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Sunday, January 27, 2013


2nd Term Hubris

Second terms are notorious for scandal, drift, and the diminishment of power ( the lame duck syndrome).  Obama, in his inaugural, and by his actions since election day, seems to feel that the way to preempt these tendencies is to double down on a socialist/leftist agenda, thereby solidifying his left wing base but also setting himself up for an inability to achieve much of anything without recourse to questionable, even extra-constitutional, tactics.  He also confirms  the opposition's criticism of him as a far left, even socialist, advocate, when in fact he largely disarmed those critics by governing as something closer to a centrist in the first term.

Lest this analysis sounds a little too harsh, too extreme, Iask you to listen more closely not only to the President's own words, but more particularly to those of his supporters.  Take Donna Brasile, who appears on the panel every Sunday on ABC's This Week.  It's one thing to engage in idol worship, but another to be a commentator who simply ignores the very large budgetary issues, the issues of separation of powers, etc. in her advocacy while pumping for redistribution of income and wealth as an end justifying any means.  Unfortunately, she is all too typical of the President's popular majority. 

The inaugural speech, perhaps the worst I have ever heard, was virtually the Obama campaign stump speech, atypical for any re-elected President.  Rather than give Republicans any reason to work with the Administration, it drew the battle lines in the starkest of terms, and used repeatedly the President's (and Dems) favorite rhetorical device - the building of a straw man by misrepresenting the opposition position, and then proceeding to tear that down.  Mr. Obama has no one to blame but his own Administration if House Republicans choose to frustrate his policy goals. 

And still, only the likes of Budget Committee Chairman Ryan speak seriously and determinedly about the need to do something about the nation's fiscal disaster.  Let's hope Republicans develop a little backbone and tell Dems to pound sand on the sequester.  We want the across the board cuts - Defense is going to be cut anyway in this Administration - so lets have at it.  As for revenues, the real money is in the middle class and the underground economy, and Dems have said they will not go after that.  The only revenue increase I would support now would be the ridiculous treatment of "carried interest" as a capital gain, but you've heard from me enough times on that already.   Otherwise, it's time to go after entitlements.  If you can't remember why that is, go back a few years in the archives to our series on entitlement spending for a refresher about why we can't afford what Congress has promised, and why we are bankrupting our children.

Maybe the Administration's second term woes have already begun, given the decision by a Federal Appeals Court invalidating the Administration's recess (non-recess) appointments that resulted in populating the National Labor Relations Board and the Consumer Financial Protection Board.  That means that every decision made by the NLRB's recess appointees are likely invalidated.  Incidentally, the Court determined that recess appointments made for over a hundred years have been unconstitutional if the Senate wasn't actually in recess between sessions (as opposed to any old time they went home on vacation). 

This Administration flagrantly violated the Constitution when it claimed it could determine by itself when the Senate was in session, in violation of the separation of powers.  In recent years, Republicans had copied a Democratic parliamentary trick adopted in 2007 to frustrate Bush 43 to gavel in and gavel out during session instead of formally declaring a recess.  Bush chose to observe the Constitution and did not make recess appointments during such breaks.  Obama did not, even making such appointments on January 4 to maximize the amount of time his recess appointees would stay in position.  Now his Justice Department will no doubt appeal this latest decision to the Supreme Court.

Pending that Court's decision, Republicans should continue to oppose the renewed nomination of Richard Cordray as CFPB head until Dems agree to put that Agency's budget under Congressional control.  Right now, the Dodd Frank Act says CFPB gets to determine its own budget - can you imagine? -  and it's time that flagrant misstep was corrected.

By the way, on that note, if you have kids, especially those at or near voting age, it's high time you sat them down and explained the financial facts of life.  They may be voting for Dems because they favor abortion, gay rights, student loans, immigration amnesty, etc. etc., but they need to realize that the world they and their children will inherit will be a far less comfortable place if we keep spending ourselves into oblivion.  They may talk tough about social security not being there for them, but are they doing any appreciable saving to make up the difference?  They may say they can live with a single (government) payor health system, but they should at least understand that choices now open to us won't be open to them when they get to a certain age and all the fast food they have eaten causes them to develop the maladies of middle age.  

So I think it's awful that we baby boomers are leaving this hopeless debt to our children and grandchildren, but they are now voting so they share responsibility too.  You get the government you deserve, the old saying goes, and with it comes the economy you deserve too.

So why is it necessary for Phil Mickelson to apologize for saying what any high earner must be thinking, which is that he needs to move to a low (or no) income tax state, and maybe even retire or otherwise cut down on income since he is mainly working for the government?  For Phil, who made $47 million in 2011 (according to Forbes) to question why he should live in California with its 13% state income tax, when none of it will be deductible because of the AMT, is perfectly legit.  In fact, while Phil was making his apology for making his thoughts public, Tiger Woods was acknowledging that he relocated to Florida in 1996 because it had no income tax!  Phil runs off at the mouth quite a bit, but he is a fan favorite in large part because he is open and honest.  No apology necessary, Phil.

As for Redwave, regarding questions about whether I am contemplating similar moves, the answer is I don't make Phil money. Not even 1% of Phil money, assuming the Forbes estimate is accurate.  Though I live in a high tax state, and think those tax levels are too high, it is not in California's class.  There will be tweaks in our investment formula though, the first being that we'll be buying shares in the gold ETF (GLD) for our taxable account instead of for the IRA.  More on those tweaks as the year goes by.

So I get in the car at the airport after returning from Orlando, and tune the car radio to the country music station I can get from Connecticut and find that there has been a format change to "all religious music programming."  Resigned to another interminable period in the countryless abyss that has been New York radio, I went back to my typical dial hopping among the jazz and classic rock stations.  Then lo and behold, the WSJ reported last week that FM 94.7 in New York City changed its format (ironically from all religion) to country.  So now we've got a real good country station in NYC for the first time in 19 years (since the lamented WHN gave up the ghost) , and with much better reception than we could get from across the Sound.

The greatness of Stan Musial's talent on the baseball field is probably not sufficiently understood by today's fans, especially if they never saw him play.  Most of his career was played in the modern era, meaning night baseball, integrated (and therefore talent laden) rosters, power pitching starters, etc.  Yet, Like Ted Williams, Musial was a throwback to an earlier era, and the term '300 hitter" is simply an inadequate description of his stats.  In fact, Musial's lifetime average was 331, and he hit 330 over a full season after he was 40 years old! He also hit 475 homers, 2nd on the all time National League list when he retired, and he is still in the top ten all time for major league hits.  Yet he struck out less than 700 times!  Unlike Williams, he was an aggressive base runner, though not necessarily the fastest.  He was just as good on the road as at home, earning grudging admiration from enemy fans despite leading his beloved Cardinals to several championships.  Brooklyn Dodger fans were especially of two minds about Musial who loved to hit at Ebbets Field, even though Dodger starters were usually the best in the league. 

One great story that illustrates the mixed feelings of Brooklyn fans - Musial smashed a liner off the wall in right field in Ebbets Field  and never hesitating, stretched it into a triple.  One leather-lunged fan was heard to shout "Hey Music Box, how comes you hit so good and runs so fast, ya bum ya!"                  


And while we're at it, Earl Weaver led the Orioles in their salad days.  Like most managers, he won when he had the horses, lost when he didn't, but unlike a lot of teams, top players loved playing for the Birds when Earl led them, even if they sometimes had run-ins with him.  Instinctively, Earl knew the odds when it came to managerial strategy long before Money Ball's creators worked the numbers.  You never saw the Orioles bunting and even though they had some speed, they didn't steal many bases either.  Earl 's theory was you won games by hitting three run homers, and with boppers like Boog Powell and Frank Robinson around, it made no sense to risk baserunners.

This summer's Hall of Fame gathering in Cooperstown just won't be the same without Musial and Weaver, two of baseball's immortals from the era when the game was really the National Pastime.
We have a lot of investing activity to report.  On 12/31, we bought 20 shares of the TIPS ETF (TIP) for the IRA at 121.95.  We also sold the remaining 866 shares of Presidential Life (PLFE) as its takeover was completed.  We got 14 per share.  We paid 14.75 for 266 shares in 2000 and paid 7.41 for 600 in 2002.  On 1/3, we bought 200 shares of Knight Transportation (KNX) for 15.16.  On 1/7, we bought 100 shares of Diebold (DBD), a zero buy at 31.09.  You may have seen the stock has since taken a bit of a dive on a long overdue management shake-up.  On 1/8, we bought 100 shares of Suntrust Preferred (STI.PR.A) for the IRA at 24.24.  On 1/9, we bought 300 shares of Gencor (GENC) at 7.60, a value buy.  On 1/11, we sold 100 shares of Shaw Group (SHAW) at 46.89.  We paid 22.57 on 9/2/11.  On 1/14, we bought 50 shares of ITW at 62.57.  Then on 1/18, we sold 700 shares of Sirius (SIRI) at 3.18.  We paid 3.19 for 300 on 7/24/07 and 1.34 for 400 on 9/2/08.  On 1/22, we sold 100 shares of Belden (BDC) for 46.96.  We paid 31.39 on 9/17/08.  Then on 1/23, we sold the rest of our 500 shares in Shaw, which is being taken over, for 47.20.  We paid 16.90 for 200 on 12/27/04, 16.14 for 200 on 8/29/05, and 26.10 for 100 on 7/15/11.  On 1/24, we bought 100 shares of Newmont Gold (NEM) for 44.65.  Finally, on 1/25, we bought 1800 shares of Frozen Food Express (FFEX) for 1.18.

The market rally is largely the effect of pricing in the inevitable future asset inflation caused by the Fed's expansionist monetary policy and the Administration's hopeless fiscal policy.  Even as the value of our accounts goes up, we are maintaining our high (20%) cash balances, knowing that there will be a day of reckoning for the market when this bubble bursts.


Monday, January 14, 2013


Fiscal Cliff - Round 2

No sooner was the Fiscal Cliff resolved then we started down the next contentious path, the Sequester.  The sequester was supposed to be fixed in the "Cliff" deal but only taxes were dealt with in that one, not spending.  That left the GOP some leverage for the next round. Realizing his error, the President has tried to take the cuts the Dems don't like off the table while putting more taxes on.  His excuse is that Congress should honor the bills for what they have already appropriated.  This, of course is malarkey.  Without a budget, Congressional spending authority has derived from continuing resolutions, and who knows where they actually stand.  In any event, how is Congress to ever exercise leverage if the Administration can continue to spend at will and then claim it is with Congressional authorization?  Obama's catch 22 type reasoning will bankrupt the country, inevitably. 

Equally ludicrous are the ideas the Left has proposed concerning the issuance of the trillion dollar platinum coin or the use of the 14th amendment to bypass Congress on the debt limit.  In fact, even the Administration, to its credit, says the 14th amendment cannot be interpreted that way, and a phony coin is the same as printing phony dollars.  Just inflationery.

The GOP must use the next rounds of budget infighting (sequester, debt limit, spending authorizations) to try to reestablish spending discipline in a capitalist framework.  What we have now is socialism, with the attendent inflation on the horizon.  It will not be pretty.  Obama says he will not negotiate, but he will have to, if he wants to get anything through Congress.  Does he intend to rule by fiat, like his Venezuelan buddy Chavez?  Maybe so.  Can Dems really take over indefinitely with media support, in a socialist coup?  Anything is possible.  Freedom loving citizens need to stand for something, no matter how poorly they do in elections.  The sad part is it may already be too late.  Imagine if interest rates on federal debt returned to anything like normal (say 4%).  We are looking at something like a $650 billion dollar annual interest bill and counting.  That is on the order of the entire defense budget.  Really, how can Dems seriously argue that we don't have a spending problem? 

The Obama second term cabinet is taking shape, and we are looking at folks who think like he does.  The argument is made that Presidents should get their way on cabinet choices, and I believe that, but Obama does himself a disservice when he picks second rate yes men.  John Kerry will be confirmed despite (or maybe because of) his foreign policy proclivities to negotiate from weakness.  The pick for Treasury will also be confirmed.  I don't think he is going to take us in a better direction (see above) but he can't possibly be worse than Gaithner.  The problem is Hegel at Defense, who is very weak on Iran, not a friend of Israel (forget what his apologists say), and whose mission it will be to cut defense spending to the bone, as we did during the Carter years.

I met then Senator Hegel at a 2007 fundraiser at the NY Yacht Club when he was trying to decide whether to run for re-election or to enter the Presidential sweepstakes.  In the end, he did neither; the success of the Iraq surge, which he vehemently opposed, made it impossible for him to ever win a Republican primary.  I never found out what he did with the money he raised. Standard operating procedure is that campaign funds are kept in a campaign account even if the candidate opts out.  They are saved for some future race or contributed to candidates the recipient wants to support.  This always struck me as ethically questionable, but that's how it goes. Regardless, there are enough reasons based on policy to oppose the Hegel appointment.

Republican opposition is unlikely to defeat Mr.Hegel, but if Senator Schumer doesn't support him, he is toast.  Right now Schumer is on the fence.  This might be interesting to watch.

In football, none of the teams we identified as "hot" made it to the final four, though Seattle was certainly noble in defeat.  Instead, two clearly superior teams (Pats and Falcons) made it in and two teams we identified as also elite but playing inconsistently (Niners and Ravens) got through.  In the end, football is a sport, unlike baseball, where even in a short series, the superior team is likely to prevail.  I expect the Super Bowl to be Pats - Niners, though neither is a lock. 

One mortal lock we identified was Alabama over ND.  In college, you weigh conferences, not just teams.  The Southeastern Conference is an NFL feeder system.  Notre Dame plays a notoriously uneven schedule, several strong teams and lots of teams that are barely Division 1.  If there was much Notre Dame money out there, even with 10 points, that's what I would call dumb money.  If these teams played 100 times, Alabama would win 95 and cover 90 times.

As for the Hall of Fame balloting, the writers are having a tough time voting for steroid users, or even those suspected.  They sent a message to current players, which is if you want your statistics to be ratified, you better not cheat.  That's a good thing.

Eventually, the players that were really good enough will get in.  Piazza certainly, since he likely never used, but also Bonds, Clemens, Sosa, etc.  Maybe even Palmeiro whose numbers are plenty good enough.  But not McGuire, who was one dimensional.  The writers did well to consider that getting in the first time eligible is special, and no one who used should get that honor.
I am in Orlando (again) so we'll do the stocks next time.  The equity markets continue to bubble, reflecting the inevitable inflation (worldwide) that is certain to come. 

Tuesday, January 01, 2013


Happy New Year - Bungee Cords on Hold

The deal reached by the Senate in the wee hours of the morning New Year's Eve is a very bad deal for conservatives and for the budget deficit that we are allegedly trying to fix.  There are some taxes in the deal, but as we have discussed before, even less than in the original Democratic proposal which raised very little revenue compared to what's needed.  If raising taxes on all income above 250 thousand was a mere trickle, imagine the ludicrousness of raising taxes at the 400 thousand dollar level, in the name of "fairness."  Yet I can live with that result.   I would also point out that the solution on the estate tax is the best part of the deal for conservatives, since it continues the exemption at the $5 million dollar level and raises the tax rate only marginally.  Having said that, I wonder if GOP Senators had a little too much to drink by the time the vote was taken (the deal passed 89-8).  I am also not sure what to make of Mitch McConnell's complicity in this typical Washington result which raises taxes while putting off literally all of the spending cuts.

This will leave Republicans in the very weak position of having again to use the debt limit device as the negotiating trigger to obtain any spending cuts.  When they do that, their leverage comes from their ability to "shut down the government," which always plays lousy in the media.  Strangely enough, it was that old Democratic warhorse Howard Dean who pointed the right way on the Sunday morning news panel.  He advocated strongly for going over the fiscal cliff, saying that any last minute deal that comes out of Congress would merely kick the can down the road again, and I agree.  The victory achieved by Republicans (for the good of the country) in the 2011 debt limit episode was the automatic spending cut represented by the admittedly blunt instrument of sequestration.  Predictably, Senators were unwilling to allow sequestration to actually occur, when they derive so much power from their ability to direct spending to special interests and pet programs.  Hence, the plank in the Senate deal that delays sequestration for two months, when it will be dealt with again as part of the debt limit discussions.  If you think Dems will be any more likely to support those cuts in March than they are today, I have a bridge I can sell you.

So while House Dems make a show of teeth gnashing over their give on what income level to set the new tax rates, in order to characterize the deal as a compromise, I am sure that privately they are rejoicing.  What a shock that House Dem leaders emerge from their meeting this afternoon with VP Biden, expressing their demand for an up or down vote on the Senate deal!  We'll see, maybe by the time this post is done, whether Boehner gives them that.  More likely, his conference will attach an amendment to the deal that Dems might have a hard time swallowing.  If so, over the cliff we go, and that is the result that Howard Dean (and Redwave) would favor.  If we're going to raise taxes to the Clinton rates, let's raise them on everybody.  Maybe then, the middle and lower middle class will appreciate the tax cut gift George 43 gave them, and why those cuts were good for the economy.  The Bush Administration, and the Obama Administration to an even greater degree have had a spending problem - and Congress always has that problem.  Until we solve that, budget deficits will continue at a trillion or more per year.

That Senators were drunk last night is indicated by the fact that they did not even wait for CBO to score their deal.  When CBO issued its score today, it turned out that the deal INCREASES the annual deficit, substantially.  That's because the AMT fix, the ridiculous and unncecessary extension of unemployment benefits, and the other goodies in the deal are worth more than the piddling revenues from tax increases on the "rich."  Seriously, do we really need a "compromise" deal that makes the deficit worse?
Going into the football playoffs, one would look for the hot teams, but sometimes, a team is simply better.   Clearly, Seattle, Minnesota, Washington, Denver, and Indianapolis are hot teams.  Very good and therefore, dangerous teams would be Houston, New England and Atlanta.  The inconsistency of teams like San Francisco, Green Bay and Baltimore has been puzzling.  We'll see if they can play to their potential in the post season.  Cincinnatti should be very pleased to make the playoffs but I don't see them advancing. 

The only college game to catch my attention is the BCS Championship, and I make Alabama a decided favorite versus Notre Dame.

2012 is history, and we will be reporting our investment results in a near future post.  Despite the ineptitude of our lawmakers and bureaucrats, the stock market has been a rewarding place to invest.  Our year-end transactions were less frantic, as we wound it down and avoided some of the thin trading sessions.  On 12/19, we sold 100 shares of Schulman (SHLM) at 28.38.  We bought those on 8/7/06 for 21.63.  On 12/26, we sold 100 shares of Carmax (KMX) at 37.43.  We paid 7.99 on 1/20/09.  On 12/27, we bought 500 shares of Petroquest, a zero buy at 4.90.    Finally, on 12/28, the 300 shares of Ceridian (CRDN) that we tendered as a result of its acquisition were sold.  We got 35 per share.  We bought these in 100 share lots for 15.96 on 11/3/09, for 37.80 on 6/15/11, and for 25.06 on 5/4/12. 


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