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Monday, February 25, 2013


Washington D.C. - Sequester City

Where to begin?  Clearly, the inmates have taken over this asylum.  The panicked pleas of Dems about the dangers of the sequester are falling on deaf ears, and not only in the House of Representatives.  The people by and large are ignoring the crisis of the moment, despite Obama's latest all-out, campaign style public relations effort.  Maybe at some point, our President will actually get to work and do his job.  The 50 some odd billion bucks to be sequestered in the remainder of this fiscal year (at an $85 billion annual rate) is a drop in the fiscal bucket.  In fact, the increase in the budget due baseline to offset inflation is greater than the amount of sequester cuts!  Only in Washington is that a cut. 
Yet for the GOP, there is really no choice.  Dems surpassed even their unbroken record for reneging on budget deals by stiffing the Repubs in the fiscal cliff settlement.  In short, the only cuts you can get past the spendthrifts in blue are automatic ones.  Look for the Republicans to pass a bill in the House allowing Dems to use some discretion in making the Defense Department's share of the cuts, but Dems will hold out for the same discretion for all agencies.  Republicans are likely to give it to them too, but Dems don't really want to pass that either.  They want the cuts to be as painful as possible, and then to blame the Republicans for not agreeing to more taxes.  On Sunday, the Dems' irresponsibility finally seemed too much for even their close media friends to stomach, as the news magazines anchors actually took pains to pose some hard questions for the Administration shills.  Republicans intend to resist any additional taxes on top of the fiscal cliff increase, and they should, though I would make an exception for the capital gains treatment hedge funds managers enjoy.  
So the sequester looks like it is going to happen, and that's a good thing.  It will not hurt the economy, and will help it in the long run.  We need to cut this budget and this deficit.  Then if we can get the Fed to normalize rates and do something to curb entitlement growth, we will start to revive our economic growth engine.  Of course, the regulatory nightmare that Obama has unleashed on business (and which Harvard's Michael Porter recently attributed much of our economic malaise to)  needs to be reined in too, but that is hoping for miracles, I'm afraid.
If the sequester was the only source of Washington hi-jinx, it would be enough for most C-Span junkies, but the reality is it's at least a three ring circus. PPACA has been a never ending source of atrocities.  HHS continues to spout rules, a top down approach that has no chance to work.  Proof of this failure can be seen in the Feds curtailment of the high risk "uninsurables" pools.  Someone finally got the bright idea that the claims associated with this group will be actuarially unmanageable, something even a first year actuarial student could have told them if they had bothered to ask.  Or, for that matter, any Governor or Comptroller of a community rating state like New York.   This, the completely unrealistically low MediCare Advantage rates, and the high comedy surrounding governors' decisions on whether to take the Federal money for Medicaid expansion (knowing the rug will probably be pulled from under them in a few years) or not to expand Medicaid at all, proves what we said from the beginning: this was never about health insurance, since there really has been no insurance provided for decades.  What carriers do today is administer bill paying, they don't really take risk.  PPACA is not there to provide insurance either.  It is a stalking horse for single payor, European style, government provided health care.  And unless the apple cart of PPACA is upset soon, that's what we will get.

Beyond PPACA, there is also the hilarity of the minimum wage increase proposal.  For as long as I can remember, Republicans have opposed the minimum wage on largely humanitarian grounds - it causes unemployment, especially among youth.  Today, youth unemployment in this country is a staggering 23.4%.  That's depression level stuff.  At what point will Dems recognize that there is a connection?  Answer is, it doesn't matter, minimum wage increases are a sop to their union buddies, and another position that sounds compassionate on its face while causing great damage in reality. 

The comment we received after our last post, while thoughtful, takes the GOP to task for taking positions opposing such compassionate sounding policies.  I would be the first to agree that conservatives' messaging has been unsuccessful in recent years (other than in 2010).  But frankly, we have a much harder job.  Would you rather dole out medicine or cookies?  Make no mistake, conservatives believe they are providing medicine, in the form of policies that will work.  When that loses elections so be it.  The other nightmare is that in the last two cycles, at least half a dozen Senate candidates have come through the primary system under the Republican banner who were incompetent, gaffe prone, maybe even mean spirited.  Some blame the Tea Party, but I think that view is myopic.  Each situation has been different.  Having said that, there should be changes made to the primary system, particularly in states that have so-called "open" primaries.  I think that only party members should be eligible to vote in primaries.  Otherwise, you get the kind of fiasco we had in Missouri where Dems actually spent money on ads to get their voters to come out and vote for Akin in the GOP primary!  And we all know what happened to that candidacy.

So let's stipulate that conservative candidates need to polish their statements and stop saying dumb things.  When the media badgers you to answer questions about social issues that should not be part of the campaign, don't answer!  How hard is that?  But the answer is not to mimic the other party's poor policy positions, and this is true on taxes, spending, immigration, health care and so on.

Well, I'm sorry for such a serious post.  I really do want to lighten up, do a little more music, sports, and similar trivia.  Speaking of music, the once Young, now Old, Rascals are reuniting for a couple of shows in the New York area.  Now that would be fun.  Also, pianist Cedar Walton is coming to Birdland next week, and I intend to make a visit there.  And coming in May, Jane Monheit.  Stay tuned for those dates.
On Feb 15, we bought 500 shares of Petroquest (PQ) at 4.47, a zero buy.  The oil patch is slumping despite high gas prices, as the Street discounts much lower prices coming.  On 2/19 we bought 20 shares of the TIP ETF (TIP) for 120.21.  Then on 2/20 we sold 200 shares of Marine Max (HZO)for 13.94.  We paid 1.54 on 11/10/08.  Are 9 timers ever bad?  On 2/21, we bought 300 shares of Alcoa (AA), one of the dogs in our kennel that has shown some signs of life.  That was a value buy.  Then on 2/22, we bought 600 more shares of Petroquest (PQ), now down to 4.01.  You gotta believe!


Thursday, February 14, 2013


The State of the Union is... Precarious

The left wing agenda continued rolling out at the State of the Union address, with the President even reviving oldies but goodies like the minimum wage (a proven job loser).  Expanding educational opportunities for four year olds really amounts to little more than throwing more money we don't have at Head Start, a program that "feels good" but provides little statistical evidence to justify the spending.  As for immigration reform and gun control, the right proposals will attract bipartisan support, so you can be sure that Obama will push the envelope to whatever the point is where it would embarrass Republicans, which seems to be his only preoccupation lately.  I heard the speech in Washington, whle having an after dinner wine at Johnnie's Half Shell, and an older couple (yes, I think even older than me) was clucking at proposal after proposal, saying "how could anyone be against that?"  They would say this immediately before or after I would say, "well Republicans are not going for that," so it was pretty funny.  On the pre-school proposal, I finally had enough and turned to the couple and said, "how are we going to pay for that?"  They replied, reflexively, "tax the rich."  When I pointed out that if the rich paid a 100% tax rate on income, it still could not fund the Obama programs, they had nothing to say. 

Then, of course, there was the comic part of the show, wherein Obama took credit for our higher oil and gas revenues, while his Administration has opposed those industries' efforts every step of the way.  And still not a word about the Keystone Pipeline, even though environmental objections have now been satisfied by its rerouting.

The Dems' strategy, now that they got their Clinton tax rate on the top 1%, is to paint a grossly exaggerated picture of the impact that sequester will have on the military, Washington employment, and the social safety net.  Considering that the impact of this year's sequester will be $85 billion, or less than 10% of the annual DEFICIT, we know how false these characterizations are.  The House should parse through the Obama proposals, and reject any of them that are not truly paid for (which is just about all of them).  And they should refuse to budge on the sequester in the absence of serious efforts to start dealing with entitlements.  Which means we will likely to be in sequester all year.

On my way into the restaurant, I saw Karl Rove go out to make a cell phone call.  It was celebrity night in an otherwise locked down city.   But the weather was quite pleasant, and I walked from my hotel on Mass and 20th to dinner on North Capital.  If you don't know D.C., that's close to a two mile hike, and helped work up an appetite.  Washington is a good walking city, like New York, Chicago and Seattle. 

In April, I am headed for a lengthy stay in Houston, and I hope to enjoy it as much as the last time.  It's earthier than Austin, but there is lots of music in Houston too, and plenty of good spots at meal time.
This blog often commended Hillary Clinton during the last four years for providing the only discernible adult voice in the Administration.  It's also true that State has long been unmanageable, no matter how capable its leader.  The career bureaucrats in State have their own agenda and they follow that, often to the Secretary's frustration.  The chances that the Secretary of State, whether his/her last name is Baker, Powell, Clinton or Kerry, will be co-opted by the bureaucrats are much greater than any possibility that they will truly set the path for the Department.  It is no accident that Congressional conservatives have long had a hate / hate relationship with Foggy Bottom.

Yet, I was disappointed that Hillary ended her tenure on such a low note.  Effectively, she took the low road of the smooth departure from her follow rival, the President, instead of pointing out how badly her own Department and the Administration had sandbagged her on Benghazi.  Her feigned righteous indignation before the Congressional panel criticizing State's "performance" in that episode fooled no one.   The media is only too happy to cover up all these Administration follies, but the second and the final drafts of history will tell a more honest tale of the bungling that allowed an Al Queda attack on US property to proceed virtually unopposed, resulting in the death of our Ambassador and three others.

On 1/28, we bought 15 shares in the Gold ETF (GLD) at 160.23.  On 2/1, we bought 200 shares of  Peoples United (PBCT) for the IRA at 12.38.  We also bought 100 shares of Raven Industries (RAVN) at 26.95, a zero buy.  Then on 2/4, we bought 50 shares of Cincinatti Bell preferred (CBB.PR.B) at 47.50.  2/4 was also the day that Wells Fargo redeemed our 700 shares of its preferred at the pegged price of 25.  That gave us an immaterial capital gain in the IRA, but we enjoyed many years of healthy dividends, as we do from all of our preferred issues.  This provided more cash to work with above our 20% cash allocation target.  On 2/5, we bought 100 shares of Gulf Island Fabrication (GIFI), one of our Tulane portfolio of companies, at 22.95, a value buy.  On 2/7, we bought 9,000 shares of Onco Sec Medical (ONCS), a brand new name, for 0.228.  This purchase violated our rule about buying stocks below a dollar, and we won't be adding shares any time soon because of that rule, but I just can't resist a really promising cancer story.  Then on 2/11, we bought 100 shares of the SunTrust preferred (STI.PR.A) for the IRA at 24.37.  I won't pay more than the par price for these preferreds, assuming some day they will all be redeemed at par, as in the Wells Fargo case. Today we bought 200 shares of Safeguard Scientifics (SFE) at 15.28.

Our numbers are all in for 2012.  The total return for the musings portfolio was 13.2%, a solid year, since that figure includes commissions, dividends, everything.  The yield is impacted by the near zero return on the 20% I keep in cash, and the low return on the 4% of the portfolio in a tax free municipal bond fund.  So overall performance was pretty good on a risk adjusted basis - not easily attainable except in bull markets.  Maybe I should give the Obama Administration a little more credit.  Maybe they really are in favor of capitalism and good for private markets.  Maybe the Obama policies, given a chance to really have an impact, could jump start our economy and keep the bull market going....Naaah!

Disclaimer time:  Neither redwavemusings, nor its author, are investment advisors, and the transactions and securities reported here are not recommendations, and may not be suitable for any investor.

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