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Thursday, March 29, 2012


Con Law 101

If you read the transcripts, or better yet, listened to the oral arguments (no cameras allowed, sadly) in the case of Everyone v US re the Patient Protection and Affordable Care Act, you got the best lesson in Constitutional Law since Judge Bork tried (in vain) to educate the Senate Judiciary Committee during his ill fated Supreme Court nomination. Many observers thought they detected Justice Kennedy, and therefore a 5-4 majority leaning toward invalidating the individual mandate, and because of the lack of a severability clause in the law, possibly the entire Act. However, veteran Court watchers know that the judges' questions and comments are aimed at eliciting complete and cogent arguments, and do not really indicate much about the eventual ruling. So I for one am not putting this one in the bank just yet. However, I would say that the attorneys for the plaintiffs, Michael Carvin and Paul Clement, ran circles around the US Solicitor General Donald Verrilli, although that doesn't mean much either.

Here are some observations you might not read in the papers.

Age has taken none of the edge off of Justice Scalia's philosophical bias in favor of liberty, sense of humor or brilliance. Justices Alito and Roberts have a less charismatic, though no less wise, understanding of conservative constitutional principles. Justice Thomas remains ever the silent, steadfast sphinx. During his time on the bench, no one has written more sound and sagacious decisions. But Thomas never says anything, never asks a question during oral argument. Never. Reportedly, his current silent streak during oral arguments has reached 6 and a half years. On the left wing blog I follow, one observer gave him an A+ (as in the famous punchline, why speak and remove all doubt?).

On the liberal wing, clearly Justice Breyer is the most comfortable and erudite in engaging the attorneys, and I thought his questions were fair, thoughtful, and revealed someone working the issues seriously. I was less impressed by Justices Ginsberg and Kagan, who to my mind, came off not much better than your average Democratic politician or academic, simply assuming that the result they are clearly seeking should be obvious to everyone else. But Justice Sotomayor has real chops. She knows the law and can think on her feet. As a comparatively young Justice, she figures to be a formidable figure for a long time.

Clearly Justice Kennedy is uncomfortable being the swing vote so often, and who wouldn't be? He takes that role seriously, and has long since abandoned his role as a reliable conservative.

The first day of oral argument clearly showed that the Court wanted to get to the real issues and dispose of the phony precedent represented by the 19th century position that taxes can not be litigated before they are paid. Whether you consider the penalty for failing to buy insurance a fine (the conservative block) or a tax called something else (the liberal wing), no one wanted to decide the case on such narrow grounds. That part of the case is likely to be 9-0.

On the third day, the Court really dug into the question of severability, as if the invalidation of the mandate could simply be assumed. That was a useful hypothesis for framing the discussion about severability, but I would say it was no more than that. To me, the severability question is an easy one. Most laws carry a severability clause, so that if one part of an Act is not valid, it doesn't invalidate the other provisions. The Dems purposefully left out the severability clause from PPACA for two reasons. The honest brokers among them realized that without the individual mandate, the Act would be financially ruinous (i.e., community rating makes no sense without a mandate as has been learned in New York and other states with community rating). The dishonest brokers among them simply wanted to make the Act and all of its provisions more difficult to invalidate and or repeal. As if on cue, today, the liberal media is pointing out the mess that would ensue if the entire Act goes down, as seems probable if the individual mandate goes down.

Of course, that ignores the mess that already exists and the financial debacle that we will have if PPACA is not struck down or repealed. As for the bleating about 22-26 year olds losing their insurance if the law doesn't require insurers to protect them on their parents' policies, this is nonsense. Insurers are likely to simply increase the age they can stay on their policy to at least 26 voluntarily, since this represents one of their most profitable covers.

In fact, the method to insurers' madness continues to be the most puzzling aspect of the whole mess. It is now apparent that health insurers did not merely go along with the Dems in passing PPACA, but were prime movers. Somehow, they didn't realize they will be crushed just as badly in a world with PPACA as one without it. The whole scheme is set up to evolve to a single payor system where insurers, if they have any role at all, will be merely administrators. They were sold a bill of goods, not just by Democratic pols, but by their trade group CEO, Karen Ignagni. Hopefully, she will get the good old fashioned firing she deserves and soon.

In the irony of the week, the Educational Testing Service, enabled by Nassau County's ever opportunistic District Attorney Kathleen Rice, has decreed that the way to prevent future cheating scandals on the SAT (such as the one that occurred in the County last year) is to require test taking students to present a photo ID when appearing for the exam. I agree that should work, although it is not unheard of for teens to obtain false ID'S (been in a bar recently?). What I want to know is, if it's OK to require SAT test takers to present a picture ID, why is it so horrible and discriminatory to require the same of voters at polling places? Or are we going to hear that the new requirement amounts to "test taker" suppression?

Thank goodness, it's baseball season. We have to slog through three more college basketball games, though they should be pretty good ones. But baseball has always been my favorite sport (I know it's too slow for most), and I am one of those who is always optimistic about my team when they are 0 and 0. So at the risk of sounding ridiculous, i will assert yet again that it looks like the Mets are coming together, the pitching will be better than anyone else thinks, and if they can have a healthy season for a change, their starting 8 are mostly representative (OK, we don't have a center fielder, but otherwise). Sadly, we are in a division which has no bad teams, and for some reason, we have to play the Yankees 6 times and the Red Sox interleague usually, so the schedule is also a problem. But I will be in CitiField nevertheless. Look for me in the front row of the Pepsi Porch on Monday nights, in the seats closest to the Met bullpen.

In order to make up for the transactions that didn't happen while I was imprisoned in the hospital, we have been trading every day. On 3/21, we bought 15 shares of the SPDR Gold ETF (GLD) for the IRA at 160.61. If you believe inflation is not cooked into the mix, I have a bridge I can sell you. On 3/22, we sold 100 shares of Devon (DVN), getting 71.15 for shares we bought 11/9/01 for 16.73. I could say I sold the shares because of the natural gas glut, but regular readers know the truth, which is that we sell stock from our biggest position when cash gets under 20%. Anyway, what's wrong with a four timer? On 3/23, we bought 1800 shares of hapless Frozen Food Express (FFEX) at 1.18, a value buy. Some of that value disappeared from the financial statements at the close today when the company reported a $36 million loss for 2011, and showed a balance sheet with considerably more bank debt than before. This is why you don't try these tricks at home. Not that we didn't know this was coming, but we retain the name on our buy list in hopes it will rise from the dead yet again. On 3/26, we sold 100 shares of Schulman (SHLM) for 27.50. We paid 23.31 on 7/19/06. On 3/27, we sold 200 shares of Con Ed Preferred, which is being redeemed anyway, for 105.95. We accumulated these shares between November 2009 and July 2011 and finished with a capital gain of about $2,900 for the IRA. Of course, you really don't go into preferred's for capital gains, so this was a bonus.

On 3/28, we bought 200 shares of Harsco (HSC), a new name recommended by our full service broker. We paid 23.79. Today, we bought 100 shares of SunTrust Bank Preferred (STI.PR.A) for the IRA paying 20.85. Most think that bank preferred's are going to be called in next year because under Dodd Frank, preferred's are no longer counted as tier 1 capital. However, Sun Trust is making a nice comeback from the financial crisis and if they call it in, I won't mind taking a little gain on this new name.

One other nice piece of largess was that Kaydon (KDN) paid all of us shareholders a dividend of $10.50 a share. That's a much better and more efficient way to return money to shareholders than stock buybacks. Why not reward the shareholders that stay with you instead of providing a lovely parting gift for the shareholders as they leave?

Tuesday, March 20, 2012


Where Have We Been?

Can it really be a month or more since our last post? I mean that last post was one of the better ones, but not really good enough to hold all you faithful readers for so long. So, just where have we been?

I was supposed to go to New Orleans on business the night of Feb.29 for a six day stay and hoped to do a post on the 28th. However, I wasn't feeling particularly well that night and was pretty sure my coronary arteries had been giving me those disturbing signals that it was time for an intervention - I'd had one in 1993 and another in 1998. So rather than let me pack for my trip, my wife prevailed upon me to call my cardiologist, and his covering partner, upon hearing my symptoms gave me simple and direct advice - go to the emergency room. And so we did.

Now once a hospital gets a hold of you and confirms that "something's going on," you are a prisoner. In this case, the sentence was 16 days, over the course of which I had two diagnostic and three therapeutic procedures, and also spent two fairly interminable weekends when nothing much happened other than a fair amount of reading, TV on a limited cable package (No GAC, Golf Channel sporadically, only CSPAN 2, no premium movie channels, God, how spoiled am I?), and thankfully a stream of guests that included daily visits from my wife and daughter, not to mention lots of phone calls from friends and family (they let you use cell phones in the hospital now!). My daughter and I rediscovered the magic of playing cards (Gin Rummy and Casino, the games of choice), proving that no trial is without its compensating joys.

In this day and age, if your work is done with your brain rather than with your hands and muscles, you can still keep up in the hospital, and I took calls throughout, including chairing my Board Meeting. I finally got out March 15, and was back in the office Monday.

Rather than go through the gory details of my malady and treatment, let me list some observations regarding the current state of our medical system (still largely pre-Obamacare, thank goodness), at least as practiced at our top local heart center. First, I am consistently impressed and surprised at the continuing evolution and progress medical practitioners have achieved, and especially how adaptive they are at incorporating new technology. Lest anyone believe that patients are lured toward the most expensive treatments, I found that the doctors seriously evaluated the alternatives available, freely discussed them with me, and invariably chose what they believed was best for me. So whereas bypass was the weapon of choice in 1998 (since angioplasty and stents were ringing up problematic stats), today bypass is avoided where atherectomy (using a drill to dissolve plaque in the artery) can be used, and where coated stents with anti-platelet medicines can be applied to keep arteries open. Not that this is an inexpensive technique and doesn't require consummate skill to perform, nor does it come with any guarantees, but it is now well understood that using veins as bypass grafts is not a permanent solution. Veins, unlike arteries, just can't take the pounding. Where bypass is used, beating heart surgery is now a viable and well tested option for many patients. These represent amazing advances in a short period.

Another thing that seems to have changed is that there is a better understanding of the electrical problems in the heart that can be a byproduct of coronary artery disease and a side effect of treatment. The result is sophisticated monitoring and testing of heart rates (even the nurses have become adept at interpreting EKG's) and more insistence that irregularities be addressed. This extends hospital stays, but it might also extend lives.

One thing not changing is that heart healthy diets are still fairly unappetizing. In fact, the heart healthy diet presumes the patient is probably pre-diabetic or worse, so along with fat, salt and cholesterol, sugar and starch are significantly curtailed. That didn't stop the cafeteria from sending up a slice of birthday cake for me. I guess the message is that one can always allow oneself the rare indulgence.

Luckily, alcohol did not make the banned list, although it seems that moderation, not necessarily my strong suit, will now have to be self enforced. Probably, not going to New Orleans extended my life.

So even though I was confined and isolated from the world as we usually know it, the world did proceed, to what end who knows? We still have Mitt Romney wasting time and money in his never ending battle with that pea shooter Rick Santorum, the Iranians and Israeli's drawing imaginary lines in the desert sand while the US leaks reasons why the Israeli's should not take the action everyone knows they eventually must, the continuing useless quagmire in Afghanistan (need I remind everyone, Obama's "war of necessity"), gas prices rising, the Keystone pipeline not being built, a compromise JOBS program finally passing the House overwhelmingly only to run into Democrats' determination to not do anything in the Senate, and the Mets ownership settling their Madoff lawsuit for just little enough to maintain control of the team and go on torturing their fans. In the near future, we have the Supreme Court hearing oral arguments on Obamacare, by far the hottest ticket in Washington. Could you imagine scoring a seat or two for that and putting it up on Stubhub? Sweet.

In other news, the Knicks have won four straight convincingly under their new coach, March Madness provided some entertaining upsets though the main impression has been an epidemic offensive incompetence among the tournament teams, and the Islanders provided a final swoon to insure there will again be no playoff games in Uniondale this year.

By the way, I did not attempt to fill out an NCAA bracket this year, so I can be pretty objective about watching these games. I have to say the most impressive teams have been Michigan State, Kentucky, and yes, Xavier so far. I think North Carolina is too banged up to contend at this point, and Kansas didn't really show me much.
Today notwithstanding, the market has ground higher, climbing the proverbial wall of worry, but on low volume and lower enthusiasm. Those are signs that it might be toppy, so today's downdraft was not surprising and we could have more down days (though May rather than April is typically the bad month for stocks). We didn't get to trade for a couple of weeks, and will make up for those transactions over the next few weeks, but we have been comfortable mixing in a healthy share of preferred's, TIPS and gold to take some of the risk out. We are also getting our Con Ed preferred's called in at a nice gain - I think that happens in May. We'll take it. Here's the list of transactions since that last long ago post.

On 2/17, we bought 50 shares of AstraZeneca (AZN) at 45.14, a "zero buy." On 2/21, we bought 100 shares of Hartford Financial preferred (HIG.PR.A) for the IRA at 23.01. On 2/22 we bought 100 shares of J.M. Smuckers (SJM) at 72.11, a value buy. Then on 2/24, we bought 50 shares of Lancaster Colony (LANC) at 69.02, another zero buy. On 2/27, we sold 100 shares of Hubbell A (HUBA) at 73.05. We had bought these shares on 12/22/00 for 23.56. Triples are nice even if they take eleven years. On 2/28, we bought 100 shares of Protective Life preferred (PLP) for the IRA at 23.93. Then came the enforced hiatus. On 3/16, we bought 100 shares of Newmont Gold (NEM)at 53.29, a value buy. Then on 3/19, we sold those 100 shares of SJM we had just bought on 2/22, getting 77.70 for them. Who wouldn't take 7% on a consumer stock in just under a month? Today, we added a new (old) name, E.I. Dupont (DD), a Cramer Mad Money recommendation, to the portfolio. For our opening purchase, we bought 50 shares at 52.70. Most definitely a zero buy - even though only 14 times earnings, this stock's balance sheet is highly leveraged.

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