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Thursday, December 19, 2013


Back to DC

Upon further review, my reread of our last post convinced me it was among the most satisfying we've done.  So if you missed it, give it a look, right below this one.
Meanwhile, I am back from 5 event filled days in Washington D.C. at the NAIC, one of the reasons this post is coming so late.  The Insurance Commissioners have plenty of problems of their own, not to mention they are always causing us industry people migraines.  But on top of everything, the long awaited Federal Insurance Office report on modernization of insurance regulation was finally published, 23 months late.  Though it largely waffled around the issues, the Report had enough meat to it to add stress to an already overwrought group.

Nevertheless, Washington is such a good meeting location that the interminable meetings, relentlessly bad weather, and reluctant taxi cabs were easily overcome by the excellent restaurants and watering holes within easy reach.  Two high end eateries I can recommend are first, Palena, a real gourmet style haven featuring fixed price extravaganzas on Connecticut Ave. a little past the zoo. Second, is Restaurant Piccolo in Georgetown, which I liked even better.

By the way, the Metro is pretty convenient, except for two important items, at least one of which is fixable.  First, the Washington Metro has the world's longest, slowest, and squeakiest escalators.  They are so slow that you really have to factor that time into which transportation method to take to a given site.  The other problem is that the fare cards you use to pay for the Metro seem to instantaneously demagnetize after your second trip, leaving you the task of recovering your still trapped money at the very few stations where there are clerks to do that (well, one station, Metrocenter).  So now you are encouraged to buy a trip card, which is plastic, for two dollars.  I finally did that and now we'll see how long that lasts.  Meanwhile, I still have about $20 on demagnetized fare cards to try to recover.   But then, why should we expect anything to work properly in D.C.?

Speaking of which, with all their other problems, nothing has the insurance regulators more apoplectic than the roll out of Obamacare.  The number of people who have successfully purchased health insurance on the various exchanges is pitifully small, leading me to the conclusion that the ACA will actually leave more people uninsured than the old "system."  And it's not just the notorious federal exchange that's failing.  Many of the 15 state exchanges supposedly up and running are having awful problems of their own.  I think I read that in Oregon, a fairly blue state with its own exchange, something like 40 people had actually succeeded in obtaining insurance on the exchange as of November's end.    No wonder four state exchange heads have been sacked already.

What the ACA's supporters should really be concerned about are not so much the mechanical problems, bad as they are, but rather the policy and rules related SNAFU's that are causing people to give up in despair and go bare.  Among these are the removal of their favored doctors and hospitals from exchange plans, the huge gap between medicaid eligible costs and the so-called subsidized premiums that leave low income families and young singles preferring to pay the penalty rather than be insured.  Add to that, the wholesale desertion of their profession by providers because the reduced medicaid, medicare, and plan reimbursements are inadequate to pay for their malpractice insurance premiums.

In short, this system is not merely broken, it's crashed.  This was obvious to many of us quite some time ago, but this stubborn administration and its Democratic sycophants in congress refused to do the right thing and postpone everything for a year or two.  Now they are looking at a situation where they will surely burn in the 2014 elections unless they do a "never mind" and repeal the whole thing at the last minute.  The ACA was designed by its authors (Dem staffers) to fail slowly, setting the stage over a modest transition period for single payor.  Instead, the crash on takeoff will cause the country to go back to largely private coverage, which is fine with those of us on the right, but only after very serious economic dislocation and some unnecessarily bad outcomes for too many, I'm afraid.  It will be an interesting and sad mess to watch.   

New York City is its usual glorious self this holiday season.  Last night, I took some co-workers out to Birdland and then to the Penn Club, their prize for making the winning bid in a silent auction for the benefit of United Way.  It was quite fun and exciting walking around Times Square, which was teeming with tourists, as you might imagine.  So by all means, come to the City, visit the tree, skate on the ice in Rockefeller Center or Bryant Park, hear some jazz, stop at Jimmy's Corner or Measure for a nightcap, etc.  New York is alive - let's hope the new mayor won't screw it up.

On Tuesday, CNBC had a terrific interview with James Grant, the famous bond investor, who was extremely critical of the Fed and the Obama Administration's statist policies.  Bond guys, unlike stock guys, tend to look at the world very clearly - not for them rose colored glasses.  For some reason, someone like Grant has a lot more credibility than a political animal like Mark Lavin, even when they are saying essentially the same things.  Anyway, check out the CNBC website - I would think the interview is still available.

As for yesterday's tapering announcement, everyone found a reason to cheer, hence the big rally in stocks, surely a one day wonder.  For Keynesians, the taper was laughingly small and there was a promise to keep short term rates low, even beyond the 6.5% unemployment target.  For supply side types, there was at last some taper, and the promise of more tapering in increments until the bond buying program is at last over sometime in fall, 2014.  My view is that the fed continues to be much too loose. Especially worrisome is the concern about reaching the inflation target of 2%.  I still believe the inflation target should be 0, and by worrying about low inflation, the Fed is setting up the media and the rest of us to accept inflation much worse than the target when they inevitably overshoot.   Inflation is not a neutral event.  It rewards borrowers (like all levels of government) and spenders, and debases the currency.  It punishes savers, investors, and especially those who live on fixed incomes.   It is the cruelest tax of all as we relearn every time it charges out of control.

On 11/25, we finally gave up the ghost on Hauppauge Digital (HAUP), selling the 11,900 shares in our taxable account for 0.17, a loss of about 16,900.  Gordon Gekko wasn't the only investor who hated to lose money on a transaction, but the tax loss will come in handy this year as we have outsize taxable gains.  We had booked over 10,000 in gains on this stock in past years, so the failure here was not so much in the original stock selection but in the unwillingness to recognize that the business model would not be successful after the death of one of the two principal owners.  Having made that misjudgement, our formula had us throwing good money after bad.  So even after we sell the shares in the IRA later this month, we'll have a net loss in the stock and that's too bad, but not really too serious.  If you can't face into your mistakes and accept losses that become inevitable, you shouldn't be investing in individual stocks rather than funds.  And you do better when you view your holdings objectively, selling the dogs early instead of hoping to get back to even.  As they say, hope is not a strategy.

Also on 11/25, we sold 87 shares of AAON, an odd lot resulting from a prior split, for 29.33.  We paid 6.47 on 9/25/06.  On 11/27, we sold 200 more shares of USA Trucking (USAK), which has continued to levitate for no apparent reason since becoming a potential takeover play.  We got 14.96 per share versus a purchase price of 5.41 on 6/14/12 and 4.79 on 6/25/12.  Sometimes averaging down works, and sometimes (see above) it doesn't.  On 11/29, we bought 100 shares of BRLI at 29.61, a zero buy after it swooned following a drop in projected earnings.  On 12/2, we sold 200 shares of Genie Energy (GNE), another stock levitating for no apparent reason.  The bottom dropped out of the price last week.  We got 16.60 for shares we received as a spinoff from IDT at 10/31/11, when they had a book value of 9.09.  On 12/3, we bought 20 shares of the gold ETF (GLD) at 117.59.  We may have hit the bottom in gold for a while, or not.  On 12/6, we bought another gold stock, poor old Newmont (NEM), a value buy at 23.40 for 100 shares.  On 12/9, we bought 500 shares of our old friend Petroquest (PQ), a zero buy at 4.14.  On 12/10 we sold 200 more shares of USAK at 14.72 from the batch we bought at 4.79.  On 12/11, we added to our IRA's preferred shares, buying 100 of the Wells Fargo (WFC.PR.P) at 20.22.  On 12/12, we bought 100 shares of Gulf Island Fabrication (GIFI) at 22.20, a value buy.  Finally on 12/18, we bought 25 shares of Hubbell (HUB.A) at 94.12, a "zero buy."

Neither Redwavemusings nor its author are investment advisors, and the securities mentioned here are not recommendations and may not be suitable investments for anyone. 

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