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Sunday, July 08, 2012


The ACA Decision and other stuff

Perhaps surprisingly, I have a nuanced view of the Supreme Court decision on ObamaCare, and in particular the Roberts majority opinion. My opinion of media coverage is not so nuanced. First, I would say a lot has been written about the decision, most fairly accurately reflecting its meaning and impact. However, the criticism aimed at the various opinions is less on the mark, and might reflect, I am sorry to say, the writers having failed to wade through the 193 pages of the decision, concurrences and dissents. Until you do (and I have) I am not sure you will truly understand what has happened; and it may take a second reading ( which I haven't yet done) to fully understand the finer points. For example, much has been written about whether Chief Justice (CJ) Roberts effectively rewrote the legislation by recharacterizing the penalty for lacking insurance (which is unconstitutional) as a tax (which would pass constitutional muster).

But little or nothing has been written about the dissenters' point that in CJ Roberts' invalidation of the Medicaid expansion's penalty for state non-participation (forfeiture of all Medicaid federal matching funds), his solution (allowing states to keep the current level of funding without expanding Medicaid benefits) constitutes a second rewrite.  The point being that the Court's finding that the Medicaid expansion penalty is constitutionally flawed by a 7-2 vote (even Breyer and Kagan joining the conservative block) should have invalidated the entire Medicaid expansion for all states.  Furthermore, the dissenters point that with these two rewrites, the whole law should have been thrown out (because Congress neither intended the law to operate this way nor would have passed it as rewritten) is difficult to dispute unless yoiu share the complete results orientation adopted by liberal justices and personified in Ginsburg's "concurrence."  Perhaps this omission is because you have to get near the end of the dissenting opinion, about page 178, before you find this discussion.  Maybe a lot of the talking heads, especially on the "progressive" side, never got that far. 

Also, there is an interesting coda by the ever silent but always succinct Justice Thomas that appears on page 192-193.  Though grateful for Mr. Roberts contribution in providing, at last,a limiting principle for the commerce clause, Thomas points to the unfortunate precedents in history which have allowed the commerce clause expansion, in progressive minds without limit, that he would also reverse.

Alas, we will take what we can get, and CJ Roberts did the country a great service in his opinion by establishing a limiting principle for the commerce clause.  In the end, this may prove more valuable to the country than any damage done by upholding PPACA.  In fact, my view is that as difficult as it would have been to implement PPACA without the individual mandate, it is just as hopeless, economically and technically, to do it without the Medicaid expansion, which could be rejected in many of the 26 states that brought suit against the Federal Government.

This is because without that expansion, many of the targeted uninsured will remain so, others will have to be federally subsidized (if they purchase insurance on federal exchanges) and the costs will spiral out of control.  Of course, the other impact will be that many in the middle class will end up paying the penalty, er tax.  This is why you are already hearing many in the administration, including our hapless President, recognizing that changes in the law are needed.  Maybe Dems would like to partner with R's in an effort to repeal and replace?

There has been a lot of speculation about why Roberts brokered the decision he arrived at.  Did he really change his vote from the Scalia block to what we see?  Did he lose his nerve in the face of criticism from the intelligentsia?  Was he really trying to protect and "restore" the Court's image in the wake of Obama's petty and childish tantrum after the Citizens United decision (which has since been reaffirmed by the Court in another case)?   Did he believe that a 5-4 decision to throw out such significant legislation would never be accepted?  I choose  to accept him at his word as he expressed eloquently in the opinion.  The Court starts from the premise that legislation should be upheld if there is any constitutional ground for doing so.   The individual mandate, in his view, would have worked if the incentive was a tax, not a penalty.  In fact, the incentive described looks, feels, and smells like a tax.  It is just political irony that the ACA's advocates called it a penalty and its opponents called it a tax.  That the shoe's on the other foot, doesn't change its character. So let's call it a tax.  As for the Medicaid expansion, I think Roberts simply looked to the most practical solution and did not take seriously the charge he was re-writing the legislation.  

There has also been discussion about whether this was in fact a 5-4 decision, or was it 1-4-4.  All I can say about that is that Roberts was in a 5-4 majority for the failure of the mandate to be upheld under the commerce clause, the 5-4 majority approving of the mandate as a tax, a 7-2 majority on the Medicaid expansion invalidation, and a 5-4 majority on the severability question.  So he was the only judge in the majority on all of the major decisions reached.   


Summer may be jazz festival season (and we listed many of them a couple of posts back) but that doesn't mean there aren't still great shows to see in the clubs.  Here are some of the highlights for the remainder of July.  Birdland has drummer Louis Hayes and the Cannonball Adderley Legacy, July 10-14.   Last night, I saw the Birdland Big Band, led by Rob Middleton since Tommy Igoe relocated to the West Coast, and the Band has lost none of its zest and still represents one of the best values in the City.   See them any Friday night at 5:15.  Blue Note is not my favorite club but it is surely one of NYC's best known and has some great acts.  Paquito D'Rivera comes in July 10-15 and Jane Monheit sings July 31-Aug.5.  Kitano now has music 6 nights a week plus Sunday brunch in its new room.  On July 21, Tommy Campbell's "Vocal - Eyes" includes trad jazz trumpeter and singer Bria Skonberg.  It's a bit of a challenge to score a seat at aptly named Small's in the Village, but it would be surely worth the effort  July 13 and 14th when brilliant clarinetist Ken Peplowski leads.  His quartet will include the extraordinary pianist Ehud Asherie.  Also in the Village, Zinc Bar presents Dave Kikoski's Trio on July 31.  Anat Cohen is very good on sax but outstanding on clarinet.  She will lead a group at Jazz Standard July 27 that will include the excellent guitarist Harold Alden.  She plays with Fred Hersch July 29.  Dizzy's Club Coca Cola reopens after maintenance July 12.  Tune in live Thursday night at jalc.org at 9:30 to see the Christian McBride Big Band.  I wouldn't miss the show on July 26 either - the Phil Woods Quintet.  They will be at Dizzy's through the 29th.

Outside the City, Houston Person and Pamela Luss are at the Turning Point Cafe in Piermont, NY on July 15.  Old Westbury Gardens on Long Island will present Vince Giordano and the Nighthawks the evening of July 19.  Folks in Princeton, NJ get a Bastille Day treat in the form of Bill Charlap the evening of July 14 at the McCarter Theatre.  The Mount Olive Middle School in Budd Lake, NJ (yes that Budd Lake) has the Houston Person Quartet on July 14 and the Count Basie Orchestra July 25.  Shanghai Jazz in Madison, NJ has the Rob Paparozzi Trio on July 14 (Paparozzi is a frequent guest star with the Birdland Big Band), and Bucky Pazzarelli July 18.  Also pianist Dick Hyman on July 22, a pretty good lineup. 

Readers have e-mailed me several suggested blog topics and I intend to include most or all on future posts, though not all at once.  One question received frequently and again recently concerns where I get my stock selections from.  Clearly since our system does not rely on strictly technical analysis, nor does it rely on rapid trading strategies, options or even more esoteric techniques, stock selection is pretty important to any success we have. 

The answer is that my stocks come from a number of sources but the stocks I am attracted to tend to have certain characteristics, though obviously not all fit that mold.  I tend to like smaller companies, conglomerates, especially those that know how to focus on their strengths, companies with solid, stable management teams that seem to have integrity, companies that would prefer to pay a dividend rather than buy back stock, companies with debt to equity ratios under 0.7, price to book value ratios under 2, and companies that have a believable growth strategy. 

The sources include my reading (especially the Wall Street Journal and Forbes magazine), my full service broker, and companies that impress me as a customer, competitor, or in other aspects of my daily experience.  Finding out about such companies is only the beginning, of course.  To determine whether the company should be added to the buy/hold list, I look at the company's financials and profile (usually on Yahoo Finance).  Disqualifiers  include a business model I don't understand (which kept me out of Facebook for instance), too much debt, too high a ratio of market value to book, CEO's and other officers being overcompensated, people on the Board I consider poison (like Carl Icahn), etc.  In other words, a lot of this is just common sense.     

Sometimes the source is unexpected.  Once I heard a lecture by a business professor from Tulane that my company arranged.  He talked about how his classes studied Gulf area companies close up and assembled a portfolio of companies, many in energy and oil service, and how they were doing.  I was impressed, took the portfolio, and selected a handful of companies that fit my criteria.  The result is what I call my Tulane portfolio - BRS, CNRD, PQ, GIFI, NR and SHAW.  This group has performed really well for me.

A lot of people question whether their full service brokers add value.  I am not one of them.  My broker knows the kind of stocks I like and while I don't act on every recommendation, I do act on a lot of them and have had great results.  He knows when I put a stock on my buy/hold list, it's with the intent to keep it there for a long time, so his recommendations to me are not based on getting a few point pop and getting out.  When I act on his suggestions, the taxable purchases go in his account, though he knows I will also buy for my IRA which is with a discount broker.  But integrity is for investors too, so I really believe that I should stick to this rule and I do, even though my trading strategy, such as it is, is built around discount broker commission rates.  Therefore, sales come out of the IRA first, which also reduces my work come tax time and Schedule D.

When the reasons for buying a stock no longer exist, then it comes off the buy/hold list and we sell all the shares.  This is rare, and usually the decision comes too late - the sale decision is the hardest.  Most of the sales you see on the blog involve a small part of any position that we intend to hold; I tell you if the stock is off the list and we are selling it all.  Of course when a stock gets taken over, we sell the whole position, and have a party.

That's really it.  There's no magic.  I guess on an intellectual level, I agree with Gordon Gekko, you shouldn't fall in love with a stock or a company, but I have to admit to violating that rule, and for good reason when the stock has made a significant amount of money for us.  But that's also why there are always a few dogs in the kennel - it's hard to give up on what seems like a good idea.  Sometimes you ride it all the way down, like a Blockbuster, but occasionally one comes roaring back like CNRD.  I find investing fun, and you'll do better at this if you enjoy it.  Our buy/hold list is about 80 stocks now so I'm not going to spend an hour per week on each holding as Jim Cramer suggests - that would be a full time job.  But It's a fun hobby.  If it's not fun for you, then invest in funds or let your broker manage your account.  Then you won't have to worry about stock selection.

In any event, please remember that the securities mentioned here may not be suitable for you or anyone else.  I am not a registered investment advisor and have no ambition to be one.

On 6/27, we bought 100 shares of Protective Life preferred (PLP) at 23.90 for the IRA.  On 6/29, we bought 700 shares of Alumina (AWC), one of the dogs in the kennel, at 3.27.  Last week we hit the sell side.  On 7/2, we sold 200 shares of Pulte Homes (PHM) at 10.68.  138 of these shares were purchased in 2007 at about 27 or so (they were actually Centex shares which merged into Pulte).  The rest were bought on 10/14/09 for 10.91.  Hopefully Pulte will keep climbing and reverse some of these losses for me.  On 7/5 we sold 200 shares of BOLT at 15.03 from the IRA.  This was a very good recommendation from full service borker and we paid 6.96 on 1/26/09.  On 7/6, we sold 300 shares of Great Lakes Dock and Dredging from the IRA (GLDD), another one of my broker's recommendations, at 7.21.  We paid 4.52 on 3/1/10.   

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