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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.

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