although he should. Going nuclear on the likely nominee has not been viewed positively by most Republican voters, and definitely not by party regulars. Of course, it's not as if the Obama campaign wouldn't have brought every Mitt negative up in the general election anyway. Democratic operatives have assumed from the beginning that Mitt would be the candidate and I am sure there is nothing about him that they don't already know. If you remember anything from the 2008 campaign against Hillary, you should recall that the Chicago Obama crowd (Axlerod et al) are archetypal pit bulls. As the WSJ editorial writer (Paul Gigot) said last week, if you can't beat Newt, you sure won't beat Barack. So let it play out.

As for Paul and Santorum, who knows why they are still persisting? The money has to run out soon.

One thing I don't agree with WSJ columnists Dan Henninger and Kim Stassel about is that Mitt should have been proving his conservative bona fides in these primaries to unify the party. That would have been exactly the wrong strategy. Mitt has always had his eye on the general election and has studiously played toward the middle with an eye to competing for the independents who decide these things. Let's face it, whoever the Republican nominee is will capture almost all of the conservative vote. This is why Obama keeps shifting between throwing left wing environmentalists a bone while providing red meat for Dem moderates. He knows he's getting the left wingers anyway.

Still, Romney has not quite sealed the deal, and if it goes on much longer, it adds to the temptation for those who would draft Governor Daniels, who did his cause no harm with his very effective State of the Union response. Romney did not handle the tax return issue particularly well. Why didn't he simply say that his income is mainly investment income, turn to Newt, and ask him if he was seriously suggesting that tax rates on investment income should be increased? In a Republican primary? That would have ended the controversy.

Of course, Mitt does have the inconvenient benefit of paying capital gains tax rates on his "carried income" while a hedger at Bain. Regular Musings readers know I think that is simply the wrong tax treatment, and I would consider that ordinary income and change the tax code accordingly.

Meanwhile, the Obama train wreck continues unabated. Don't take too seriously the better economic numbers the last 45 days that have given the President a temporary, if meager, pop in the polls. The better productivity and employment were due to inventory restocking, not because of any real economic improvement. With Europe teetering and Japan suffering under a debt load even worse than our own, you can bet the better numbers will be short lived. Meanwhile, he derails the Keystone project, pumps for more subsidation of hopeless green energy projects (a la Solyndra) and makes recess appointments while the Senate is technically in session, a pretty clear constitutional goof that makes the actions of those appointees subject to court reversal. It also adds to the general perception that this administration, like the one before it, considers itself beyond the rule of law.

By the way, Congressional Republicans learned that trick of keeping the Senate in session from Dems, who pulled the same thing on GWB to keep him from abusing the recess appointment capability. Unlike Obama, Bush determined that the line of credible behavior was drawn at the constitution.

Congress also did an about face on the internet piracy bills - PIPA and SOPA - and pulled them in the face of user outcry. Internet users seem to have this belief in their divine right to access everything on the web for free, once they have paid their way onto the web. I am not sure how this got going, but I don't subscribe to it. If the movie industry is going to go the way of the music industry, I am not sure how writers and composers are going to get paid. Nevertheless, the users got their way - again.

I have always admired the WSJ and Forbes and those others who charged for their on-line content. If it's worth anything, it should drive some revenue.

And following that line of discussion, at least one musings reader complained that the op ed I referred to in my last post, The War on Political Free Speech by Bradley Smith from the Jan 23 WSJ, was indeed restricted to paying customers on the Internet site. So I wouldn't reprint it, but I am allowed to copy a few short excerpts.

"From the start, reaction to Citizens United v Federal Election Commission has bordered on the hysterical. Rep Alan Grayson (D.,FL) called it the 'worst decision since Dred Scott' - the 1857 decision holding that slaves could never become citizens. In his State of the Union message, within days of the ruling, President Obama lectured Supreme Court justices in attendance that they had 'reversed a century of law' to allow 'foreign companies to spend without limit in our elections.' Neither statement was true...

"Citizens United overturned only the 1947 independent spending restriction (of Taft Hartley), not the earlier prohibition on corporate contributions to campaigns. Not until 1990 did the Supreme Court uphold a prohibition on corporate expenditures independent of campaigns. Citizens United therefore, overturned not 'a century of law' but a precedent 20 years old. Moreover, the court specifically noted that it was not ruling on the viability of the prohibition on foreign political spending - and earlier this month it summarily upheld a lower court ruling finding that the prohibition on foreign political expenditures was constitutional...

"...(Sen) Bernie Sanders (I., VT) proposed a constitutional amendment last month that would not only prohibit corporations from speaking on political elections, but would prohibit any group of citizens organized 'to promote business interests' from speaking about elections...Because most newspapers are incorporated, UCLA law Prof. Eugene Volokh believes that the Sanders Amendment AND A COMPANION BILL IN THE HOUSE WOULD EVEN AUTHORIZE THE GOVERNMENT TO PROHIBIT NEWSPAPER EDITORIALS ABOUT ELECTIONS...(emphasis added) A national coalition, Move to Amend, seeks a constitutional amendment providing that 'artificial entities such as corporations...shall have no rights.' The coalition seems oblivious to the fact that this would apply... to non-profits such as the NAACP and the Sierra Club...The goal of this misinformation is clear. Reformers, who sit mainly on the political left, and their Democratic Party allies hope to silence voices that they perceive to be hostile to their political interests."

I saw jazz singer Jane Monheit and her fine backup trio at Birdland a few weeks ago, and I have to say it is an experience I want to repeat. She is an Oakdale, Long Island product and has simultaneously a sexy and cerebral approach to America's only true art form. She also has a devoted, almost fanatical following.

Then a couple of nights ago, I went with a fellow lobbyist visiting from D.C. to Bar on Fifth, and saw an excellent quintet. But even more exciting was the fact that the great Benny Golson and his wife were sitting right next to us! If you've never heard of Mr. Golson, by all means Google him.

The big game is Sunday and all things being equal, I would make New England a 1-2 point choice. But not when their best receiver is either out or playing very hurt. So the game is at worst pick em for the Giants now, and they might actually be a 1 point choice at kick off if Gronkowski can't go.

On 1/25, we sold 500 shares of FSI International (FSII) at 4.36. 100 of those cost 2.73 on 10/4/10 and the other 400 cost 2.98 on 6/24/11.

We'll report today's sale transaction in the next post.

Monday, January 23, 2012


Random Thoughts for your January Thaw

Mitt Romney never really expected to win the South Carolina primary, and he certainly lived down to his expectations. Newt whipped him in debate and breathed new life into his own campaign, which seemed all but hopeless only a couple of weeks ago. Now Newt goes into Florida on speed where it seemed impossible for him before. The polls seem to give Newt the edge right now, but Mitt has already locked in quite a bit of early voting. Mitt has also adopted a more aggressive posture toward Newt, which served him well before. If Mitt rebounds to win in Florida, he may still fulfill my expectation of wrapping things up quickly. If not, GOP leadership will be embarking on a long period of soul searching.

Knowing that Mitt is really the only serious candidate currently in the field, leadership will have to move into drafting mode if he can't revive his campaign. As the WSJ said today, if Mitt can't beat Newt, he surely can't beat Obama. So leadership will be looking at a situation where no candidate might control the convention, and we can go back to the days of the hand - picked candidate, where the object was to find the winner. This means that people like Governor Daniels, Senator John Thune, and others who quite sensibly chose to avoid the two year quest would suddenly be eligible possibilities.

Republicans want a winner, but they also want a candidate who can excite them the way they were in 2010. That means a "me too" spender a la Nixon or W is not what they want. They want someone who they can trust to shrink government. Right now, they are not convinced Mitt is that guy.

And then there's Barack Obama, who obliterated his own pro-growth, pro-jobs credibility by determining that the Keystone Pipeline is "against the national interest." More and more, I find Obama is Bill Clinton's opposite. Where Clinton tried to position himself as a New Democrat with liberal tendencies, he was only too willing to go along with the Republican Congress to limit welfare to get the budget balanced and improve the economy. Obama talks about reasonable policies but his actions veer way left, and he's killing the economy. When he finally merges government agencies, they turn out to be the ones that promote US businesses abroad in the Commerce Department. In sum, Obama consistently follows anti-industrial, anti - business, anti - growth policies while following the religion of environmentalism and the politics of class division. These policies are holding back the economy and causing consternation among Dems. If this weren't true, would the undercurrent of a Hillary boomlet exist?

In his personal life, Obama is squeaky clean, and again, what could be more opposite from the ever irresponsible Clinton? But as a pragmatist with great political instincts, we may have never seen a smarter politician in our lifetime than WJC.

Bradley Smith's op ed in today's WSJ, The War on Political Free Speech, should be required reading. Mr. Smith itemizes the Left's determination to limit political speech by their opponents and explains persuasively why Citizens United v Federal Election Commission was not merely correctly decided but was a necessary defense of the First Amendment. I will avoid the temptation to provide excerpts in the hope that readers will go to the WSJ website and read the complete article. You won't be sorry.

The ECB seems to have stumbled on a brilliant solution to the European sovereign debt crisis, but I am afraid, like Bill Gross, that the relief will be only temporary. Nevertheless, it is worth dissecting what has occurred.

The ECB has made low interest loans available to the banks, enabling them to work an arbitrage, "carry trade" type play by using the money to buy the higher interest debt of sovereign governments. This might seem counterintuitive since the problem was that the banks already had too much sovereign paper on their books. However, since the interest margin to the banks from this trade is so high, the trade has been irresistible. That is causing demand for government paper to drive the interest rates down, relieving the pressure for now.

Of course, Gross points out that this is really a shell game and doesn't impact the problem in the long term, which is too much public spending. But stocks and bonds are rallying around the western world for now, and we'll see how long until they correct.

Another interesting economic anomaly occurring is the divergence in price between oil and natural gas, which is suffering from oversupply of all things. Environmentalists and climate worriers notwithstanding, drillers are using their new technologies to great effect and the US may soon be a net exporter of energy if the Administration would ever relax its regulatory grip. Canada already is, and if Keystone stays dormant, you will see the Canadians ship their excess oil to the Far East. One thing that won't happen is that the oil and gas will not stay in the ground. And now it appears that climate researchers are having second thoughts about the alleged negative impact of carbon. What a shock!! However, they are rightly concerned about the noxious effects on marine and other life of methane and mercury, problems we can solve if our engineers put their minds to it.

Yesterday's championship football games exceeded all expectations. Either team could have won the first game, the Ravens denied by a great TD saving play by the Patriots secondary and then a woefully blown field goal that would have caused overtime. In the Giants - 49ers game, the home team seemed to have taken control until a bonehead play on a punt set the Giants up for a touchdown. You would think that every punt returner in the league would have been taught to run away from every punt you don't intend to catch, but every week I see players come too close to the ball and in danger of muffing it. To be fair, young Williams was in that position due to an injury to another player, but that was a mental error, not a physical one. His fumble in overtime was a strip and could have happened to anyone. But the first error was not really pardonable.

Still, the Giants deserve credit for being in position to take advantage of the big break and then doing so.

The Super Bowl I would have to rate a toss up. I think the Pats have the edge on offense but the Giants are sounder on defense. These two passers are too good and their receivers are much too good to be held in check by these defenses. I look for a 30-27 game or something like that. If forced to make a pick, I'd have to give the Pats the slightest edge, but this will be a good game to watch without the need to put the grocery money on it.

Long time followers of this blog know that rallies are for selling into. We did buy 50 shares of Expeditors International (EXPD) back on January 9 for 41.55, a zero buy and a nice growth stock. But then, the profit taking, and some loss taking, began. We sold 341 shares of Pulte Homes (PHM) on 1/13 to close out our IRA position, a useless loss from a tax point of view, but one dictated by formula. We still have lots of shares in the taxable account. We got into Pulte when it bought our Centex shares, which were already well under water. So we got 7.50 for shares we bought in 2006 and 2007, and recorded a loss of about $9,250. Try to remember that one the next time you are tempted to copy my trades.

We started getting them back though after that. On 1/13, we sold 500 more shares of old friend FSI International (FSII) for 4.32 that we bought on 10/4/10 for 2.73. On 1/17, we sold 200 shares of News Corp (NWSA) at 19.01, a meagre profit vs the 18.04 we paid 0n 3/18/05. Some times, we are just restoring cash, not so much profit taking. On 1/18, we sold 100 shares of Xilinx (XLNX) at 33.75. We paid 19.80 on 8/11/06. We also trimmed our Bryn Mawr Bank (BMTC) position a little, selling 200 at 19.90. We paid 20.01 on 2/25/08.

Today, we finally nibbled, buying 50 shares of AES preferred (AES.PR.C) at 49.50. That gives us the full load in that stock. Pretty soon we'll be looking for new preferred's to buy.

We are going to print our disclaimer more often, especially since the blog is being promoted by readers far and wide to new "victims." Neither redwavemusings nor its author are investment advisors, and the securities transactions recorded here are not intended as recommendations for anyone, since they are likely to be unsuitable, immoral, and/or fattening.

Sunday, January 08, 2012


Orlando Bound

Business meeting in Orlando this week. Why Disney Town has become a mecca for business conferences is a mystery to me. We are going without family, without golf clubs, without bathing suits. Really, we are not going to be doing any and all of the things one might go to Orlando to do, even if you could actually stand the place. But we're still going.

This morning, I watched some of the Republican candidates' New Hampshire "debate" on NBC. Now I have studiously avoided watching any and all of the debates up to this point. Of course, it is impossible to avoid all of the sound bites and newspaper snippets reporting on these gabfests. So I do have some observations.

First, I question why, tactically, it makes any sense for the GOP to have so many debates. Granted, it will be good preparation for the eventual candidate who will have to "debate" President Obama. But mostly, it provides opportunities for the candidate to commit a faux pas or other inconsistency the Dems can use later.

Second, if the party must have debates, why on earth wouldn't you want to control the process a bit more. By that, I mean let the candidates pick the questions and know them in advance so they can have their answers prepared and come off at their best. As it is, having a David Gregory or other liberal mainstream media personage moderate just gives them an opportunity to embarrass the candidates, which is what their questions are framed to do. For example, one of Gregory's questions today was, "Can you name three (austerity) cuts you would impose that would cause pain to Americans?" You have to be a complete moron to answer that question (which would have been perfect for Jimmy Carter, by the way). Aside from the fact that it is a loaded question, it completely misses the point of Republican orthodoxy, which is that lower spending and pro-growth policies will cause the economy to perform better, minimizing any pain. Gregory was trying to get the candidates to accept Democratic orthodoxy (that somehow we deserve painful policy prescriptions) as the pretext for that question.

All of the candidates showed the good sense to sidestep the question, which frustrated Gregory and caused him to point out that the question hadn't been really answered. If Republicans are going to debate, let George Will, or Peggy Noonan, or Paul Gigot or Fred Barnes moderate. If NBC won't cover that, I'm sure Fox will, and maybe ABC. But it's just stupid to subject the candidates to what they went through this morning.
As for the message coming out of Iowa, ignore the Democratic propaganda. This was a big win for Romney who didn't even take it seriously until the last few weeks. He will win in New Hampshire, pretty convincingly, and is gaining ground in South Carolina too. After Florida on January 31, it will all be pretty much over, and then the Romney campaign can focus on the general election.

A week from tomorrow, we will observe the birthday of Dr. Martin Luther King Jr.. It amazes me that to this day, I still hear otherwise rational people question why this is a national holiday. Since Dr. King's assassination, his stature and significance have only grown with the perspective of history. This is especially true in light of the almost unrelenting mediocrity of the elected political class, President Reagan excepted.

Though Dr. King was a liberal politician, pro-union, anti Vietnam war, etc., this was the less important facet of his public personna. What he stood for and what he accomplished quite simply was the non-violent termination of Jim Crow. It is not his legacy that a victimization, dependency agenda was appended to his triumph. That appalling result is the fault of the Jesse Jacksons and liberal politicians who claimed to carry his banner but failed to actually continue his work. That work secured voting rights, the right to be served in businesses open to the public, and the right for children to be educated in truly equal and integrated schools. In short, King secured the application of our founding documents to all our citizens. Why would anyone, and particularly any Conservative, not think that is worth celebrating?

What isn't taught much in the schools and what many have forgotten over the past forty odd years is that Dr. King was not the undisputed leader and idol of his community in the last couple of years of his life. In fact, the various "Black Power" advocates were more admired on college campuses in 1967 and early 1968, and especially Malcolm X. In my college history courses taken in the years immediately following the assassination, we were assigned any number of readings written by or inspired by Malcolm, but actually none by Dr. King.

As I have come to view that era and particularly the rivalry among Black leaders of that time, King and Malcolm were like the two opposing sides of a single personality. I think given more time, they might have joined forces to foster a less dependent, more assertive attitude among their following. At the risk of trivializing the point, I recall a Star Trek episode where the transporter has caused Captain Kirk to divide into two personalities, one passive, the other overly aggressive and dangerous. Neither is able to effectively function without the other and until they are reunited. Actually, neither King nor Malcolm were so one dimensional, but history having cut both short, we are left with an oversimplified historical view, and with King's legacy achieving immortality while Malcolm's has retreated (Spike Lee's sensational biopic notwithstanding), the politics of victimization have been dominant.

One might have hoped that President Obama would have taken the opportunity to move the country into not only a post-racial era, but a post dependency one as well. Instead, entitlements are only growing under his administration, and beyond what we can afford. Though minorities continue to make great progress in this country, the number of folks on food stamps, unemployment, and other programs that encourage dependency keeps growing. I believe this will ultimately be seen as the President's greatest failure.

For now, conservatives should promote Dr. King's birthday as a reaffirmation of the Declaration and the Constitution, and how he helped make those documents and the principles inherent in them applicable to every citizen. As conservatives regain the reins of government, they would do well to rededicate themselves to making sure that good work lives on in our exceptional country.

There is so much great jazz in NYC this month, but I'll only list a few outings on the short list. McCoy Tyner, last survivor of the Coltrane classic quartet, will be at Blue Note this week for a short run. Next weekend, trombonist Wycliffe Gordon comes to Kitano for some guaranteed fun. The following week Jane Monheit comes to Birdland, and on Thursday, baritone sax Lauren Sevian fronts the Helen Sung Trio. For the weekend of the 20th, I am thinking of looking in on the Ken Peplowski quartet at Small's. The last weekend of the month will also highlight action at Kitano (Helen Sung trio) and Small's (Seamus Blake quintet including pianist Dave Kikoski.

It looks like, on a total return basis, the Redwavemusings portfolio lost 1.3% in
2011, acceptable performance considering what a difficult year it was in the markets. We booked substantial capital gains this year though, reversing last year's tax efficiency when we made significant portfolio gains while booking capital losses. But we are happy with the year anyway since we did use the time to increase our holdings in gold, TIPS, and preferred stocks.

On January 3, we bought 500 shares of Alumina (AWC) at 4.76. The next day, we sold another 600 shares of FSI International (FSII) this time getting 3.84. We had bought 400 of those on 9/8/09 for 1.01 and the other 200 on 10/4/10 for 2.73. On Friday, we sold 200 shares of Newpark Resources (NR), one of our Tulane portfolio stocks, for 10.26 versus a purchase price of 2.85 on 6/22/09. The Tulane recommendations have really been home runs.

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