redwavemusings

Mittmobile Tuneup Time

2012-02-09T21:58:00.005-05:00

It was all supposed to be over after Florida, and it sure looked like it was, until Tuesday night, when inexplicably, the Mittmobile was driven off the road, not by Newt but by Rick Santorum. The erstwhile Pennsylvania Senator, unabashedly campaigning for the pro life, religious right vote, got enough votes out to easily win all three of Tuesday's "beauty contests," including, most shockingly, Colorado, but not very many delegates, which Missouri and Minnesota pick later. The Romney people were justly penalized for taking a victory lap following their Florida triumph, and now they have to get back to work.

Besides Mitt, the real loser for the night was Newt, who seems to have pretty much worn out his welcome. The winners, besides Rick were Obama, who still lacks for a dangerous looking opponent, and those diehards in the "draft Governor Daniels" movement, who take heart the longer Mitt takes to wrap this thing up.

So now Santorum has fully inherited the mantle and also the supporters of Mike Huckabee, and we'll see how far it takes him. At least he should get a cable show out of all this.
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The Obama people have also been cheered by better employment and economic figures, and that has boosted the President's standing in the polls a bit. Nevertheless, one shouldn't get too cocky, since we still face a huge deficit, and there is no progress being made of any kind against it. We are about to begin another kabuki dance over the extension of the payroll tax reduction, as if that is really important to consumer spending. For those still holding out hope for the obvious political solution (Simpson, Bowles), I am afraid it will be 2013 before anything meaningful is done about much of anything.

It's not much better in Europe where the populous is outright antagonistic to the spending reductions that are needed to achieve deficit reduction. The Greeks complain about austerity, but they will need to be on austerity for over 300 years to make any progress at the rate they are going. And this while their government has to pay MID-DOUBLE digit interest rates to borrow money! Of course maybe in the context of Greek history, a few hundred years doesn't seem like a terribly long time.
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Since there was such positive reader reaction to Professor Brad Smith's excerpted column in our last post, I thought I might excerpt a very interesting op ed from today's WSJ penned by University of Chicago Professor John Cochran. Entitled, "The Real Trouble With the Birth - Control Mandate," the opinion piece made points that impressed even this 21st century blogger who generally accepts a world with contraception, birth control, and other sinful practices. Here's a sampling:

"When the administration affirmed last month that church-affiliated employers must buy health insurance that covers birth control, the outcry was instant. Critics complained that certain institutions should be exempt as a matter of religious freedom...Critics are missing the larger point. Why should the Department of HHS decree that any of us must pay for "insurance" that covers contraceptives?

Insurance is supposed to mean a contract (covering) large, unanticipated expenses in return for a premium...There are good reasons that your car insurance company doesn't add $100 to your premium and then cover oil changes and that your health insurance doesn't charge $50 more per year and cover toothpaste. You'd have to fill out mountains of paperwork, the oil change and toothpaste markets would become less competitive and you'd end up spending more...

How did we get to this point? It all leads back to the elephant in the room: the tax deductibility of employer provided group insurance...The pre-existing condition crisis is largely a creature of tax law. You don't lose your car insurance when you change jobs...

Why did HHS add this birth control insurance mandate to its implementation of the new health care reform law? 'Because it promotes maternal and child health by allowing women to space their pregnancies,' says the HHS advisory panel. 'To increase access to important preventive services,' echoes White House Press Secretary Jay Carney. Notice the doublespeak of "access" and "cost." I have "access" to toothpaste because I have two bucks in my pocket and a competitive supplier. Anyone who can afford a cell phone can afford pills or condoms... HHS isn't limiting this mandate to the poor anyway. We all have to pay. The very poor typically don't have employer-provided insurance in the first place...It's not about access and it's not about insurance...Americans choose to spend their money on other things. They prefer a new IPod to a "wellness visit" to a doctor...There is a liberal dream that by mandating coverage, the government can make something free. Sorry. Every increase in coverage means an increase in premiums. Your employer could be paying you more in salary instead. Or, he could be lowering prices and selling his product to you and all consumers more cheaply...

Perhaps there is a social interest in subsidizing birth control? If so, this is an awful way to do it. The minute pills are "free," under insurance, the incentive for drug companies to come up with cheaper versions vanishes. So does their incentive to develop safer, more convenient, male-centered or nonprescription birth control. And by making pills free but not condoms, the government may inadvertently be contributing to an increase in sexually transmitted diseases...

The critics fell for a trap. By focusing on an exemption for church-related institutions, critics effectively admit that it is right for the rest of us to be subjected to this sort of mandate. They accept the horribly misnamed Patient Protection and Affordable Care Act, and they resign themselves to chipping away at its edges. No, we should throw it out, and fix the terrible distortions in the health-insurance and health-care markets.

Sure, churches should be exempt. We should all be exempt."
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So the Super Bowl was an entertaining game, and the Giants narrow victory was about what we expected given that the Pats most potent offensive weapon this year was playing hurt and ineffective. Still it was ironic that on the final Hail Mary pass, Gronkowski was the guy who nearly came up with it. The Giants deserved to win the game though, and they certainly played very well from the point they were
7-7. One disappointment was the commercials, which I thought were mainly a festival of inanity. On the other hand, Madonna acquitted herself quite well for a middle aged lady, though I feel she did not displace Tom Petty from the top spot for Super Bowl halftimes.

At our party, someone actually asked who those people were singing America the Beautiful to open things up. I was incredulous. As a country music fan, how could it be that someone might not know who Miranda Lambert and Blake Shelton are? Of course I would have committed a similar faux pas had just about anyone come out to rap the venerable tune.
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We're a little late on February jazz in NYC, but here are highlights still coming if you're so inclined. Birdland has John Pizzarelli Feb 28-March3. Reservations a must for most of those shows. Anat Cohen leads a quartet at Columbia University's Miller Theater this Saturday. Next weekend, the Mingus Big Band headlines at Jazz Standard. Also this weekend, Charles McPherson and the legendary Tom Harrell bring their quintet to Dizzy's Club Coca Cola while Benny Golson, 83 years young, leads a quartet at Jazz Standard. And of course all of the great regular fare at Birdland, Bar on Fifth, etc. throughout the week.
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We have a lot of transactions to report. On January 30, we sold 100 shares of Barnes Group (B) at 25.60, a nice gain from the split adjusted 8.31 we paid on 3/22/99. The next day, we bought 500 shares of TAT Technology (TATT) at 4.50, a value buy of a stock that has so far been a big zero for us. On 2/1, we bought 300 more shares of IDT at 8.84, a "zero" buy. Since then, we have been selling: On 2/3, we sold 100 shares of Standex International (SXI) at 43.64. We paid 30.25 way back on 5/11/98. It must be said that previous management teams were pretty passive. On 2/6, we sold 200 more shares of Presidential Life (PLFE) for 12.04. We had bought them for 8.84 on 6/17/09. Today, we sold 300 more shares of Pulte Home, (PHM) which has been doing much better, but these were shares we had a huge cost basis because they were actually Centex shares that came in the merger. We paid an average price of 48 for these shares between 2005 and 2007, so this is a nice loss in the taxable account. Today, we also saw our ADPI shares tendered away, as American Dental Partners has been merged out of existence. We received 19 per share for all 1100 shares purchased in 2006, 2007, 2008 and 2011 at an average price of
15.22.

Groundhog Day is Coming...Again

2012-01-30T20:59:00.002-05:00

OK, let's get the Republican Presidential sweepstakes out of the way first. Romney has the ship righted again for the moment and should win fairly comfortably in Florida tomorrow. The prediction here was that that would end it - we'll see. Newt is pretty invested in this thing personally so he might not be quite willing to give up the ghost yet, although he should. Going nuclear on the likely nominee has not been viewed positively by most Republican voters, and definitely not by party regulars. Of course, it's not as if the Obama campaign wouldn't have brought every Mitt negative up in the general election anyway. Democratic operatives have assumed from the beginning that Mitt would be the candidate and I am sure there is nothing about him that they don't already know. If you remember anything from the 2008 campaign against Hillary, you should recall that the Chicago Obama crowd (Axlerod et al) are archetypal pit bulls. As the WSJ editorial writer (Paul Gigot) said last week, if you can't beat Newt, you sure won't beat Barack. So let it play out.

As for Paul and Santorum, who knows why they are still persisting? The money has to run out soon.

One thing I don't agree with WSJ columnists Dan Henninger and Kim Stassel about is that Mitt should have been proving his conservative bona fides in these primaries to unify the party. That would have been exactly the wrong strategy. Mitt has always had his eye on the general election and has studiously played toward the middle with an eye to competing for the independents who decide these things. Let's face it, whoever the Republican nominee is will capture almost all of the conservative vote. This is why Obama keeps shifting between throwing left wing environmentalists a bone while providing red meat for Dem moderates. He knows he's getting the left wingers anyway.

Still, Romney has not quite sealed the deal, and if it goes on much longer, it adds to the temptation for those who would draft Governor Daniels, who did his cause no harm with his very effective State of the Union response. Romney did not handle the tax return issue particularly well. Why didn't he simply say that his income is mainly investment income, turn to Newt, and ask him if he was seriously suggesting that tax rates on investment income should be increased? In a Republican primary? That would have ended the controversy.

Of course, Mitt does have the inconvenient benefit of paying capital gains tax rates on his "carried income" while a hedger at Bain. Regular Musings readers know I think that is simply the wrong tax treatment, and I would consider that ordinary income and change the tax code accordingly.
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Meanwhile, the Obama train wreck continues unabated. Don't take too seriously the better economic numbers the last 45 days that have given the President a temporary, if meager, pop in the polls. The better productivity and employment were due to inventory restocking, not because of any real economic improvement. With Europe teetering and Japan suffering under a debt load even worse than our own, you can bet the better numbers will be short lived. Meanwhile, he derails the Keystone project, pumps for more subsidation of hopeless green energy projects (a la Solyndra) and makes recess appointments while the Senate is technically in session, a pretty clear constitutional goof that makes the actions of those appointees subject to court reversal. It also adds to the general perception that this administration, like the one before it, considers itself beyond the rule of law.

By the way, Congressional Republicans learned that trick of keeping the Senate in session from Dems, who pulled the same thing on GWB to keep him from abusing the recess appointment capability. Unlike Obama, Bush determined that the line of credible behavior was drawn at the constitution.
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Congress also did an about face on the internet piracy bills - PIPA and SOPA - and pulled them in the face of user outcry. Internet users seem to have this belief in their divine right to access everything on the web for free, once they have paid their way onto the web. I am not sure how this got going, but I don't subscribe to it. If the movie industry is going to go the way of the music industry, I am not sure how writers and composers are going to get paid. Nevertheless, the users got their way - again.

I have always admired the WSJ and Forbes and those others who charged for their on-line content. If it's worth anything, it should drive some revenue.
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And following that line of discussion, at least one musings reader complained that the op ed I referred to in my last post, The War on Political Free Speech by Bradley Smith from the Jan 23 WSJ, was indeed restricted to paying customers on the Internet site. So I wouldn't reprint it, but I am allowed to copy a few short excerpts.

"From the start, reaction to Citizens United v Federal Election Commission has bordered on the hysterical. Rep Alan Grayson (D.,FL) called it the 'worst decision since Dred Scott' - the 1857 decision holding that slaves could never become citizens. In his State of the Union message, within days of the ruling, President Obama lectured Supreme Court justices in attendance that they had 'reversed a century of law' to allow 'foreign companies to spend without limit in our elections.' Neither statement was true...

"Citizens United overturned only the 1947 independent spending restriction (of Taft Hartley), not the earlier prohibition on corporate contributions to campaigns. Not until 1990 did the Supreme Court uphold a prohibition on corporate expenditures independent of campaigns. Citizens United therefore, overturned not 'a century of law' but a precedent 20 years old. Moreover, the court specifically noted that it was not ruling on the viability of the prohibition on foreign political spending - and earlier this month it summarily upheld a lower court ruling finding that the prohibition on foreign political expenditures was constitutional...

"...(Sen) Bernie Sanders (I., VT) proposed a constitutional amendment last month that would not only prohibit corporations from speaking on political elections, but would prohibit any group of citizens organized 'to promote business interests' from speaking about elections...Because most newspapers are incorporated, UCLA law Prof. Eugene Volokh believes that the Sanders Amendment AND A COMPANION BILL IN THE HOUSE WOULD EVEN AUTHORIZE THE GOVERNMENT TO PROHIBIT NEWSPAPER EDITORIALS ABOUT ELECTIONS...(emphasis added) A national coalition, Move to Amend, seeks a constitutional amendment providing that 'artificial entities such as corporations...shall have no rights.' The coalition seems oblivious to the fact that this would apply... to non-profits such as the NAACP and the Sierra Club...The goal of this misinformation is clear. Reformers, who sit mainly on the political left, and their Democratic Party allies hope to silence voices that they perceive to be hostile to their political interests."
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I saw jazz singer Jane Monheit and her fine backup trio at Birdland a few weeks ago, and I have to say it is an experience I want to repeat. She is an Oakdale, Long Island product and has simultaneously a sexy and cerebral approach to America's only true art form. She also has a devoted, almost fanatical following.

Then a couple of nights ago, I went with a fellow lobbyist visiting from D.C. to Bar on Fifth, and saw an excellent quintet. But even more exciting was the fact that the great Benny Golson and his wife were sitting right next to us! If you've never heard of Mr. Golson, by all means Google him.
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The big game is Sunday and all things being equal, I would make New England a 1-2 point choice. But not when their best receiver is either out or playing very hurt. So the game is at worst pick em for the Giants now, and they might actually be a 1 point choice at kick off if Gronkowski can't go.
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On 1/25, we sold 500 shares of FSI International (FSII) at 4.36. 100 of those cost 2.73 on 10/4/10 and the other 400 cost 2.98 on 6/24/11.

We'll report today's sale transaction in the next post.

Random Thoughts for your January Thaw

2012-01-23T23:37:00.004-05:00

Mitt Romney never really expected to win the South Carolina primary, and he certainly lived down to his expectations. Newt whipped him in debate and breathed new life into his own campaign, which seemed all but hopeless only a couple of weeks ago. Now Newt goes into Florida on speed where it seemed impossible for him before. The polls seem to give Newt the edge right now, but Mitt has already locked in quite a bit of early voting. Mitt has also adopted a more aggressive posture toward Newt, which served him well before. If Mitt rebounds to win in Florida, he may still fulfill my expectation of wrapping things up quickly. If not, GOP leadership will be embarking on a long period of soul searching.

Knowing that Mitt is really the only serious candidate currently in the field, leadership will have to move into drafting mode if he can't revive his campaign. As the WSJ said today, if Mitt can't beat Newt, he surely can't beat Obama. So leadership will be looking at a situation where no candidate might control the convention, and we can go back to the days of the hand - picked candidate, where the object was to find the winner. This means that people like Governor Daniels, Senator John Thune, and others who quite sensibly chose to avoid the two year quest would suddenly be eligible possibilities.

Republicans want a winner, but they also want a candidate who can excite them the way they were in 2010. That means a "me too" spender a la Nixon or W is not what they want. They want someone who they can trust to shrink government. Right now, they are not convinced Mitt is that guy.
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And then there's Barack Obama, who obliterated his own pro-growth, pro-jobs credibility by determining that the Keystone Pipeline is "against the national interest." More and more, I find Obama is Bill Clinton's opposite. Where Clinton tried to position himself as a New Democrat with liberal tendencies, he was only too willing to go along with the Republican Congress to limit welfare to get the budget balanced and improve the economy. Obama talks about reasonable policies but his actions veer way left, and he's killing the economy. When he finally merges government agencies, they turn out to be the ones that promote US businesses abroad in the Commerce Department. In sum, Obama consistently follows anti-industrial, anti - business, anti - growth policies while following the religion of environmentalism and the politics of class division. These policies are holding back the economy and causing consternation among Dems. If this weren't true, would the undercurrent of a Hillary boomlet exist?

In his personal life, Obama is squeaky clean, and again, what could be more opposite from the ever irresponsible Clinton? But as a pragmatist with great political instincts, we may have never seen a smarter politician in our lifetime than WJC.
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Bradley Smith's op ed in today's WSJ, The War on Political Free Speech, should be required reading. Mr. Smith itemizes the Left's determination to limit political speech by their opponents and explains persuasively why Citizens United v Federal Election Commission was not merely correctly decided but was a necessary defense of the First Amendment. I will avoid the temptation to provide excerpts in the hope that readers will go to the WSJ website and read the complete article. You won't be sorry.
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The ECB seems to have stumbled on a brilliant solution to the European sovereign debt crisis, but I am afraid, like Bill Gross, that the relief will be only temporary. Nevertheless, it is worth dissecting what has occurred.

The ECB has made low interest loans available to the banks, enabling them to work an arbitrage, "carry trade" type play by using the money to buy the higher interest debt of sovereign governments. This might seem counterintuitive since the problem was that the banks already had too much sovereign paper on their books. However, since the interest margin to the banks from this trade is so high, the trade has been irresistible. That is causing demand for government paper to drive the interest rates down, relieving the pressure for now.

Of course, Gross points out that this is really a shell game and doesn't impact the problem in the long term, which is too much public spending. But stocks and bonds are rallying around the western world for now, and we'll see how long until they correct.

Another interesting economic anomaly occurring is the divergence in price between oil and natural gas, which is suffering from oversupply of all things. Environmentalists and climate worriers notwithstanding, drillers are using their new technologies to great effect and the US may soon be a net exporter of energy if the Administration would ever relax its regulatory grip. Canada already is, and if Keystone stays dormant, you will see the Canadians ship their excess oil to the Far East. One thing that won't happen is that the oil and gas will not stay in the ground. And now it appears that climate researchers are having second thoughts about the alleged negative impact of carbon. What a shock!! However, they are rightly concerned about the noxious effects on marine and other life of methane and mercury, problems we can solve if our engineers put their minds to it.
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Yesterday's championship football games exceeded all expectations. Either team could have won the first game, the Ravens denied by a great TD saving play by the Patriots secondary and then a woefully blown field goal that would have caused overtime. In the Giants - 49ers game, the home team seemed to have taken control until a bonehead play on a punt set the Giants up for a touchdown. You would think that every punt returner in the league would have been taught to run away from every punt you don't intend to catch, but every week I see players come too close to the ball and in danger of muffing it. To be fair, young Williams was in that position due to an injury to another player, but that was a mental error, not a physical one. His fumble in overtime was a strip and could have happened to anyone. But the first error was not really pardonable.

Still, the Giants deserve credit for being in position to take advantage of the big break and then doing so.

The Super Bowl I would have to rate a toss up. I think the Pats have the edge on offense but the Giants are sounder on defense. These two passers are too good and their receivers are much too good to be held in check by these defenses. I look for a 30-27 game or something like that. If forced to make a pick, I'd have to give the Pats the slightest edge, but this will be a good game to watch without the need to put the grocery money on it.
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Long time followers of this blog know that rallies are for selling into. We did buy 50 shares of Expeditors International (EXPD) back on January 9 for 41.55, a zero buy and a nice growth stock. But then, the profit taking, and some loss taking, began. We sold 341 shares of Pulte Homes (PHM) on 1/13 to close out our IRA position, a useless loss from a tax point of view, but one dictated by formula. We still have lots of shares in the taxable account. We got into Pulte when it bought our Centex shares, which were already well under water. So we got 7.50 for shares we bought in 2006 and 2007, and recorded a loss of about $9,250. Try to remember that one the next time you are tempted to copy my trades.

We started getting them back though after that. On 1/13, we sold 500 more shares of old friend FSI International (FSII) for 4.32 that we bought on 10/4/10 for 2.73. On 1/17, we sold 200 shares of News Corp (NWSA) at 19.01, a meagre profit vs the 18.04 we paid 0n 3/18/05. Some times, we are just restoring cash, not so much profit taking. On 1/18, we sold 100 shares of Xilinx (XLNX) at 33.75. We paid 19.80 on 8/11/06. We also trimmed our Bryn Mawr Bank (BMTC) position a little, selling 200 at 19.90. We paid 20.01 on 2/25/08.

Today, we finally nibbled, buying 50 shares of AES preferred (AES.PR.C) at 49.50. That gives us the full load in that stock. Pretty soon we'll be looking for new preferred's to buy.

We are going to print our disclaimer more often, especially since the blog is being promoted by readers far and wide to new "victims." Neither redwavemusings nor its author are investment advisors, and the securities transactions recorded here are not intended as recommendations for anyone, since they are likely to be unsuitable, immoral, and/or fattening.

Orlando Bound

2012-01-08T20:38:00.004-05:00

Business meeting in Orlando this week. Why Disney Town has become a mecca for business conferences is a mystery to me. We are going without family, without golf clubs, without bathing suits. Really, we are not going to be doing any and all of the things one might go to Orlando to do, even if you could actually stand the place. But we're still going.
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This morning, I watched some of the Republican candidates' New Hampshire "debate" on NBC. Now I have studiously avoided watching any and all of the debates up to this point. Of course, it is impossible to avoid all of the sound bites and newspaper snippets reporting on these gabfests. So I do have some observations.

First, I question why, tactically, it makes any sense for the GOP to have so many debates. Granted, it will be good preparation for the eventual candidate who will have to "debate" President Obama. But mostly, it provides opportunities for the candidate to commit a faux pas or other inconsistency the Dems can use later.

Second, if the party must have debates, why on earth wouldn't you want to control the process a bit more. By that, I mean let the candidates pick the questions and know them in advance so they can have their answers prepared and come off at their best. As it is, having a David Gregory or other liberal mainstream media personage moderate just gives them an opportunity to embarrass the candidates, which is what their questions are framed to do. For example, one of Gregory's questions today was, "Can you name three (austerity) cuts you would impose that would cause pain to Americans?" You have to be a complete moron to answer that question (which would have been perfect for Jimmy Carter, by the way). Aside from the fact that it is a loaded question, it completely misses the point of Republican orthodoxy, which is that lower spending and pro-growth policies will cause the economy to perform better, minimizing any pain. Gregory was trying to get the candidates to accept Democratic orthodoxy (that somehow we deserve painful policy prescriptions) as the pretext for that question.

All of the candidates showed the good sense to sidestep the question, which frustrated Gregory and caused him to point out that the question hadn't been really answered. If Republicans are going to debate, let George Will, or Peggy Noonan, or Paul Gigot or Fred Barnes moderate. If NBC won't cover that, I'm sure Fox will, and maybe ABC. But it's just stupid to subject the candidates to what they went through this morning.
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As for the message coming out of Iowa, ignore the Democratic propaganda. This was a big win for Romney who didn't even take it seriously until the last few weeks. He will win in New Hampshire, pretty convincingly, and is gaining ground in South Carolina too. After Florida on January 31, it will all be pretty much over, and then the Romney campaign can focus on the general election.
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A week from tomorrow, we will observe the birthday of Dr. Martin Luther King Jr.. It amazes me that to this day, I still hear otherwise rational people question why this is a national holiday. Since Dr. King's assassination, his stature and significance have only grown with the perspective of history. This is especially true in light of the almost unrelenting mediocrity of the elected political class, President Reagan excepted.

Though Dr. King was a liberal politician, pro-union, anti Vietnam war, etc., this was the less important facet of his public personna. What he stood for and what he accomplished quite simply was the non-violent termination of Jim Crow. It is not his legacy that a victimization, dependency agenda was appended to his triumph. That appalling result is the fault of the Jesse Jacksons and liberal politicians who claimed to carry his banner but failed to actually continue his work. That work secured voting rights, the right to be served in businesses open to the public, and the right for children to be educated in truly equal and integrated schools. In short, King secured the application of our founding documents to all our citizens. Why would anyone, and particularly any Conservative, not think that is worth celebrating?

What isn't taught much in the schools and what many have forgotten over the past forty odd years is that Dr. King was not the undisputed leader and idol of his community in the last couple of years of his life. In fact, the various "Black Power" advocates were more admired on college campuses in 1967 and early 1968, and especially Malcolm X. In my college history courses taken in the years immediately following the assassination, we were assigned any number of readings written by or inspired by Malcolm, but actually none by Dr. King.

As I have come to view that era and particularly the rivalry among Black leaders of that time, King and Malcolm were like the two opposing sides of a single personality. I think given more time, they might have joined forces to foster a less dependent, more assertive attitude among their following. At the risk of trivializing the point, I recall a Star Trek episode where the transporter has caused Captain Kirk to divide into two personalities, one passive, the other overly aggressive and dangerous. Neither is able to effectively function without the other and until they are reunited. Actually, neither King nor Malcolm were so one dimensional, but history having cut both short, we are left with an oversimplified historical view, and with King's legacy achieving immortality while Malcolm's has retreated (Spike Lee's sensational biopic notwithstanding), the politics of victimization have been dominant.

One might have hoped that President Obama would have taken the opportunity to move the country into not only a post-racial era, but a post dependency one as well. Instead, entitlements are only growing under his administration, and beyond what we can afford. Though minorities continue to make great progress in this country, the number of folks on food stamps, unemployment, and other programs that encourage dependency keeps growing. I believe this will ultimately be seen as the President's greatest failure.

For now, conservatives should promote Dr. King's birthday as a reaffirmation of the Declaration and the Constitution, and how he helped make those documents and the principles inherent in them applicable to every citizen. As conservatives regain the reins of government, they would do well to rededicate themselves to making sure that good work lives on in our exceptional country.
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There is so much great jazz in NYC this month, but I'll only list a few outings on the short list. McCoy Tyner, last survivor of the Coltrane classic quartet, will be at Blue Note this week for a short run. Next weekend, trombonist Wycliffe Gordon comes to Kitano for some guaranteed fun. The following week Jane Monheit comes to Birdland, and on Thursday, baritone sax Lauren Sevian fronts the Helen Sung Trio. For the weekend of the 20th, I am thinking of looking in on the Ken Peplowski quartet at Small's. The last weekend of the month will also highlight action at Kitano (Helen Sung trio) and Small's (Seamus Blake quintet including pianist Dave Kikoski.
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It looks like, on a total return basis, the Redwavemusings portfolio lost 1.3% in
2011, acceptable performance considering what a difficult year it was in the markets. We booked substantial capital gains this year though, reversing last year's tax efficiency when we made significant portfolio gains while booking capital losses. But we are happy with the year anyway since we did use the time to increase our holdings in gold, TIPS, and preferred stocks.

On January 3, we bought 500 shares of Alumina (AWC) at 4.76. The next day, we sold another 600 shares of FSI International (FSII) this time getting 3.84. We had bought 400 of those on 9/8/09 for 1.01 and the other 200 on 10/4/10 for 2.73. On Friday, we sold 200 shares of Newpark Resources (NR), one of our Tulane portfolio stocks, for 10.26 versus a purchase price of 2.85 on 6/22/09. The Tulane recommendations have really been home runs.

2011 Heads for History's Ashcan

2011-12-30T18:32:00.005-05:00

With Sears / K - Mart announcing store closings following yet another moribund Christmas performance, it's time to repeat (in our typical "I told you so" fashion) our take on the company and its owner/hedge fund investor Eddie Lampert. He's a Cramer fave and bought control of Sears based on financials (it was allegedly undervalued). You have to be careful with this. Sometimes companies, especially retailers, are undervalued for good reason.

Now I have respect for Cramer and little doubt concerning Lampert's genius as an investor/financier. Unfortunately, those talents have little to do with operating a business. Sears problem was not so much overspending as it was under-marketing. It simply had an outdated business model that is only getting worse. Adding K-Mart compounded the felony, taking a discounter that was being run over by WalMart, and adding it to a failing business. So all the while Cramer was touting this stock based on his friend's capabilities, we were warning our readers to stay away. A more aggressive posture would have been to short the stock.

This just proves that even as smart an investment advisor as Cramer can have blind spots. He also would advise you to do your own research, and I warn you not to take any advice from this space for the same reason. I can't think of a better illustration for taking my, and everyone else's, disclaimer seriously. There are no guarantees. Period.
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Speaking of CNBC's very smart commentator/analysts, there is none better, in my opinion than the Chicago based commodities/bond follower, Rick Santelli. He is extremely entertaining, like most of the station's analysts, which is why the station is so much more watchable than either Bloomberg or Fox Business. But like many folks who follow the bond markets, Rick is so clear-eyed and skeptical that he is a welcome counterweight to most of the stock analysts who are biased to the bull side. Rick's honesty and courage to say (or even shout) what he thinks got him in trouble with the Obama Administration in its early days, but he has been totally and consistently vindicated.
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One of our most loyal readers sent me an article from the NY Times written by one David Kocieniewski pointing out an apparent loophole for corporations in the tax treatment of stock options allegedly costing the Treasury gobs of money, according to geniuses like Michigan's Senator Carl Levin (who never saw a dollar he wouldn't tax). This has come up because the options issued during the 2008-09 market collapse are starting to come up for exercise and executives are realizing windfalls while their employers are realizing outsized deductions. For example, the author points out that Sirius CEO Mel Karmazin's options exercisable at $0.43 now purchase stock trading at 1.80. Sirius allegedly gets a deduction at the higher price when he exercises.

So let's set the record straight, since the Times suffers from its chronic inaccuracy as well as its anti-business bias. First, there is no information regarding whether these, or any of the options discussed in the article are qualified or non-qualified, which makes a huge difference in the tax treatment. But let's put that deficiency aside and talk in general about non-qualified options, which most are. When the options are granted, it's a non-taxable event, though the company reports a non-taxable expense for the "value" of the options granted, which is the number of options times the market price of the shares. Never mind that this is not really an expense at all to the company, since no cash changes hands at that point. This accounting treatment is the result of a galactically stupid law passed some years ago to try to get companies to issue restricted stock instead of options (I'll give you two guesses which party wanted that law), never mind that any executive in his right mind would actually prefer to get restricted stock.

When the options become exercisable, the executive pays ORDINARY income tax on the increase in price above the strike price, even if he keeps the stock. So this is hardly a sweetheart tax arrangement for the executive. The corporation gets a deduction for the amount of income the executive takes (not for the price of the stock as Mr Kocieniewski misleads his readers). This makes sense since compensation is supposed to be a neutral taxable event. The corporate payor's deduction is supposed to be equal to the employee/executive's reportable income. There is nothing unfair about the tax treatment.

My gripe, which was printed in this blog back in 2008-09 (and someday I will print all these posts so I can direct you more specifically to our archives) was that the collapse in stock prices was setting up executives for these huge paydays at the expense of the public stockholders. Since companies determine the number of options to give out based on a percentage value of salaried compensation, and strike prices were depressed, there were outsized awards being made, which I pointed out would dilute the holdings of public shareholders and reduce earnings per share. And this is precisely the result that has the Times in a lather. But it has nothing to do with taxes.

In fact, to a great degree, this is the unintended consequence of liberals' ill-fated attempt to deal directly with outsized executive salaries. They decided to pass legislation denying ordinary corporate deductions for salaried incomes above $1 million, forcing companies to compete for executive talent by compensating them in other ways than through salary. The result is outsized stock awards, either through options or restricted stock, which from the point of view of the ordinary investor is worse than salary. Forget about aligning executive and shareholder interests, we don't need your help Mr. Levin. Can't you ever leave well enough alone?

Now Levin has the bright idea that he'll deny the deduction for compensation over $1 million however it's paid. This is typical Democratic class warfare, "fairness," jealousy, whatever you want to call it. It won't work.

Investors need to stand for their shareholder rights and not be victims, and not depend on Congress. In 2008-09, it was clear to many of us that we needed to vote against certain incentive compensation awards, and I did so. If you don't like what your company is doing, sell the stock. I will say, as a Sirius holder, Mel is worth every dollar he's been paid, and I felt that way then and I feel that way now. The company was all but dead when he came in.
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Freddy Cole's show at Birdland was so memorable. If anything, he is better than ever, and I bought his CD's after the show, and he signed my box. His working band is wonderful. When he sang The Christmas Song, made famous by his older brother, I doubt there was a dry eye in the house. But all the songs were excellent, and I especially loved I Was Telling Her About You, written by Bill Charlap's father.

On Tuesday, after a hard (and reasonably successful) day at the bridge table, I went to hear the Birdland Big Band and stayed for both sets, each one well over an hour. So it was a late night but a very satisfying one. The Band was in top form, and I even got a ride home from NY trumpet legend Glen Drewes.
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On 12/21, we bought 300 shares of IDT at 9.35, a zero buy. On 12/23, we sold 600 shares of FSI International (FSII) which has had a nice run. We got 3.63 this time for shares we bought on 9/8/09 for 1.01. On 12/27 we sold 100 shares of Pfizer (PFE), a nicely recovering stock, which is now an income stock rather than a growth stock. This was in the IRA so the loss won't help with this year's tax return. We got 21.77 for shares we bought for 41.20 on 12/11/01. Recent purchases have been at a much lower price. On 12/29, we bought 100 shares of Protective Life preferred (PLP) for 23.30 for the IRA. Today, we sold 100 shares of Lancaster Colony (LANC) out of the IRA for 70.48. We paid 35.85 on 3/12/03. That's almost a 9% compound return. They can't all be gems.

We'll summarize the year for the Redwave portfolios after we get the brokerage statements and crank in the December dividends.

Happy New Year to all our readers!

A Little Pre-Holiday News

2011-12-19T21:48:00.003-05:00

News and politics are breaking out all over. Let's get right to the action.

Item: Kim Jong II or whatever his name was suffered a fatal myocardial infarction which the North Korean propaganda machine attributed to "overwork." Well at least we don't have to worry that Obama will suffer ill health because of workaholism. Perhaps too much golf or too much campaigning, but not too much work. But anyway, getting back to Kim, he succeeded his evil father who led his country to a high position in the arms race but a very poor position in the food and beverage race. The younger Kim did the old man one better, increasing the country's nuclear capability while even more of his pitiful subjects sought refuge in places like China in search of something to put in their stomachs, anything in fact. It wasn't as if they were dying for Szechuan specialties or lobster Cantonese style. Now Kim's son is trying to consolidate power, which may be more difficult than we expect, since he is under 30, was perhaps civilized by some Scandinavian schooling, and he looks like Korea's answer to Jonah Hill.

All of this might be amusing, but then you have the Obama Administration pleading for stability. This administration, the latest in a long line of U.S. Presidencies that have made no progress at all in dealing with North Korean hostility, is more concerned with keeping the dictatorship in firm control of the country and its weapons than it is with having anything like a tilt to democracy in the North that might enable eventual reunification with the South. Reminiscent of the initial U.S. reaction to the Arab Spring right? And look how well that's working out in places like Egypt.
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Item: The U.S. military evacuates Iraq, declaring victory, but leaving...a mess. How long do you give the current coalition government there, months, weeks? Obama was advised by military leaders to keep 20,000 military personnel there, but he decided 3-5 thousand would be enough. When Malicki determined that small a force would be worthless and merely provide a target for the country's nihilists, he told Obama to forget it and denied them immunity, whereupon Obama went with the total pullout.

It's nice to have the guys and gals back home, but why lose the peace after the noble sacrifice of over 4,000 U.S. lives and many more wounded? In the end, the war there will have been seen to have been a necessary strategic move, not the "war of choice" depicted by Democratic propaganda. Today's WSJ had an excellent op ed making just that point. Let's hope voters remember that Obama inherited a good situation in Iraq (unlike the economy) including a working surge and a successful occupation. He frittered it away trying to prove a political point and the ensuing mess will be his.
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Item: the extension of the payroll tax cut for two months achieved a consensus in the Senate, but the GOP backbenchers seem determined to upset such a stupid deal. What the heck is a two month extension designed to do other than give Obama another bludgeon to use against Republicans for the State of the Union? For my money, I'm against both the payroll tax holiday and the extension of the 99 week unemployment deal. Though I am for the Keystone pipeline, I don't see what accelerating Obama's decision to scuttle it is going to do. Do people even notice the 2% payroll tax savings they have been getting and would they miss it when it's gone? Of all things to cut, why are we cutting social security funding, when the system is actuarily insolvent already?

The 2% is not going to create a single job. If you want to create jobs, give the 2% cut to the EMPLOYERS out of their share? But I guess that would make too much sense.
As for the unemployment extension, what that is giving us is lots more people out of work for so long, they can't get back into the work force. That is hurting people, not helping them.
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Item: Countdown to the Iowa caucus: It's interesting how quickly the air went out of Newt's boomlet, like Perry and Cain before him. Suddenly Paul is in the lead, and Romney is second, in a state where he has paid little attention. In fact, my belief is that the Romney juggernaut is about to roll, and when it does, the nomination will be sewn up quickly. As Romney endorsements even from Tea Partiers like Nikki Haley come in, Republicans are getting on board, reveling in Romney's leadership qualities and holding their nose concerning some of his middle of the road policy prescriptions. But above all else, Republicans want to win, so Romney should be their choice. That's the way the nomination process should work. It was less awkward in the days when party regulars simply picked the candidate with the best chance, and before every state had a primary to pick the delegates.

One more thing - Michelle Bachmann was interviewed on Meet The Press yesterday. Like many politicians, she is a shameless promoter, but she is intelligent and much more informed than say, Sarah Palin. But I just can't listen to her anymore. She has the most irritating monotone. It's unfortunate but she really needs public speaking lessons. It's bad enough to be her constituent, but can you imagine what it must be like to be her husband?

By the way, a good role for Newt in a Romney Administration would be HHS Secretary. Whether ObamaCare gets repealed or not, the new Administration will have a pretty free hand in reshaping (i.e.fixing) it, and Newt has lots of good ideas along that line.
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Item: Today's WSJ lead editorial had a field day poking holes in the premature rush to judgement on the impact of fracking on Wyoming well water. In fact, it appears that Wyoming water has always tasted and smelled like it does, at least for the last 50 years, and in any event, there does not appear to be any possible effect caused by fracking. The science behind the allegation turns out to be complete junk and is easily debunked, bringing back memories of global warming e-mailgate.

Environmentalism has become a secular religion among its adherents, and their absolutism is both repugnant and economically disastrous for those whose jobs they put at risk. I can understand how such zeal leads adherents to make claims that ultimately can't be supported. When you add to that the anti-corporate and anti-development agenda which is the true cause of too many in the environmental movement, you have a recipe for mischief.

Worst of all, none of us want to see the environment seriously damaged so when true environmental scientists lose credibility as a result of these specious or exaggerated claims, the environment does become truly at risk. That is the real tragedy.
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The Cuomo tax solution in New York was a truly special example of political magic. Right now, Andrew is in "can do no wrong" mode. So when he resisted extending a temporary tax increase on upper income payors, only to put forth a smaller one that somehow reduced the budget deficit (which assumed expiration of the surcharge), he was hailed on all sides. So I will give him his props, but let's maintain perspective here. New York is still one of the country's most heavily taxed states, and the extension of a slightly smaller tax increase will do nothing to revitalize the economy here. Businesses will continue to flee, and so will high earners, senior citizens, and recent college graduates. Though Cuomo's administration talks a good game about job creation, its tax and regulatory policies do the opposite. Sounds like a certain incumbent President. The Governor's honeymoon will end too.
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Following up our last post, I did see Roy Haynes at Birdland Thursday night (I know I had him penciled in for Friday night for our fictional vacationer), and the show was terrific. I did meet a young couple there on a brief vacation from Richmond, so they were "beneficiaries" of some of the research I had done for the post, since I was able to inform them about who else would be in town and about Bar on 5th.

December 15 was the 60th anniversary of the opening of the original Birdland (then on 52nd Street) so it was fitting that Mr. Haynes was headlining. The opening night headliner in 1951 was, of course, Charlie "Yardbird" Parker, for whom the club was named. His drummer that long ago evening? Roy Haynes.
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We have had a busy ten days on the buy side, while the market has been in full scale retreat. On 12/9, we bought 100 shares of Hartford Financial Preferred (HIG.PR.A) at 19.87, for the IRA. On 12/12, we bought 200 shares of IDT at 12.82, just in time for lousy earnings to be released and for the price to tank even further. On 12/14, we bought 300 shares of Genie Energy (GNE) at 7.61. On Friday, we picked off 15 shares of the GLD ETF since gold has been tanking too. We paid 154.52 to put these shares in the IRA. Finally today, we bought 1600 shares of beleaguered Frozen Food Express (FFEX), a very risky purchase at 1.28. Don't try that one at home.

Time for the periodic disclaimer: Neither Redwavemusings, nor its author, is an investment advisor, and the securities and transactions mentioned here are for the record only and should not be considered recommendations as they are likely to be unsuitable for any other man, woman or child.

Your NYC Holiday Jazz Vacation

2011-12-08T20:52:00.004-05:00

You've got two weeks of time off to burn before year end, and as a devoted musings follower, you've wondered what's so great about this New York jazz experience, so you decided to plan out a vacation in the Apple, and though you know there will be great food and the tree in Rockefeller Center and New Year's Eve, the main idea is to immerse yourself in the jazz club scene and decide whether it's for you or if it's just a defect in the Redwave personality. You know it's going to be a tad expensive and so pennies have been saved and a mid-price midtown hotel room reserved(maybe even the new Intercontinental across the street from Birdland), though mid-price in Manhattan sounds palatial anywhere else, especially during the holiday season. But now that's a sunk cost, so let the fun begin!

You'll fly in on Friday, the 16th, take a cab to the hotel, dump the stuff (OK, you can take a moment to unpack and actually hang up the clothes people will see) and then, as per RW's instructions, get to Birdland and pick up a Hot House. Or better yet, you can rely on the below guide to where to go on your jazz vacation!

Actually, it's your good fortune to have picked one of the greatest weekends in recent NYC jazz history to start your tour. Among the headliners this weekend are the venerable yet still spry legendary drummer Roy Haynes, and three outstanding pianists, Cedar Walton, Danilo Perez, and Bill Charlap. And trombonist Wycliffe Gordon is leading a group uptown. Better get busy.

No reason not to start at Birdland, New York's friendliest and my personal favorite jazz club. And no better way to start your tour than with the early show there (reservations all but a must, unless you get there early and grab a seat at the bar), the Birdland Big Band led by Tommy Igoe. Their first set starts at 5:15 and they will play until 7. You will hear two sets and wish for two more. Believe me, no other big band ever sounded like this. The Birdland Big Band consists of Broadway pit players who are absolute pros and love to unwind a bit before their regular gigs by playing some jazz. But this jazz is funky, or its Latin, or its brassy, or its balladic, but it's always sublime and driven by the drummer/leader Tommy Igoe. There will usually be a guest star too, often a guitarist or a percussionist. There will always be a full house, and this is a house that Tommy just owns.

Meanwhile, you will be served by friendly bartenders and waitresses, dressed tastefully in black (as is the band), and all seem to be enjoying the music as much as the customers do. You might as well have dinner while you're at it; order the catfish or the authentic Cajun style seafood gumbo or jambalaya. For something lighter, the catfish strips, fresh cut vegetables, or the crab cake sliders are recommended. There is no beer on tap, but the Brooklyn Lager is a winner, and the half bottle of Savignon Blanc is a value buy.

Since you're tired from your travels, you had thoughtfully reserved a table seat for Roy Haynes and will stay right there for his first set. You won't be sorry. He's a living legend, and he'll have three very good young players with him to complete his working quartet. At some point, Roy is likely to get up with his sticks, prance around the drum set, and then play the seat of his chair for a while. You won't believe how great a chair can sound in the hands of a master. When the set's over, listen to the announcement to see if you will be allowed to remain for the second set without a new music charge. Since it's Friday, you will probably have to leave, and then it's decision time. There's always bed if you're out of gas, but if you've got the energy you can take a cab ride or walk over to the Setai Hotel on Fifth Avenue and go to Bar on 5th and catch Antonio Ciacca's last set in one of NYC's most intimate and comfortable settings. If you really dig pain, take a cab to Small's for the Steve Davis Quintet and the after hours group. You can sleep in on Saturday.
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Saturday afternoon would be a good day to go to Rockefeller Center and see the tree and get that out of your system. Then it's a case of who to see. Personally, addicted as I am, I would start off at Jazz Standard so I could have a barbecue dinner and see Danilo Perez Trio's 7:30 show. The pulled pork sandwich is usually a good choice. This is a decent size room but you have to watch the sight lines. Actually, the area up near the bar is not bad. Then I'd get a cab uptown to the Lenox Lounge to see Wycliffe Gordon's 10:30 set. Gordon is one of the top trombonists around, but lately he has been playing more and more trumpet to very good effect. He is also a great singer/entertainer in the Armstrong tradition. If for some reason, you can't get a reservation for Wycliffe, go to the Kitano Hotel on Park Avenue and see trumpeter Jeremy Pelt playing with the Mike DiRubbo Quintet. This is a very small room but the wine selection is to die for, and the music sounds just great there.

For Sunday, there are any number of places to have jazz brunch, including the Kitano where the Tony Middleton Trio plays in the Garden Cafe or even Docks, the seafood eatery. But the hot ticket Sunday night is to go downtown to the Ear Inn on Spring St. and see trumpeter Jon-Erik Kellso and the EarRegulars.

For Monday, the 19th, it's back to Jazz Standard for the Charles Mingus Orchestra. Chances are, you will be allowed to stay for both sets for one music charge. If not, there's always Bar on 55th where tonight, you've got Ayako Shirasaki. Tuesday, the
20th will be a perfect night to go to Sofia's in the Hotel Edison and enjoy the unique show that is Vince Giordano and the Nighthawks. This would be a good night to wear your dancing shoes. Vince plays arrangements from the 20's and 30's and you will be amazed at how much you will enjoy them. There are always guests too. You might want to eat early somewhere else, since the food at Sofia's is very pedestrian Italian. For carnivores, I recommend Keene's Chophouse on 36th. You can walk off dinner getting to Sofia's if the weather is decent. If you're still not sated, take a cab to Dizzy's in Columbus Circle or to Small's in the Village for an after hours set.

By this time, you should be a converted jazz fanatic. But there's a long way to go and some of the best is yet to come. For Wednesday, the 21st, I would go back to Birdland for Freddy Cole's quartet. It's the best night to stay for both sets, and Freddy, like his brother Nat King Cole, is a terrific pianist and very entertaining, though no one could sing like Nat and Freddy's singing style is quite different. The 22nd is your night to go to the Vanguard and see Cedar Walton. You'll need a reservation. The Village Vanguard is a decent size room with classroom seating in the middle, and strange side seating as well. I like to sit at the bar, where the sight line is only so-so but I don't feel so claustrophobic. Treat yourself to a restaurant meal, for which you will have time since the first set is at 9 PM. If anyone at the Vanguard offers you a hamburger, check the expiration date - they haven't served food in decades. If the weather is good and you decide to walk to the Vanguard, that's fine, but be prepared for some street scenes that might never occur in say, Des Moines.

The 23rd ushers in another weekend, and I would definitely reserve a seat in tiny Smoke up on Broadway. Take the 1 or the A train and you will find yourself in a very nice West Side neighborhood, with great bars and eating places. Smoke is just terrific, a very nice bar, tables to enjoy the music and good food; in summer, they open the window and let the folks on the sidewalk share the sounds. Tonight, you will have the extreme good fortune to hear a John Coltrane Celebration featuring veteran Harold Mabern and house tenor Eric Alexander.

Christmas Eve and Christmas Day are those rare nights when many of the clubs are closed. You can go to Dizzy's and see Wes Anderson's Sextet's Holiday celebration, but I would rather just relax and eat at the Kitano and enjoy a set or two by trumpeter Tom Harrell and Kyoko Oyobe. Harrell is one of the true oddballs of jazz, but a great talent. You'll still be able to make it up to St. Pat's for midnight mass. On Christmas, the Bar on Fifth is one of the few spots playing jazz, and I would go there to hear another set or two by Antonio.

Your last week in New York will be memorable, especially if you have a reservation for Wynton Marsalis at Dizzy's, easily the most beautiful club in New York. Besides the simple but lush appointments and comfortable table seating, there is a fabulous bar and a spectacular picture window behind the bandstand overlooking Central Park. After Monday night with Marsalis, you might as well continue with the outstanding trumpet playing of Jeremy Pelt at Smoke on Tuesday. Wednesday the 28th, a special Birdland treat is lined up. The early show at 5:15 will be the Louis Armstrong Centennial Band led by David Ostwald, whom you have read about in this space many times before. The headliners will be none other than Tommy Igoe and the Big Band. You will want to see them again, this time playing a headline gig. It really doesn't get any better.

On the 29th, I would want to catch the early (7:30) show at Smalls featuring pianist Ehud Asherie. He is a silky smooth player with classical chops who ferquently plays with Dave Ostwald on Wednesdays. For the 30th, Jazz Standard is likely to be fun. The show is Richard Bona: Mandekan Cubano. You've got lots of choices for New Years Eve, but you might want to experience Times Square and forego the jazz parties. However, I'd be inclined to try to get a reservation at one of the two Kitano parties, preferably the one featuring Joe Locke. Of course, if I could see the Big Band at Birdland again...

By this time you'll either love jazz or hate it. My guess is anyone who could approach this schedule would just be completely hooked. Exhausted, broke, but hooked.
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Regular Musings readers know that rallies are for profit taking, and we have been doing just that. On 12/1, we sold 200 shares of ADPI at 18.81, closing out the IRA position in anticipation of selling the rest of our shares at the $19 takeover price. We paid 5.20 for these on 12/17/07. On 12/2, we sold 100 shares of (XEL) the old Northern States Power, at 26.20. We paid 15.78 on 5/17/04. Monday, we sold 700 shares of FSII from the IRA at 3.07. We paid 2.04 on 9/17/11, an unusually quick turn. Yesterday, we sold 100 shares of Fastenal (FAST) from the IRA at
41.80. We paid a split adjusted 19.52 on 6/26/06. The market tanked today, so we'll be back to the buy side tomorrow.

Meet Grover

2011-11-28T21:07:00.003-05:00

Yesterday, moving toward winter mode, I watched the Sunday morning news shows, an admittedly unsatisfactory alternative to golf, but one that's informing if not always entertaining. I can't take ABC's This Week anymore, George Will notwithstanding, so instead I watched Fox's effort with Chris Wallace providing a very fair interview with a representative from each side of the failed Super Committee. He gave Senator Durbin a chance to sound off, and he obliged unfailingly to use every possible soundbite to make the Dems' class warfare argument. Do they really believe this is resonating? Can I be that oblivious to its attractiveness? Whatever, even when Wallace gave Durbin the chance to repeat his support for Simpson Bowles (he voted for it as a member of that commission, which for some reason Obama disavowed), he found it necessary to qualify his support with the requirement that the Bush tax cut for those over $250,000 in income be repealed. I'm sure he didn't forget that the commission did NOT recommend that. The Dems have revived the "party line" in much the way it was applied to the Soviet ability to look straight in your eyes and say the most absurd things.

Durbin also rehashed the overstated party canard that Republicans on the Super Committee were dictated to on taxes by Grover Norquist, and were forced to adhere to the infamous signed pledge. Somehow, Dems ignored the very substantial revenue offer made by Republicans to eliminate deductions, especially at the upper income levels. That's because they didn't really want a deal, since they believe the sequester will represent another tool in their class warfare campaign next year.

The fact is, either the Supercommittee or Simpson Bowles could have been a done deal as fat as Republicans were concerned, with significant new revenues but without increasing (and possibly even decreasing) tax rates. As it was, no one wants a deal on the other side's terms. I certainly prefer the sequester to any decoupling of the Bush tax cuts based on income levels. As for the Dems' demand that extension of the payroll tax holiday be tied to an upper income tax surcharge, no thanks. If that's the offer, let the payroll tax holiday expire, as it was supposed to. After all, the payroll tax funds those beloved entitlements, social security and medicare. Isn't it a bit reckless to be reducing those particular funds given the unspeakable entitlement liabilities we face? What happened to Al Gore's social security lockbox anyway?

From there it was on to Meet The Press, whose guests were Senator Schumer, the tireless Dem motormouth, and, of all people to represent the GOP side, Grover Norquist. When I heard that, I wondered what kind of setup this might be. It started badly as NBC's usually insightful interviewer, David Gregory, lobbed softball after softball Schumer's way for him to swat with his class warfare bat. Obviously, such treatment was not afforded Mr. Norquist, but he surprised by answering every antagonistic question straight forwardly, responsively, and with strong economic reasoning. It was a most impressive performance and one that did the cause good. I especially loved his line that Democrats seem to believe that "the peasants aren't sending enough cash in for the king to spend." In fact, it may ultimately be that rather than a Dem talking point, Norquist's pledge may prove to be a GOP asset in the coming campaign.
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You would think that watching the debacle in Europe, we could learn that what we were doing in the good old days was the straight and narrow, and that we had better stop parroting socialist Euroland before it's too late. Obamacare, 99 week unemployment benefits, growing entitlements without payroll tax funding, green projects of questionable environmental value that devastate growth and jobs, these are all actions that could lead us down the road to financial collapse. The regulatory nightmares the Obama administration, through the EPA, the FCC, the Justice Department, and the new Dodd Frank apparatus, is pinning on business is killing whatever recovery might have taken place.

It would be one thing if consumers actually benefitted from any of this regulatory activity. Actually, consumers are being hurt. If you don't believe me, ask anyone who has cell service from AT&T, forced to divest important capability and still won't be allowed to complete its proposed takeover of T Mobile. Ask the hundreds, even thousands of oil riggers put out of work in the Gulf by the administration's delays in allowing drilling to be resumed. Ask the 20,000 who won't be employed on the Keystone pipeline, or consider the layoffs that will surely occur in Detroit (again) when consumers reject auto manufacturers attempts to comply with new unrealistic EPA fleet mileage requirements and their attendant costs.

One thoughtful Democrat recently suggested in a letter to the WSJ that we're thinking about the deficit all wrong, that we should have a separate capital expenditures budget, and if we did, we could spend on these projects without incurring additional current deficit. I agree, I would like to see the government produce a GAAP accounting statement alongside its cash accounting budget. It would be a revealing exercise. But you need to do these things for the liability side as well as the asset side of the balance sheet. If you did, that means valuing the excess of the present value of future entitlement liabilities over the funds invested to support them. Believe me, our GAAP statement, which used to be pretty good since the value of Federal lands, parks and buildings is tremendous, would now be horrible because of our entitlement overpromising. Yes, by all means, let's do that. We could hire a Big Four accounting firm to put it together.

Of course, what's the point when the Senate has failed to produce a budget of any kind in the last three cycles?
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We've been busy on the buy side while enduring the stock market's worst Thanksgiving week in 69 years. On Nov. 21, we bought 400 shares of Alumina (AWC), a value buy at 5.47. The same day, we also bought a zero buy, 300 shares of Genie (GNE) at 7.27. Last Wednesday, we bought 50 shares of AES Preferred (AES.PR.C) at 48.96. Friday, we bought Alcoa (AA), the American aluminum company at 8.90. Here's hoping the airline industry doesn't switch to plastic. Today, we bought 50 shares of NVEC, a zero buy at 54.69.

For new readers and old, it is important to remember that our investment system and transactions are not suitable for everyone, and may not in fact be suitable for anyone. We record them here for fun and for whatever benefit it is to know that one's investment decisions will be exposed to public view and even ridicule. Our system is explained in long ago posts that can be found in the archives. It is designed to implement a tendency to buy lower and sell higher. Following it tends to remove emotion from the decision process, and for some investors, that is necessary. Emotion is especially debilitating for the sell decision, and through a low commission discount broker, we are able to sell in increments that encourages some profit taking.

We do also employ a very good full service broker, and honor his recommendations by buying them first in his account and giving him credit when they pan out. We certainly discourage any reader from considering this section of the blog to be investment advice.

If you follow the financial sites, you are sure to see articles these days by Elliot Wave adherents warning about third wave devastation culminating in a 2012 retest of the 2008-9 lows. This could happen, bu keep in mind that I think Elliot Wave theory is more useful in trying to understand past market moves in context than it is as a predictive device. I would want to be aware of these ideas without being panicked by them.

It Could Happen

2011-11-18T00:02:00.006-05:00

After 60 days of Occupy...Whatever, we still don't really have an intelligible explanation of what the protest is against, or what the protesters really want. A clearly sympathetic mainstream media has tried to spin their own interpretations of what they're against - income inequality, corporations, exporting of jobs, lack of accountability for the financial crisis, etc. To this outsider, it looks like an excuse for the non-working, the non-successful, the malcontents, the misguided, and the miseducated to go camping in the city, be a nuisance, live or relive the
60's (but without equivalent gravitas), promote socialism, and meet girls/guys. This week, the public had enough, and the police began clearing out the parks. So yesterday was "action day," and the result was more arrests, more embarrassment for the "movement supporters," and more public disgust.

We said early on that the longer this went on, the worse for Democrats and the Administration. We have seen nothing to change our opinion. In fact, despite the media slant, the latest polling shows opposition to the Occupy movement at high levels and growing. The public now realizes that this is not some benign demonstration, that it is costing taxpayers serious money in police and sanitation overtime.

As for the phony 99% battle cry, the fact is most of this country is still capitalist, not socialist. Income inequality is an expected result in our system; in fact without it, where is the incentive to get an education, to work, to outperform? The country does not guarantee equality of result, it only promises opportunity. The history of socialism is to deny both opportunity and success.

As an avowed capitalist, I would be happy to be in the 1%, but don't think of it that way. I think about being lucky to be in the 91% that's working and the 50% that's paying income taxes. Today, Rep. Michael Grimm of Staten Island came out with blistering criticism of the Occupy group and praise for the police and Mayor Bloomberg. You can expect to hear more politicians climbing aboard that bandwagon in the days ahead as the movement crumbles.
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If the rudderless left, including Hollywood and the academic drones, want satisfaction for their complaint about the failure of any significant Wall Street or banking figure to go to jail for "causing" the financial crisis, I have a candidate for them. How about sacrificing John Corzine to the left's tender mercies? The former Goldman Sachs honcho, former Democratic Senator from New Jersey, former Governor of the Garden State, and most recently the CEO of the failed MF Global investment fund family has an almost unbroken record of haplessness. In addition to driving his firm into bankruptcy, there is now about $600 million dollars missing on Corzine's watch. Of course, since he's a Dem, offering him up is probably not what the crazies have in mind.

Mr. Corzine's contempt for the rest of us was evident during his tenure as Governor when his chauffeur, driving at reckless (and illegal) speed, involved the Governor in a serious traffic accident which Corzine was fortunate to survive, albeit with serious injury. It came out that the Governor set a fine example for the populace by not wearing his seat belt even as his driver nearly doubled the speed limit.

Until the $600 million shows up, color me suspicious.
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In the internet age, young adults don't read newspapers or watch the news much on TV. How do they stay informed? Inconsistently, and I think the internet becomes their main news source, a scary idea when you review what passes for news coverage on sites like Yahoo.

Anyway, during the Jets pre-game Sunday, there was discussion about the Penn State fiasco, which it turns out my daughter knew nothing about. I was a bit shocked since it seemed to me you'd need to hide under a pretty big boulder to miss that story. Anyway, I explained that a former Penn State coach had allegedly been seen molesting young boys in the shower. She was incredulous. "I thought only priests did that," was her instant rejoinder.

10 years of Catholic education down the drain.
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The Congressional Super Committee, as expected, is heading toward a crash on the rocks, an almost inevitable result given whom the respective parties selected to solve the deficit problem. I give it about a 30% chance to come up with anything like the $1.2 trillion in savings they are assigned to find. Of course the Dems have made repeal of the "Bush tax cuts" for those families at $250,000 or more income their sine qua non for agreement. This has been party dogma ever since the day the cuts passed. This is a non-starter for the GOP. Given the way the Senate breaks down these days, both parties can stop everything and neither party can pass anything. If, in fact, we get nothing, there will be some interesting effects. First, there is supposed to be sequestration, meaning every department of government, including defense will be cut proportionately to achieve the $1.2 trillion over ten years.

I have no problem with this result. $1.2 trillion over 10 years is a peehole in the snow compared to what the Obama administration has added to the deficit, by means of the phony stimulus and their other failed initiatives. We'll still be at higher spending levels than fiscal 2009 even if this cut takes place. That won't stop Dems from sounding the alarms as if the spending reductions might cause the world to end.

The second result is that not only will the tax cut for "wealthy" Americans expire, so will the cut for the other brackets. As I have pointed out on this blog ad nauseum, this will impact middle income taxpayers much more than wealthy ones, since the latter pay according to the AMT schedule already. All the increased rates will do to them is move some of their taxes from Form 6251 to Form 1040. Middle class taxpayers will actually pay more in taxes. That Dems support this is indicative of their belief that if they repeat something often enough, even if it's wrong, they can get you to vote for them if they can just make it sound like Republicans are out to screw you. I guess they believe the adage that no one ever went broke underestimating the intelligence of the people.
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What a joke the Obama jobs plan is when you consider how many jobs we will lose and how much extra oil we will import from the Middle East because the Keystone pipeline will be delayed while yet another environmental impact study is conducted. This bow to the greens may actually result in no pipeline at all, since the Canadians seem to be figuring out that it is easier and more lucrative to sell the oil to the Asian countries than to us. This means the hydrocarbons will still be burned, but we will have nothing to show for it. Obama has no problem with this result if it buys him a few green votes.

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So I'm listening to a new CD I got in the Washington area which I can't wait to play for our guests Sunday. In Alexandria is a famous Irish pub, Murphy's, where singer/guitarists on two levels serenade the hard drinking clientele with old Irish drinking songs. Needless to say, everyone sings along and a great time can be had.

At one of the pubs near my hotel in National Harbor on Saturday night, they import one of the Murphy's players to do much the same act (but not quite as raunchy or raucous). Anyway, the singer the night I was there was Rocky Guttmann and I guess he was pleased I put something in his tip jar because he handed me his CD at the end of the night. The CD is great fun and is called It Could Happen. I especially like the Guinness Beer Song. Use your imagination.
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On 11/14, we bought 200 shares of IDT. Yes I decided to keep it on the buy/hold list. I think it's going to prove to be a good income stock. The price was 13.89, and it's a "zero buy." On 11/14 we bought 20 shares of TIP, as we still anticipate that inflation is a real risk. The price was 117.29. Finally, on 11/16, we sold 200 shares of ADPI, the stock that is the subject of a pending takeover at 19. Still some of these deals fall through, so it's OK to leave some money for the arbs. We got 18.71 per share for stock we paid 5.20 to buy on 12/17/07, in the IRA.

Today's buy order, adding to our FFEX position, was a limit order and didn't execute, as the stock ran away to the upside. A lot worse things can happen. We'll be back at it next week.

Special Off-year Election Edition

2011-11-08T22:41:00.004-05:00

One thing you had to say about the late Joe Frazier, he never fought a dull fight. He was a relentlessly offensive boxer, liked to work inside, and had a lethal left hook despite being a little undersized for a heavyweight. He was also quite quick, really the only man fast enough to get to Muhammed Ali with any consistency.

Joe's weakness was defense, and he walked through a lot of shots to get his own in. Against a big puncher like George Foreman, the style could not work. Against Ali, it meant both took a lot of punishment, and their three great fights were a testament to that. A wise boxing journalist said both should have retired after the Manilla fight, since they had left the last of their skills in that ring.

As a man, Joe was no Einstein, but he knew the boxing game and was a good interview. He rose above Ali's taunting and always carried himself with class. Despite Ali's popularity, I knew lots of people who rooted for Frazier in those fights.
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Has Herman Cain been unfairly treated as Clarence Thomas was (the victim of a high tech lynching)? I thought so at first, but it's starting to sound more like Bill Clinton now, with so many women coming out of the woodwork with similar stories to tell. No matter. I never saw him as the nominee and still believe the party will settle on Mitt Romney. The polls are showing a little boomlet for Gingrich, and maybe Perry could resurge, but Romney is every Republican's second choice, and that should be enough.

With respect to Gingrich, he is the most intellectually honest and thoughtful of all of the candidates, and Dorothy Rabinowitz wrote a persuasive column in the WSJ about his potential as the nominee in the WSJ this week. But Newt is bucking a lot of baggage. His own personal life has no shortage of embarrassing episodes, and his off-hand verbal pronouncements leave him susceptible to the gaffe. Also, he has no executive experience, unless you count being Speaker of the House as a management position, and not really a legislative one. He has higher negatives than Romney, and as much as I would look forward to a Gingrich administration, he is not nearly as likely to defeat Obama as Mitt is. In the end, Republicans will choose the candidate they think can win.

The next big political moment concerns the workings and deliberations of the "Super Committee" charged with attacking the deficit. Trial balloons are being floated almost daily concerning spending cuts and revenue enhancers. The odds are still heavily against any real agreement, which would trigger the automatic across the board cuts. How will Obama and Romney react? This is an intensely political exercise. In the background are Ryan and Reid pulling the strings for their respective parties. Getting those two to agree about anything will take some kind of magic, that's for sure.
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The politics of the looming election year rest on more than the budget. Will the Iraq withdrawal prove to be well timed or a disastrous retreat? Why are we still fighting in Afghanistan, where the Taliban was removed from power and bin Laden is dead? Will Obama ever do anything about Iran's nuclear program. Or North Korea's? What about the seemingly stillborn peace initiative for Israel and the Palestinians? ? Will the Keystone pipeline from Canada finally be built?

Everywhere you look, we see the economy hamstrung by regulators, environmentalists, and other Obama allies. How long will the public abide the overtime costs attached to police protection for the Occupiers of Wall Street? There are minefields all over for the President and his reelection chances. Too many of them are of his own making.

The latest Rasmussen polls show Romney and Obama running about even and Republicans well ahead in the generic Congressional ballot. Given the distribution of the population, Dems need to have an edge to be really even. The message is that they are behind, and still losing ground.
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So last night, after thoroughly enjoying the Louis Armstrong Centennial Band, featuring Wycliffe Gordon and Bria Skonberg, at Birdland, I had four options, all of which seemed attractive. I could go to Jazz Standard and catch a set or two of the Helen Sung Quartet. I could go up to Joe G's and hear Howard Alden. I could return to Long Island and either go to my favorite pub or actually go home and finish this post. But what I did was to go to Bar on Fifth at the Hotel Setai where for the expense of some overpriced, yet delicious, Pinot Noire, I heard the Helio Alves Trio. At least that's who was scheduled. But instead of the advertised Brazilian jazz set, there was only one Latin influenced selection out of the five played in the set. So I'm not quite sure who I heard, and they don't have any announcements, but what I do know is that I heard a very excellent and entertaining set by a really good pianist, accompanied by excellent drums and so-so bassist. They started off with a Monk tune, and for their third selection, played a really spirited version of Coltrane's Giant Steps. They finished the set with a soulful version of Autumn Leaves reminiscent of the Miles Davis treatment.

In two visits to Bar on Fifth, I have really felt comfortable and heard uniformly good jazz, with no cover and only a one drink minimum. There is food too and the whole bar area is very beautiful, with comfortable chairs and sofas. For true jazz devotees, the negative is that the music is largely ignored by much of the young crowd and there is certainly nothing like a quiet policy. So if you are interested in the music, it pays to sit in the vicinity of the players. I sat at the bar last night and that was fine. Definitely the place to stop for an ad hoc jazz experience nightly between 8 and 11.
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If I were half as clever as P.J. O'Rourke, you wouldn't have to wade through all the politics and economics that dominate this blog. Instead you could read things like O'Rourke's April 2nd Journal article, where he had some fun with the idea of bicycle lanes springing up around Manhattan and other urban centers. With apologies to the dedicated bike riders in my readership, here are excerpts:

Bike lanes have appeared in all the predictable places - Amsterdam, Copenhagen, Berkeley and Palo Alto. But the incidence of bike lanes is also on the rise in unlikely locales such as slush-covered Boston, frozen Montreal, and Bogota, Columbia(where, perhaps, bicycles have been given the traffic lanes previously reserved for drug mules). Even Dublin, Ireland...surely unnecessary in a country where everyone's car has been repossessed.
Then there is the notorious case of New York City... Now New York has 670 miles of bike lanes - rather more than it has miles of decently paved streets. This is the work of the city's indomitable transportation commissioner, Janette Sadik-(Genghis)-Khan. Her job, judging by rush hour cab and subway rides and last December's blizzard is to prevent the transportation of anything to anywhere in New York. Bicycles are the perfect way to go nowhere while carrying nothing.
The bicycle is a parody of a wheeled vehicle - a donkey cart without the cart where you do the work of the donkey...The reason it took mankind 5,000 years to get the idea for the bicycle is that it was a bad idea. It is the only method of conveyance worse than feet. You can walk up three flights of stairs carrying one end of a sofa. Try that on a bicycle.
One excuse for bike lanes is to decrease traffic congestion...(But) you can't decrease traffic congestion by putting things in the way of traffic. The answer to traffic congestion is lower taxes so that legions of baby boomers my age can afford to retire and stay home. Bike lane advocates also claim that bicycles are environmentally friendly...but bicycle riders do a lot of huffing and puffing exhaling large amounts of CO2. But maybe there's a darker side to bike-lane advocacy. Political activists of a certain ideological stripe want citizens to have a child-like dependence on government. And it's impossible to feel like a grown-up when you're on a bicycle if you aren't in the Tour de France. All but the most athletic among us get on and off a bicycle the way a toddler goes up and down stairs. Wearing bicycle shorts in public is more embarrassing then wearing Depends. And it's hard to keep a straight face when talking to anyone in a Skitties-colored, Wiffle ball-slotted bike helmet that makes you look like Woody Woodpecker...
Bicycle riders must be made to bear the burden of this special-interest boondoggle. Bicycle registration fees should be raised until they produce enough revenue to build and maintain new expressways so that drivers can avoid city streets clogged by bike lanes...And riders' license qualifications should be rigorous, requiring not only written exams and road tests but also bathroom scales. No one is to be allowed on a bicycle if the view he or she presents from behind causes the kind of hysterical laughter that stops traffic.
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On October 31, we sold 100 shares of Amerisource Bergen (ABC) at 41.82. We paid 13.77 on 11/15/01 (split adjusted). You would hope to triple over ten years in a growth stock. On 11/7, we sold 500 shares of Mellon Bank of NY Preferred (BK.PR.F) at 25.15. With the stock above par, why keep it given the regulatory risk. The company's business model is being attacked by lawsuits and attorneys general because of its "standing order" currency trading procedures, where prices are abitrarily set after the close. This is in the agreement with clients and has been the normal practice, but we have seen more often than we would like that in this re-regulatory climate, normal practices are "criminalized." We are not in preferred's to take risk, we are in them for income. We paid 24.85 for these shares on 9/29/05. If this blows over and the company remains intact, we can go back in it.

On 11/8, we bought 300 shares of Genie (GNE), the spinoff we received from IDT, at 7.88. Readers might recall that we bought IDT originally because of the venture that Genie represents, an energy play that includes an important project in Israel. I am not sure whether I am going to keep the basic IDT shares, but do intend to add to the Genie position.

On 11/9, we bought 100 shares of Protective Life Preferred (PLP), a new name at 22.87 for the IRA. Finally, on 11/10, we added 1800 shares of Frozen Food Express, (FFEX) betting on a turnaround against all logic. The price was 1.25, and it is a high risk value buy at that level.

We also took delight in the news that our slightly sleazy dental network company, ADPI, is being taken over at 19. We won't sell to the arbitrageurs just yet; maybe there will be an even better offer.

Halloween Edition

2011-10-30T22:05:00.003-04:00

Fine weather we had here on the east coast yesterday. Wind, cold, and sleet made for a truly miserable pre-Halloween preview of winter. In New England and upstate New York, the snow stuck, reminding some of us of the famous Halloween snow storm that hit Minneapolis about 15 years ago.

Otherwise, we have had a delightful October. In fact, since Hurricane Irene made her unwelcome visit, things have felt more like late summer than fall. But while the leaves were very late in changing, if they had changed at all, a lot are on the ground now.
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Of course, it was pretty nippy in St. Louis for the last two games of the World Series, and a memorable event it was. I have to admit to feeling some regret that the Rangers couldn't get the last out in game 6 and win their first title. I thought their manager did very well in handling his staff that game and had every reason to believe that his closer could hold a two run lead in the ninth. But that's a problem with today's game, in my opinion. You don't depart from the formula, and that says your eighth inning guy gets that inning and your closer finishes. Frankly, I didn't think Feliz had been all that sharp in the Series.

It made sense for Ron Washington to play to nail it down in game six with the lead, but if you are going to do that, you have to go right down the line with it. To me that meant going longer with Holland, who I thought still had good stuff in the eighth even though he was touched for a homer and a single. He looked comfortable, had only thrown 23 pitches, and likely could have finished the eighth and perhaps started the ninth. That would have allowed Adams and Feliz to come in later, if at all.

The point is that once you bring in Holland, he is no longer available to start a game 7. So to me, once you bring him in, you bite the bullet and go as far as he can take you to get to Feliz. If he takes you the rest of the way, so much the better and you simply explain to Feliz why he didn't pitch in between swigs of champagne.

I realize this is not the current book for managers. They kowtow to closers who feel slighted if they don't get the automatic call for the ninth inning. So be it, but closers are losing too many big games, if you ask me.

Having said that, that game six goes down as one of the great post season classics that I would happily sit through again on tape some day. That puts it up there with my other favorite amazing games, the 55 Dodgers, winning game 7 thanks to Sandy Amaros' catch in Yankee Stadium's left field corner, the Pirates winning a 10-9 thriller in 1960's game 7 on the Mazeroski homer after the Yankees rallied to tie, the 1962 Yankee win in game 7 when Bobby Richardson caught McCovey's scorched liner for the last out with the tieing run on third, the 1969 Mets win on Tommy Agee's two great catches, the Mets winning the game 6 marathon over Houston in the 1986 NLDS and rallying to win game 6 against the Red Sox the same year, and the Cardinals dramatic win in game 7 over the Mets in 2006, when Endy Chavez great catch kept the Mets in the game.
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I really have mixed feelings watching Netflix implode. Long time readers will recall we took gas on Blockbuster, and its downward slide was accelerated by Netflix' aggressive pricing and adaptation to a business model that made Blockbusters' retail brick and mortar stores obsolete.

So we got that, but in fact, it now appears that Netflix pricing was simply predatory. With Blockbuster in bankruptcy, Netflix has inflicted substantial price increases on its customers, and its business model doesn't seem so attractive with profitable pricing. Netflix shareholders have already gotten their comeuppance, but that is not doing former Blockbuster shareholders any good.

The fact is that while the various anti=trust regulators make life miserable for companies trying to merge, they are less interested in protecting competitors from predatory pricing strategies, which arguably should be their main concern. Mergers often strengthen the remaining competitors and can benefit consumers. Consumers did not benefit from Netflix destruction of its rival.

So is it sour grapes or do BBI holders have a real beef? The fact is that there were plenty of reasons to ditch BBI, even ignoring Netflix actions. As soon as BBI was spun out of its parent and forced to borrow to pay a special dividend, we knew something was up, and could have sold to minimize the losses. So there are lots of villains in this piece and BBI holders had a chance to control the damage. Nonetheless, this was one of those stituations where corporate America did a lot less than its best.
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So this week, it's back to National Harbor, MD for a week of meetings in proximity to the nation's capitol. I am not excited, but there's no way out. Maybe I can play bridge one night if I can keep the schedule open.

One might have thought that I got my fill of bridge in Danbury at the Regional last weekend, playing six sessions in three days, but the fact is that my game is slowly improving, and bridge is one of those games that is exponentially more enjoyable the better you play. Not that, like golf, it can't be enjoyed at almost all levels of play, but when you are pretty much oblivious to what's really going on with a hand, you kind of miss a lot.

In Danbury, I played part of the event with a visitor from Nova Scotia who was seeking her last few gold points to achieve Life Master before going in for cataract surgery. So it was a thrill for her and satisfying for me to finish fifth overall in the event and get the points she needed. There are people who play every day professionally, and I can see the satisfaction they can derive from helping their clients achieve their bridge goals. (Yes, there's a whole other world out there playing cards that you probably didn't know about.) But I'm not quite ready for that yet.

Still with the aforementioned weather turning lousy, I expect to attend a number of tournaments this winter; I already have my gold points, but need some others to get to Life Master status myself.
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Thanks to the rally following Europe's latest phony bailout, we're back to about even for the year on the market, and have another decent profit taking opportunity. On 10/21, I bought 1800 more shares of Hauppauge Digital (HAUP), a value buy at
1.15. Please don't confuse "value" with safety. On 10/24, I sold 100 shares of Fastenal (FAST) at 35.46. We paid 19.52 on 6/26/06. Then we made two sales on
10/28. First was 200 shares of Conrad (CNRD) at 14.90, a nice profit from the 1.30 we paid on 4/26/05. Then we sold 100 shares of Quanta (PWR) at 21.55, accepting a loss on those shares since we paid 31.48 on 11/6/08.

A Smattering of Gibberish

2011-10-20T21:30:00.005-04:00

Here's financial journalist Charles Gasparino in the New York Post on the Occupy Wall Street wackos: "Rather than heading uptown to the homes of people like Jamie Dimon, the protesters should be marching south - way south - to protest the Washington lawmakers who gave us the jobs-killing Dodd-Frank financial reform."

Another interesting view came from David Moore, CEO of Moore Holdings, and a trustee for several NYC charities, in a WSJ op ed: "Walking down New York's 55th Street near Park Ave., our group of 7 men in suits and ties was approached by a panhandler asking for money. 'Here are a bunch of Wall Street guys,' he said straight out. 'Give me some money.' All except one kept walking, ignoring the panhandler as we typically do, as instructed by "experts." Yet over the last 30 years of living in the city, I often have disregarded this advice , and so once more, I gave instinctively. I pulled out a dollar, handed it to the man, smiled and resumed walking. But next came a revelation. 'A dollar?' the man shouted. 'You Wall Street fat cats! This is what the problem is with this country. Take your damn dollar.' With that, he threw it on the sidewalk.

"Apparently, street charity now has a minimum. Where did this script - and its concomitant anger - come from? Like most people I know, I think President Obama's tax increases on the wealthy would make sense if we believed he was sincere about - and could be successful at - reforming Washington's spending...Instead, his attacks on Wall Street bankers, oil companies, jet manufacturers, and millionaires and billionaires are inflaming both sides and placating no one...The president's incendiary message has now reached the streets...His complaints that rich people must pay their fair share have now goaded some of our society's most unfortunate, including one who felt compelled to refuse money because it was not enough. President Obama has become the 'Great Divider" instead of the 'Great Uniter' we all hoped he would be..."

But the beat goes on. Senate Democrats proposed this week a bill to send $35 billion to state and local governments to retain and rehire teachers and other public sector workers. I guess this would be Stimulus 3 or 4. But the usual approach - money to the public union friends of Dems to be recycled in the form of campaign contributions to Dem candidates - would do nothing to actually help the economy. That would just be another $35 billion we don't have poured down the rathole. Luckily, the GOP is now in charge at the House, and the bill will never be taken up there.

And in case you have any doubt that this administration is really different in its reckless spending approach, consider the following statistics. Over the last 5 fiscal years, federal revenues have been reasonably stable, varying from a high of $2.6 trillion in 2007 to a low of $2.1 trillion in 2009. But look at spending - $2.6 trillion in 2007 ( a nearly balanced budget), $3.0 trillion in 2008 (bailout year), $3.5 trillion in both 2009 and 2010, and $3.6 trillion in 2011. That increased the deficit from 0.2 in 2007, 0.5 in 2008, 1.4 in 2009, and 1.3 in 2010 and 2011. That has taken the deficit from 1.2% of GDP in 2007 to 10% of GDP in 2009, and 8.6% in 2011.

Now, President Bush was infamous for never vetoing a spending bill, so he was hardly a fiscal tightwad. But he looks like Scrooge compared with Obama, who has added over $4 trillion to the national debt in only three years. So if it looks like Republicans won't compromise on these matters, consider who they are dealing with. We don't want compromise, we want to stop spending money we don't have. And that's a perfectly reasonable position.
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At Birdland last night, young clarinetist Pete Martinez (from Brooklyn, NY) sat next to me between sets and we talked about how it was I discovered jazz and became a fan. And we both agreed that the jazz scene, perhaps unlike anywhere else, is so alive and vibrant in NYC, and how all the clubs are doing pretty well. Later in the evening, I learned that drummer and bandleader Tommy Igoe, who leads the Birdland big band on Friday evenings, has had to relocate to San Francisco (for his wife's job) but does return to lead the band two Fridays out of each month. Whether he is in town or not, the show goes on each Friday, still drawing full houses. And Tommy will be there to lead the band New Year's Eve, and in fact will be the headline act at Birdland all that week. It's such a rare moment when you can see a great house band in its home club at peak form, and we should never be surprised when such nirvana ends prematurely. All the more reason to make plans to see the big band, preferably with Tommy some Friday evening soon.

After Birdland, I strolled over to the Satie hotel on 5th and 36th, which has a beautiful bar, perhaps as nice as the one at the Royalton (called '44'). What Satie also has is jazz, virtually every night of the week starting at 8 PM most nights. Often, the music is solo piano, but last night I heard quite a good trio. Really a pleasant new find for even casual jazz fans.
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And in sports, the world series is on, with National League wild card St Louis hitting stride with perfect timing, playing the Texas Rangers, who make a return trip to the Fall Classic. I wonder if now, we can finally dump this idea that the All Star Game should be played for the World Series home field advantage. This year, we have the distasteful result that a wild card team has the odd home game in the Series. I find that offensive, and believe that we should go back to alternating home field advantage between the leagues or giving home field to the team with the better record.

I'm sure many haven't noticed, what with basebnll and football dominating the scene, but the NHL has started its regular season. And lo and behold, my Islanders are winning (albeit, at home). Of course goaltender Rick DePietro continues history's longest vacation, but no matter, we are scoring plenty of goals during his injury absence. Maybe hockey can be fun again. As they say, lots of good seats are available. And with our millionaire and billionaire basketball players on strike, locked out, or whatever, we might actually be interested in what's happening on the ice.
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We used the rally to do some selling. First, we sold 100 shares of Newmont Gold (NEM) at 64.81. We had paid 46.15. for 50 on 11/6/06 and 45.29 for 50 on 11/22/06. On 10/14, we sold 100 shares of Standex (SXI) at 36, for which we paid 28.125 way back on 3/10/97 when stock prices were still quoted in eighths. Then on 10/17, we sold 100 shares of NVE Corp (NVEC) from the IRA for 68.11, purchased for 38.53 on 11/16/09. Today, the Street did not like NVEC's earnings report and took the stock down a bunch; the psychic pleasure of selling before that happened is tempered by the fact that I still own 200 shares. But this was a classic overreaction by the Street - the earnings were really not bad. Yesterday, we returned to the buy side, with the IRA picking up 100 shares of Hartford Preferred (HIG.PR.A) at 21.83.

We have quite a few new readers, so here comes the obligatory disclaimer. Neither redwavemusings nor its author are investment advisors, the transactions recorded here are not recommendations, and the securities mentioned here may not be suitable for anyone, and that includes me!

Special Columbus Day issue

2011-10-09T21:50:00.003-04:00

What to make of these goofy demonstrations called Occupy Wall Street, parroted by similar efforts in Chicago and a couple of other cities? We can start with a couple of fairly obvious observations. First, this seems to be a progressive and populist answer to the Tea Party. It is similarly obscure in its message, perhaps more confusing and disjointed. What we are hearing is an anti-corporatist, anti banking, radicalism. On the one hand, it seems to have elements descended from the days of William Jennings Bryan's pro-silver inflationists. Some of it is a misguided and mis-informed attempt to put the lessons of the academic left into political practice. Then there is the pro-unionist element, bringing to mind the socialist early days of the union movement.

Whatever it is, establishment Dems are having the same trouble figuring out how to react to it as establishment Republicans had with the Tea Party. Some are focusing on what they have in common with the group, and others are looking the other way, hoping they won't be associated with them. Seems to me those are the more politically astute. Thinking back to 1968, and especially 1972, the behavior of left wing activists was an existential problem for Hubert Humphrey. Putting down the demonstrators in Chicago at the convention probably assured Nixon's narrow victory. In 1972, the public was repulsed by the Democratic convention, taken over by leftists and all manner of minorities with points to prove but no governing strategy. The result was that Nixon won a landslide, despite running perhaps the least ethical campaign ever.

I wonder how the anti-Wall Street crowd is playing to the states that will decide the 2012 election, especially among crucial independent voters. I am talking about Florida, Ohio, Wisconsin, Pennsylvania, Nevada, Missouri, Iowa, West Virginia for starters. My guess is that the answer is that the longer this goes on, the better for the GOP candidates.
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I'm not surprised the Jets come home from their long road trip 2-3. Now it's time for Rex to cut out the braggadocio, cancel the Super Bowl reservations, and get down to the business of objectively assessing the talent and making needed changes. This team really needs help in the trenches where most games are actually won and lost.

The Giants had to be very disappointed in losing at home to Seattle, proving again that nothing in pro football can be taken for granted. This game was murder on suicide pool players. Fortunately for the Giants, the Eagles turning from Dream Team into Nightmare Team means Big Blue can stay in the division title chase.

Then there's baseball. We warned that the Tigers Yanks series was a tossup, and that the Tigers were the hotter team. Somehow, I will never understand the inability of the Yankees' organization and their fans to keep things in perspective. You would think that losing that series (after 5 very competitive games) branded their season a failure the way they reacted. In my opinion, the Yankees overachieved, winning the division going away with only half a starting rotation of any quality, and with a rapidly fading set of players in Rodriguez, Teixera, Posada, etc. They were carried by Cano, Granderson, Sabbathia, Mo, Robertson and a resurgent Jeter, and got surprising performances by Nova, and Martin. The Red Sox proved you can a high payroll and not have the best team. The Yankees will always have a very high payroll, probably the highest the next few years given what they are committed to for A-Rod and Jeter and what Cano is going to earn. Winning championships will still be a matter of doing it on the field, and considerable luck is involved with winning three short series in the playoffs. Yankee fans need to embrace winning the division title in 2011 and having the league's best record. The 162 game season has always been the truest performance indicator.

Then there are my Mets. Most people would say that their big off-season challenge would be to sign Jose Reyes, and that it's a no-brainer. Here's the truth. You'd like to have him back, but as a speed burner, his prime is only going to last a few more years. If you have to sign him for 7 or 8 years, you are going to seriously overpay. If you don't sign him, you will lose some but less than you think with the developing Tejada, whose bat continues to improve, and whose defense is only a cut under Reyes and will also improve. That would also open up second base for Turner.

If it sounds like I am mentally prepared to lose Reyes, let's just say that I am OK with it going either way. Maybe the best would be to sign him and trade him after two years, just before he really slips. But I expect someone to offer him too much money for the Mets to match.

The Mets really need to upgrade at catcher and in center field. My strategy would be to convert David Wright to center field, where he is just fast enough to play (and that gets him away from his increasingly shaky play at 3rd base), opening up third for Murphy, and allowing you to trade Pagan for the best catcher he would bring.

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Lots of passings recently. I don't have much to say about Steve Jobs that isn't already being said. Just as intriguing a figure was Al Davis, the Oakland Raiders owner and former coach who was a leading figure in the success of the American Football League, and who always marched to his own drummer. Sometimes that drummer's beat was quite a bit off, and the Raiders had lean times as well as good times. Davis could be impulsive and manipulative; famously, he moved the team to Los Angeles, then back to Oakland. But he was one of those guys who would figure in any comprehensive history of pro football, to my mind, the best way to determine a Hall of Famer.

Less well know was golfer Dave Hill. Though a superb pro with a great record, Hill was perhaps best known for his brutal assessment of U.S. Open venue Hazeltine in Minnesota. Though on his way to a second place finish in that event, Hill's assessment was that the course "lacked only 80 acres of corn and a few cows to be a good farm." Many of his competitors shared the same opinion, but had the propriety to keep their mouths shut. Hill never did, but had a successful career, winning 13 official PGA Tour titles. His brother Mike was never a success on the big tour but went on to dominate the Senior Tour for several years.
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Last week, I had the good fortune to play golf with Steve Garvey, the former Dodger and Padre. Garvey always had the reputation of being such a nice guy, that it was a little much and people didn't believe it. The truth is, his good guy reputation is deserved, and I think it's just genuine. At some point, the veterans committee should reverse an injustice and put Garvey in the Hall. How could you write a history of baseball and not mention Garvey, his part in the Dodgers longtime infield (with Cey, Lopes and Russell), his long consecutive game streak, his winning ways wherever he played? His numbers are a lot better than a bunch of guys already in too.
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On 9/30, we bought 1000 shares of Frozen Food Express (FFEX), a nice trucking company going through another of its cyclical downturns. This was a zero buy, highly speculative at 2.13. On 10/3, we bought 15 shares of the Gold ETF (GLD), also for the IRA, at 161. On 10/6, we bought 100 shares of Devon Energy (56.32), a value buy. Finally on 10/7, we acted on the decision not to retain the Home and Security spin off from Fortune Brands (FBHS), selling 300 shares, half in the IRA, for 12.60. We are still trying to determine the cost basis, but I think we came about even on these. We'll keep BEAM, the shares representing the spirits business of Fortune on the buy/hold list.

Today, we bought another 1100 shares of FFEX at 1.93. We warn you not to try this at home. These shares can still get cheaper.

(Jewish) New Year's Blogpost

2011-09-29T16:43:00.007-04:00

Several years ago, the Mets utterly collapsed down the stretch and missed winning the division and the wild card. The swoon was a bit inexplicable, but to a great degree, it was a pitching staff breakdown, starters and bullpen.

The same thing has now happened to the 2011 Red Sox, who first lost their division lead to the Yankees and then during a simply awful September, where they never won even two games in a row, they handed the wild card to Tampa Bay. The regular season's final night was perhaps the most amazing, when the Rays rallied in the eighth inning from a 7-0 deficit against the Yanks to win in extra frames, (Rivera was held out after pitching earlier in the series), while the Red Sox closer allowed a two run rally by the lowly Orioles in the ninth after striking out the first two batters of the inning! To add to the irony, ex - Ray Carl Crawford fell short of the last line drive hit, a catchable ball.

In the National League, the Cardinals, who struggled all year, emerged with the wild card when the Braves, who seemed to have a playoff spot locked up most of the year, simply stopped hitting the last month of the year and their previously reliable bullpen imploded.

Both the Braves and the Red Sox were playing so badly that it was doubtful either was going to go very far in the playoffs if they had made it, but the nature of baseball is such that a short series is largely a roll of the dice and any team would love to get their chance. So now, in the American League, you have the Tigers coming in playing very well, and the Rays playing their best ball of the season with a pretty good starting staff. The Rangers and Yankees are both too good in too many dimensions to discount. So I think all four teams have legitimate hope, but my gut tells me it might be Detroit's year.

In the National League, the Phillies' starters give them an edge, no matter how shaky their bullpen has been during much of the season. I don't think the Cardinals are a threat but the Brewers certainly are, since they are almost impossible to beat at home. Arizona is a dark horse team, having played so much better than anyone expected and done so consistently. If forced to make a pick, I've got to pick the best pitching staff and that's the hated Phillies.

The team that had a fantastic second half, but too late to threaten a playoff spot, was Don Mattingly's Dodgers. In my opinion, he should be a Manager of the Year candidate. Maybe the Dodgers will return to contention next year. One of the year's feel good stories was the mentoring relationship between Don Newcombe, one of the few remaining survivors of Brooklyn's Boys of Summer, and star slugger Matt Kemp who contended in the Triple Crown categories. "Newc" was 20-5 in 1955 and 27-7 in 1956 as the Dodger ace and was a dangerous hitter with power throughout his career. He frequently pinch hit and occasionally batted 7th in the order when he pitched. One article I remember in Baseball Digest claimed that the ball was dead when Newcombe pitched it and lively when he was hitting it. He later pitched well for the Reds but his career was shortened by a severe bout with alcoholism. He has spent much of his retirement visiting clubhouses around the major leagues to speak to players about alcohol's ill effects.

For a significant segment of his playing career, Don Newcombe was a Hall of Fame caliber player. He has always been a Hall of Fame caliber human being.

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A significant downside to the Great Recession of 2008 and the financial crisis that spawned it is that there was never consensus about its cause or even about its economic underpinnings. This has hampered discussion about the form its cure should take and how to prevent the "next financial meltdown." It has also contributed to the low level of political discourse in this country.

Of course, everyone wants someone to blame, a scapegoat, whether it's greedy bankers, the Bush administration, the GSE's, mortgage fraudsters, the ratings agencies, the hedge funds, and on and on. This blog pointed out well before the crisis took hold that the mortgage industry was laden with fraud and that Fannie and Freddie were accidents about to happen. There was no great genius there; the WSJ had been railing about the GSE's forever.

The bankers took a lot of flack because some of them got bailed out (notably not Lehman, Bear Stearns or Washington Mutual by the way) but I always viewed them as victims or collateral damage, with the possible exceptions of the aforementioned WaMu and Goldman Sachs, a true maker of mischief. Bank executives exacerbated their bad PR by taking outsized bonus compensation, another of my pet peeves.

Failing to achieve consensus on the cause of the crisis has led to very dysfunctional cures, among them, the Dodd Frank legislation, the BASEL banking standards, the determination to identify Significantly Systemic Financial Institutions (SIFI's) for Federal Reserve Bank regulation, etc. It has also emboldened those economists favoring Keynesian solutions, never mind that those have been the wrong prescriptions since the the 1980's. A good example is David Wessel's WSJ column today where he parrots progressives like Mark Kleiman in ruing that the Obama stimulus efforts have been too passive.

Many felt that way about the New Deal, and they were probably correct in that instance. Certainly Ben Bernanke's academic work has its grounding in that view. But the 1930's are not quite the same as our current state of affairs. Going into the depression, the federal government's debt load and obligations, funded or otherwise, were nothing compared to today's. Adding more and more debt to the $14 trillion already owed, knowing that at least that much has been promised in the form of entitlements and pensions to government employees, can't do anything but make our economy weaker. The Keynesian mechanism works when debt creates money for investment. Today, we are awash in cash even while we work at the task of deleveraging consumer and business debts. We need to start sovereign deleveraging too. Take on more sovereign debt to create money, pass it back to consumers in the form of payroll tax cuts, and it will be used to deleverage because consumers and businesses understand that when the government comes calling to delever, it means much higher taxes AND inflation. That's why we are in the Japan scenario, a (probably) 20 year no-growth phase predicted by Robert Prechter and others who understand the long range cycles that occur when debt formation alternates with debt liquidation.

As for banks, the requirement that banks hold more capital may seem logical, but in reality, it will do little or nothing to stave off future crises. That's because the nature of banks is to take on risk by borrowing short and lending long. When those mismatches go against banks, they overwhelm any capital that it might be reasonable to hold. Increasing capital to 7% as the Basel agreements propose (over many years) is like building an eight foot embankment to hold back the ocean. When the storm comes, the embankment is nothing but an underwater sandbar.

It's about 30 years since we deregulated banks by first breaking down the barriers between thrifts and commercial banks. It didn't take long after that to bring on the S&L crisis, and a huge bailout. Then came Gramm, Leach, Bliley, breaking down the barriers between banking, investment banking and insurance. The added risks in the system allowed by GLB led directly to the 2008 debacle. Dodd Frank can be seen as a partial repeal of GLB, but it is at best a halfway measure that purports to leave GLB in place. So now we will have the worst of all worlds, a purported free market in financial services where the Gullivers are tied down by the Lilliputian regulators.

I am not really advocating a return to New Deal regulation a la Glass Steagall, though the stability it brought to the system allowed other businesses and industries to thrive. But I am saying that if banks are going to be free to take risk, indeed, if they have to to attract capital, it is a mistake to tie them down, and a bigger mistake to bail them out, or somehow achieve an orderly resolution when they fail. In a true capitalist system, failure must be allowed, and it has to be painful; otherwise moral hazard takes hold.
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An interesting column in today's WSJ posed the question of why Herman Cain's candidacy shouldn't be taken more seriously. Indeed. Mr. Cain is a solid businessman with an outstanding record of achievement. What a role model he would be and what a boon for so far laughable attempts by Republicans to woo Black voters! If you haven't noticed, there is a little boomlet underway for him, as he and Paul have been the primary beneficiaries of the deflation of the Perry candidacy (predicted here 10 days ago). I still think Romney is the likely candidate, and don't think Christie is ready to run (though it seems to be his for the taking), but wouldn't it make a lot of sense to consider Cain for second spot on the ticket?
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On 9/19, we bought 100 shares of ING preferred at 17.94 for the IRA (ISP), reaching the maximum number of shares we want to hold in that one. On 9/21, we bought 100 shares of Stiefel Financial (SF) for the IRA at 27.42. On 9/23, we bought 200 shares of our longtime trucking fave, Knight Transportation (KNX) at 13.07. On
9/26, we bought 50 shares of AES Preferred (AES.PR.C) at 48.49. Finally, yesterday, we bought 200 shares of Alcoa (AA) at 10.50. All of these transactions were in the IRA.

One of the oldest of market axioms is to "sell them on Rosh Hashanah and buy them back on Yom Kippur." Like the Super Bowl indicator, there is no logical reason for this, but it does seem to work more often than not. Obviously, I prefer to follow my own formula. This has been a really bad quarter for the market, and most players on the long side are down meaningfully for the year. Lets hope that once we've atoned for our many sins, we can be redeemed, financially as well as spiritually.

Class Warfare Redux

2011-09-19T22:09:00.002-04:00

After the lead balloon "jobs plan," today comes the deficit plan, otherwise to be called "class warfare redux." Now, in addition to allowing the Bush tax cuts to expire for those couples in the $250,000 and up income range, Obama suggests eliminating the lowest dividend and capital gains rates for those in the million and over bracket. Presumably, by emphasizing the latter, he figures we might abide the former. But the GOP will never OK severing the higher income Bush cuts from the middle income cuts, and that means neither will happen.

As for raising the tax on dividends, well Ok, it was ordinary income not so long ago, I can live with that. Raising the tax on capital gains (presumably this is the Buffet tax, since gains constitute most of his income), that's just stupid economics. First of all, it won't raise any revenue, as has been shown many times before. Second, it murders stock prices, which only reduces growth, revenue, everything all good things.

The one thing I agree with the President about, as readers know, is ending the tax favored status of hedge fund managers' carried income.

If you want to increase capital gains rates, and increase the amount of double taxation of corporate profits in the system, you just have to adjust those gains for inflation. In fact, as an investor, I would gladly exchange the low rate for inflation indexing. Most of my taxable gains would disappear.

As for the rest of the plan, all of the savings were phony, from the unidentified cuts to be "found" by the special deficit committee, to the projected military wind downs, to the always rescinded provider cuts for medicare. Every day, this President sounds more desperate, more repetitively political, and just inept. He should be an easy mark in 2012. The recent Republican wins in the two special Congressional elections are all the evidence you need to know that the Dems' downward spiral continues.

But Republicans still need to settle on a viable candidate. I have said for a while that their most capable and electable prospect, Governor Daniels of Indiana, seems determined not to run. Of the current crop, Governor Perry has the lead, but I don't believe that will stand up. In baseball terms, we would say he has little upside. He can add the Bachmann voters, and Palin holdouts if any are left, but I think that's it. So of those actually running, I am more and more inclined to join the Romney bandwagon, warts and all. I think he's electable, he's reasonably conservative without being crazy (he was the McCain alternative in 2008 in case you forgot), and he will bring good and capable people to Washington with him to actually run the show. I might be inclined toward Huntsman, but he can't seem to gain any traction, and it's actually getting late in the process.

Of course, if you still want Daniels, or Christie, or whoever, you can hope for an old fashion convention deadlock. It would make for great TV, but it's been a long time since that happened.
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What can be done about the Euro bank and sovereign debt crises? Interestingly, I don't think the "richer" Euro countries can solve it on their own. If Germany bails out Greece, who bails out Germany in 5 years? My instinct tells me the solution does not lie there.

An interesting aspect of the world financial situation is that despite the teetering governments and banks, there is an awful lot of cash sloshing around idle. Some of it is in corporate accounts; some of it is in investors' cash allocations. Much of it is in the BRICS countries and others developing quickly.

The salvation of insolvent sovereign funds and undercapitalized Euro banks is, in my opinion, to simply pay up for the cash they need. For governments, they need to pay enough interest to make the risk of loaning to them worthwhile. It might also be possible to post collateral in the form of hard assets they control but which yield no income. That could mean land, buildings, rights, licenses, etc. For banks, I think they should seek equity financing. They will have to give up some control, but having Chinese or Brazilian partners is preferable to being forever under the gun.

If the European markets are so attractive, why wouldn't the BRICS countries and well heeled investors from all over the planet be interested in investing in them? But they will have to give up some of their socialist tendencies and restore free market opportunities. Same here. Obama's socialist lurches just have to be reversed in the next administration.

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We went to the Jets game yesterday, and it was a love-in as the Jets enjoyed a rare laugher. This after being so fortunate to escape the Dallas game. In that one, it looked like 2010 in that the Jets were dominated on both lines of scrimmage only to win the game thanks to their special teams and turnovers. Yesterday, at least the Jets defensive line held its own. The offensive line continued to struggle, especially at right tackle where there hasn't been much attempt to even impede the other side let alone block anyone. Actually, the game was won largely by the Jet secondary.

As much fun as MetLife Stadium is, I think the fans enjoy tailgating before and after the game more. There is even a section of the parking lot devoted to huge campers! And everyone was in green (except the Jets themselves who wore throwback NY Titans blue). It used to make me laugh to see St. Louis Cardinal fans all in red, but wearing the team colors and uniform shirts has become the routine for fans at pro games.
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At Birdland Wednesday night, we were treated to the increasingly rare appearance of trombonist Wycliffe Gordon appearing with the Louie Armstrong Centennial Band. Increasingly rare because Mr. Gordon has been leading various groups at venues all over the tristate area recently.

The highlight of the show was when Wycliffe was featured on Basin Street Blues. He played a chorus, then sang, moving in mid-chorus to accompany himself on the piano (with one hand while holding the mic in the other), then a two handed solo (accompanied by lone drum) then a scat solo. Returning to the main mic and resuming his trombone, he played it out while the rest of the band (laying out) looked on in delighted awe, and the audience cheered and sang along. I've said it before - Mr. Gordon is quite simply a force of nature.

The jazz scene in New York is heating up this week with a Coltrane salute at Birdland, Helen Sung at Smoke, Brandon Wright at Iridium, and many other venues worthy of your money and attention. Next week, Bill Charlap brings his trio to the Vanguard. And another of my favorites comes to Birdland in October, the Nicholas Peyton Sextet.
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We are still buying. On 9/9, we bought 200 shares of SEIC, a zero buy, at 16.06. On 9/12, we bought some more TIPS for the IRA, 20 shares (TIP) in the ETF at
116.40. On 9/14, we bought 1600 shares of Hauppauge Digital (HAUP), a very risky value buy at 1.33. Don't try that one at home. On 9/16, we bought 50 shares of Honeywell (HON), a zero buy at 46.99. All of these transactions were in the IRA. Remember, all securities and transactions are recorded here, but they are not to be considered recommendations, and this blog does not dispense investment advice.

The Jobs "Plan"

2011-09-08T21:16:00.002-04:00

The President asked Congress to invite him to speak to a joint session about jobs in hopes of preserving his, and Congress obliged after a little spat concerning the date and time. No matter about that, the question was what kind of plan would the President roll out. It soon became obvious there was no plan as the White House spent the last several days lowering expectations. In the end, the President rolled out a convoluted series of recycled proposals rather that any kind of cohesive plan, but included a couple of wrinkles, a nod or two to the Right, offset here and there by a nod or two to the Left. He did return to a more energetic and animated delivery which may give his likability number (already pretty high) a bit of a boost. And there were a couple of new ideas that amounted to reality checks concerning what has a chance to pass versus what doesn't. There was a nod to American exceptionalism, American individualism, an admission that A. Lincoln was a Republican, all proving that someone in the White House has at least been skimming the WSJ op ed pages.

In the recycled category, there was stimulus (round 3 or 4?) type public works stuff that states used to do (schools, roads, etc.), extended, even deeper payroll tax cuts (the taxes that fund our already under water entitlements), and extension of the extended 99 week unemployment benefit. I'm not sure how that last one creates any jobs. In the new wrinkle category, we have payroll tax cuts for employers (something that might actually help), tax credits for hiring the long term unemployed, (a stretch for most employers but modeled after a successful Georgia program),and refinancing help for under water mortgages (good luck on that one). In the cynical category were a bunch of recycled ideas, none more phony than the pushing of the free trade pacts which the administration has refused to submit to Congress for approval until Congress commits to the job retraining program the administration wants. Of course, that money would go to the Dems' union friends with the understanding that a good portion of it will be recycled back to the Democratic campaign committees. So the House is not going to go for that. This doesn't stop the administration from blaming Congress for failing to ratify agreements it won't submit!

The cynicism doesn't end there of course. There was the nod to unions and environmentalists when the President promised not to expand trade with partners who don't play by the rules, meaning the US Left's ideas of labor and environmental rules. There was the President taking credit for deregulation on the basis of the administration's purge of completely outmoded regulatory language long not enforced and on last week's decision not to implement the EPA's ludicrous smog standard, hoping to deprive Republicans of an easy campaign issue. Meanwhile, the EPA, the FCC, the FTC and others continue to torture industry and eliminate jobs with unnecessary regulatory burdens. And of course, not word one about rolling back PPACA and Dodd Frank, the two biggest job inhibitors of all.

In fact, there was this entire paragraph of business bashing:

"But what we can't do — what I won't do — is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades. I reject the idea that we need to ask people to choose between their jobs and their safety. I reject the argument that says for the economy to grow, we have to roll back protections that ban hidden fees by credit card companies, or rules that keep our kids from being exposed to mercury, or laws that prevent the health insurance industry from shortchanging patients. I reject the idea that we have to strip away collective bargaining rights to compete in a global economy. We shouldn't be in a race to the bottom, where we try to offer the cheapest labor and the worst pollution standards. America should be in a race to the top. And I believe that's a race we can win."

So we'll all be broke but at least we can wear the blue ribbon for winning the race to the top, whatever that is.

This is typical of Obama's rhetorical style. Giving with one hand while bashing with the other, and letting the listener try to figure out where he's really going. But after this long, we know, and in the end, he makes no one happy because he doesn't deliver results.

The biggest howler of all was Obama's claim that this "program" is paid for. How? First, the usual unspecified, and probably unachievable medicare/medicaid cuts, such as those that came with PPACA which have already been rescinded. Then, there is the request that the deficit commission find the rest of the cuts needed. This is after the President and his Dem colleagues negotiated a reduction in the cuts that the commission is committed to. So they'll give the R's the cuts they originally wanted in exchange for the new jobs stimulus. Only in Washington.

Republicans will find a few things in this hodgepodge that they could and should move on, such as the Georgia proposal, the free trade pacts (if they are ever submitted) and tax reform in 2012 or 2013. But if anyone actually believes this program is going to change our jobs picture, they don't have the slightest idea where jobs come from, which is the same problem the President has.
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I found it amusing that Lauren Bush decided her new married name would be Lauren Bush-Lauren (and not simply Lauren Lauren). It reminded me of an old Mad Magazine feature where they would dream up celebrity marriages where the women would wind up with funny names, such as those that rhymed. But contrary to popular opinion, those Bush's are just too sharp.
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The post office, which is only a quasi-governmental operation, is broke anyway, to the surprise of ...no one. Frankly, the business model has been made largely irrelevant because of e-mail and electronic bill paying. The talk is that Saturday mail deliveries will be curtailed, as well as a lot of local post offices. This does not go nearly far enough in my opinion. I would reduce mail deliveries to three days a week, giving businesses the option to ride on over and collect their own mail as often as they like from their P.O. Box or local post office. Frankly, Monday, Wednesday and Friday would be plenty of deliveries for me. Or even just Tuesday and Friday. Whether I get my solicitations and junk catalogues a day or two later means nothing to me.
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Sunday is the tenth anniversary of 9/11, and I have studiously avoided reliving the day on TV as many of the networks would have us do. For those of us in NYC that day, and the weeks and months that followed, even if we weren't downtown, the memories are still fresh enough, thank you. We still cherish the memories of the friends and acquaintances we lost for no good reason, and worry about the health of those first responders and ground zero workers we know.

Tonight we hear that Homeland Security has alerted the NY and D.C. police officers about specific credible threats for the next few days. That actually figures. Lets hope that the preparations and security procedures implemented will prevent any incidents.
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On 8/31, we removed our Royal Bank of Scotland preferred shares (RBS.PR.E) from the portfolio. We sold 1200 at 10.71, a capital loss of about $8,600, some of which we had recouped in the form of dividends over the years. Still, you don't buy preferred's to lose money. Nevertheless, RBS has suspended its dividends, and depends on the UK government for its solvency. It was a good time to get out.

On 9/2 we resumed buying. We bought 100 shares of Shaw Group (SHAW), a zero buy at 22.57. On 9/6, we bought 100 shares of Hartford preferred for the IRA (HIG.PR.A) at 19.62, which seems like a nice price. Yesterday, we bought 1100 shares of FSI International (FSII) for the IRA, a value buy at 2.04.

Post Hurricane Irene Post

2011-08-30T21:42:00.004-04:00

Lots of people were chuckling here in the Mid Atlantic / Northeast States as Irene passed through that we were overhyped again, that as usual, a mean looking storm had lost its punch over our cooler waters and on Long Island's south shore. But interestingly, hurricanes do more damage via water and flooding than by wind. Often that damage is realized after the storm has passed. So it was with Katrina in
2005. Many forget that New Orleans actually breathed a sigh of relief when the storm passed and the worst fears had not been realized. The real flooding came a day or two later, as did the loss of life and the chaos.

Now we have, admittedly on a less intensive scale, a similar post storm learning experience as Irene floods New Jersey and, of all places, Vermont. Though millions from North Carolina to New England have been seriously inconvenienced by the loss of power and the downing of trees, causing suspension of rail service on many routes, these are minor compared to the stories of whole towns being flooded off the map in upstate New York and Vermont. The death toll is rising accordingly.

In fact, here on Long Island's north shore, the wind wasn't much to speak of until later on Sunday afternoon with the rain already long gone. It was at that time, after we had restored the outdoor furniture to its rightful summer places and done some preliminary cleanup of branches, that a neighbor's rather large tree (well over 50 feet) came crashing through our fence and into our back yard, covering about two- thirds of its length and seriously damaging a row of hedges upon which it came to rest. Not having power for about forty or so hours was annoying, but at least we have it back; many do not.

So all in all, we count ourselves very fortunate. The tree missed our house, and we have no flooding or other damage.

The concern is, will other storms this season be inclined to follow much the same track? That would not be an unusual hurricane season experience, since storms go where they go for a reason, usually having to do with the jet stream and prevailing weather conditions.

One other observation. Hearing Governor Christie on Sunday night providing his update (on our battery powered radio), I couldn't help being impressed by a leader clearly hands-on, clearly in charge, stepping up to be responsible for what didn't work as well as what did. It was a refreshing change from the constantly professorial ambivalence we hear from our incumbent President. However things turn out for New Jersey, and it is far from settled, the Governor has demonstrated he has the chops for higher office. I know he doesn't believe 2012 is his time. He's young enough that his time will come.
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The Fed officials keep hinting that QE 3 is still on the table, and that seems to be part of the reawakening of stocks, and quickly ended the correction in gold. To most knowledgeable players, QE 3 means more inflation, more debt, more of what's wrong. However, the folks who will keep buying stocks as long as cans are kicked down the road love the idea.

Those readers who were around to read the posts describing our stock investing formula, or who have reviewed the archives where those posts reside, know that we would be buying now regardless of policy simply because the correction made the stocks on our buy/hold list too cheap, the indication of which is that our cash rose to well over 20%. That is no longer the case so sales will now be mixed in. Meanwhile, we have continued to accumulate other inflation hedges, like gold and TIPS. Historically, you don't go wrong betting against the tendency of governments to debase their currency. Those plays certainly had me sleeping better during our recent sharp correction.
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The hurricane did a lot of economic damage in addition to physical damage. I was supposed to attend a convention with about 1500 other attendees in Philadelphia, and the whole thing was cancelled at the last minute. A disaster for the hotel, the city and its restaurants, not to mention the bars!! This is also prime vacation time, through Labor Day. As if the economy didn't have enough issues.

I guess we'll be hearing Irene added to the litany of plagues that have prevented poor President Obama's program from adding jobs. There was the earthquake and tidal wave in Japan, the European bank crisis, Republicans failing to knuckle under to allow the job training handout to unions that Dems are demanding as ransom for passing the free trade agreements with Panama, Korea and Columbia, the debt limit deadlock and the Treasury downgrade, now Hurricane Irene. How are you supposed to overcome all that with mere hope and change?
-------------------------------------------------------------------------------------We will need to deal with two upcoming spinoffs in the near future and decide which parts of the businesses to keep. Fortune Brands (FO) will be separating its liquor distribution from its other businesses, having already sold its Acushnet golf business. My inclination is to keep both stocks on the buy/hold list. IDT is likely to spin off its Genie shale oil energy business from its telecommunications (main) business. It's the energy business that I was interested in, especially the initiative in Israel. So I may keep Genie and sell IDT.

We've been buying into the correction, as per the formula, and after ten straight buy transactions, we bought 6 more since the last post. On 8/17, we bought 500 more shares of Pulte Homes (PHM), a zero buy at 4.85. We were losing faith, but today Pulte was actually upgraded by a brave analyst. On 8/22, we bought 15 shares of the SPDR Gold Trust (GLD) for the IRA at 181.93. On the same day, we bought 100 shares of ITW, a value buy at 42.40. On 8/25, we bought 300 shares of slumping USA Trucking (USAK) at 7.81, another zero buy. On 8/26, we bought 200 shares of Goldman Sachs Preferred (GS.PR.D) for the IRA at 19.73. Yesterday, we bought 200 shares of IDT, a value buy at 20.36. It closed below 20 on Friday, hence the order for the extra 100 shares.

Quasi - socialist hell

2011-08-16T22:13:00.003-04:00

When Israeli soldiers retaliate against rocket firing or sniping Palestinians in Gaza or the West Bank, it makes the front page of the Times and engenders the wrath of the academic left. But how many of you know that Syrian tanks and gunboats this week shelled a Palestinian refugee camp of 40,000 in the Syrian port city of Latakia, killing four and prompting thousands of residents to flee for their lives? This according to the Wall Street Journal, perhaps the only paper left in this country where the line between the editorial page and the news pages is still respected.

This is a pretty complicated situation. It has been well known for decades that Arab nations are happy to have Palestinians cause agitation against Israel but would never lift a finger to help them themselves. Syria and Iran are known Hezbollah patrons and have some sympathy for Hamas in its rivalry with Fatah. However, right now, the Assad government is under pressure from the Arab Spring rebellion and so they are concerned about the Palestinians in their midst. It's a natural instinct for bullies like Assad to strike at weakness.

The fact is, no Arab country wants Palestinian refugees in their country. This has been true since 1948. The misery of the Palestinians is caused more by their Arab brothers than it is by Israeli's. This does not go down well with Islamists of all stripes, and you won't find the truth in any Arab school textbooks.
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One question is, why aren't our own students learning the truth? For that, you have to understand the attitude of our academic progressives and their contempt for our traditional values. Go to the progressive websites and you will see what I mean. Or ask your kids who are subject to anti-American propaganda in high school and college here at home. The garbage they are subjected to, presented to them as fact, is shocking. We have to work full time to make sure they hear both sides. Even, intelligent, skeptical kids have a hard time coming out of our colleges with a balanced view. Imagine how difficult it is for the unfortunately vast majority of our kids who are not well read and lack the chops to challenge their left wing professors.

There was a very good letter this week in the Wall Street Journal, written by a reader, Jonathan Kahnoski, who finally had enough of the overreaction to the concept of American exceptionalism:

What Mary Rosenthal (Letters, Aug 10) calls America's acting "aggressively around the world for over 100 years," others may cite as our saving the world. The U.S. tipped the balance for Great Britain and France in World War I; we forced unconditional surrender on Nazi Germany and Imperial Japan in World War II; we defended South Korea from communist invaders and held the Soviet Union at bay until that last great empire's collapse. When America didn't act "aggressively," millions died in places like Cambodia, Rwanda, Somalia, and the Balkans. No question, America is not and cannot be the world's policeman, but we should remember when we do not bring our strength and values to a situation, people often die by the thousands and tens of thousands.
There is nothing noble or even realistic about denigrating one's own country in the name of giving due respect to other nations. And some of us are quite capable of simultaneously maintaining two thoughts: love of our own country and respect for other countries.

Well said, Mr. Kahnoski. To your list, I would add that we removed one of the real nasty tyrants of the Middle East, Saddam Hussein, and given the evidence of his atrocities that continues to be uncovered, I make no apologies for that. And that has unleashed a chain of events that ultimately will remove Khaddafi, Assad, and the Mullah's in Iran. That is, unless the likes of our current President lose their nerve yet again. One can only hope that voices like the Clinton's and the loyal opposition leaders will overcome the progressive appeasers.
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A lot of folks on this side of the pond are having trouble making sense of the riots in the UK, which they assumed was a happy quasi-socialist island with a popular National Health Service, enlightened race relations, and a population well behaved despite a largely unarmed police force. Progressives assume that conservative policies causing higher youth unemployment, particularly among immigrant non-whites, have caused a purely rational reaction. Of course this is bunk. Those actually reading about what has gone down and paying attention will understand that what we are seeing is the logical consequence of socialist entitlement policies, where youth has learned that's what really rational is to avoid work, violently take what you want, and fear no lawful response. Consider these observations (WSJ op ed excerpts):

From Theodore Dalrymple (the pen name of a British physician): The youth of Britain have long placed a de facto curfew on the old, who in most places would no more think of venturing forth after dark than would peasants in Bram Stoker's Transylvania. Indeed, well before the riots last week, respectful persons would not venture into the centers of most British cities or towns on Friday and Saturday nights for fear - and in the certainty - of encountering drunken and aggressive youngsters...The rioters...had a thwarted sense of entitlement that has been assiduously cultivated by an alliance of intellectuals, governments and bureaucrats. "We're fed up with being broke," one rioter was reported as having said, as if having enough money to satisfy one's desires were a human right rather than something to be earned. "There are people here with nothing," this rioter continued: nothing that is except an education that has cost $80,000, a roof over their head, clothes on their back and shoes on their feet; food in their stomachs, a cellphone; a flat screen TV, a refrigerator; an electric stove, heating and lighting, hot and cold running water, a guaranteed income; free medical care; and all of the same for any of the children that they might care to propagate...(Meanwhile), Britain was importing labor to man its service industries. You can travel up and down the country and you can be sure that all the decent hotels and restaurants will be manned overwhelmingly by young foreigners; not a Briton in sight (thank God)...The young unemployed Britons not only regard fixed hours as a form of oppression, they are also dramatically badly educated. Within six months of arrival in the country, the average young Pole speaks better, more cultivated English than they do.

From George Mason University professor Joyce Lee Malcolm: Great Britain's leniency began in the 1950's with a policy that only under extraordinary circumstances would anyone under 17 be sent to prison. But the alternative to incarceration has been simply to warn them to behave, maybe require community service, and return them to the streets. There has been justifiable concern about causes of crime such as poverty and unemployment, but little admission that some individuals prefer theft to work and that deterrence must be taken seriously. Victims of aggression who defend themselves or attempt to protect their property have been shown no such lenience. Burglars who injured themselves...have successfully sued homeowners for damages. In February, police in Surrey told gardeners not to put wire mesh on the windows of their garden sheds as burglars might hurt themselves when they break in. Tony Martin, an English farmer, was sentenced to life in prison for killing one burglar and wounding another with a shotgun during the seventh break-in at his rural home in 1999. While his sentence was later reduced to five years, he was refused parole in 2003 because he was judged a danger to burglars. In 2008, a robber armed with a knife attacked Tony Singh in West Lancashire. During the struggle the intruder was fatally stabbed with his own knife. Although the intruder had a long record of violent assault, prosecutors were preparing to charge Mr. Singh with murder until public outrage stopped them.

And finally, London's City A.M. editor Allister Heath: Fear. Debilitating, widespread fear. The country held ransom by feckless youths...The cause of the riots is the looters; opportunistic, greedy, arrogant, and amoral young criminals who believe they have the right to steal, burn and destroy other people's property...The context was two-fold: first, decades of failed social, educational, family, and microeconomic policies, which means that a large chunk of the UK has become alienated from mainstram society, culturally impoverished, bereft of role models, permanently workless and trapped and dependent on welfare or the shadow economy.
For this the establishment and the dominant politically correct ideology are to blame; they deemed it acceptable to permanently chuck welfare money at sink estates, claiming victory over material poverty, regardless of the wider consequences, in return for acquiring a clean conscience.

If any of this sounds familiar, well, it should. This is where our politically correct elite would take us too. They admire the European socialist model. They would impose the health, unemployment and other entitlements that foster dependency and entrench their political favorites. They believe that it is only they who have the intellectual chops to organize the economic, social and intellectual climate. They are unwilling to allow the rest of us the freedom to pursue our own path. They don't believe that desire for success and fear of failure are necessary to motivate kids to learn, young adults to work, mature adults to stay with and raise families. They don't accept that the world evolved as it did because it works better that way. Allowing it to evolve further will allow mankind to further progress. There are no short cuts. Marx and all the others who believed they could impose their will to accelerate progress only proved the futility inherent in their arrogance.

But don't expect the academic left to ever agree with such common sense. They are the geniuses; they know it all; the rest of us need their guidance. Right.
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Meanwhile those of us on the political Right have our own little problem. We've got an incumbent President set up for an electoral defeat and no candidate so far who seems even remotely suitable for the job. Believe me, all we want is someone with Conservative chops who can avoid saying stupid things, refrains from belief in flying saucers and the like, has never advocated secession, witchcraft, converting homosexuals, loyalty oaths, etc. In short, just give us someone who can win. The reason Romney is leading is he's the closest thing to such a candidate, but Romneycare unfortunately calls into question his conservative chops. So here I am, once again in the position of hoping for a deadlocked convention that would draft a hand picked candidate who can win. Someone like Governor Daniels of Indiana for example. This is a quaint, 19th century notion, I'll admit.

The Obama folks are dying to run against a far Right candidate. Their dreams of running against Palin are now supplanted by a desire to run against Bachman or Perry. It won't be them. But who it will be is very much a question, and that's why Romney remains the presumptive candidate, despite his obvious flaws.
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The deficit commission has been named and the inescapable conclusion is that they will agree to nothing and we will have across the board cuts, a much less than ideal result. At least the GOP tried to name people capable of compromise, and I have to give credit to Harry Reid for doing the same (as much as it hurts to do so). But the Pelosi picks were brutal, coming from her leadership group and including the noted class warrior Clyburn. At least Boehner resisted naming Ryan, who really wanted in, knowing his lines in the sand could not be breached. Forget about the House Dems; they are incapable of compromise.
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Preseason football is only for junkies, the folks who are actually interested in seeing the rookie draftees and free agents play even though most won't actually make the team. This year's pre-season is accelerated because of the lockout, and the usual desire to avoid injury is exacerbated by the inescapable conclusion that the players are not yet in shape. So I hope the gridiron powers that be won't mind if I just ignore these games that don't count. Please wake me up when the bell really rings.

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On 8/10, we bought 400 shares of Boyd Corp.(BYD), a zero buy and a sinkhole so far, I might add. The price was 6.02. On 8/12, we paid 24.78 for 100 shares of MetLife Preferred (MET.PR.B) for the IRA. Yesterday, we bought 100 shares of Manpower (MAN) at 41.99, a value buy at these prices.

Market capitulation leads to reversal (for now)

2011-08-09T22:13:00.002-04:00

Yesterday's wipeout of the stock market was followed, as one might expect, by a technical rebound this morning. However, in a very volatile session even by recent standards, the market seemed to be giving most of the gains back. Ar 2 PM, the Fed released its statement following its meeting, which featured a lengthy and fairly grim assessment of the economic picture, followed by the most unusual statement that the Fed was now defining its extended period for holding interest rates near zero as lasting at least into the middle of 2013.

At CNBC, it took the commentators more than a few minutes to digest the statement. Clearly, the Fed was saying that the economy was so bad, and immediate inflation pressures had eased to such an extent that higher interest rates were not appropriate. On the other hand, the Fed also provided some red meat for inflation hawks by not mentioning anything about QE III, the "fix" liberals anticipated.

The market reaction was initially negative, and sharply so. The Dow went from about an 80 point gain to a 200 point loss in a matter of minutes. As usual, there were differences of opinion about why. CNBC economist Steve Leistman seemed to think that market participants reading the statement's dour economic prognosis were reacting to that. Others may have felt that it was disappointment that QE III was not being initiated. I don't think either is the correct interpretation. In any event, the market then did another about face, rallying over 600 points in the last hour and a half to give us a reversal of about two-thirds of yesterday's carnage. Was the market cheering Fed action, Fed inaction, or was it simply tired of selling. That was one of the suggestions made tonight - when the hedge fund types couldn't drive the market over the edge, they switched to the buy side and gave us the big relief rally.

My own view is that the market at first wasn't thrilled about the continuation of current policy, then thought a second time and realized that at least it wasn't more monetizing in the form of quantitative easing, that we could now look forward to at least two years of fairly stable Fed policy, and that the Fed quite properly kicked the economic ball back to the politicians to solve.

It should also be noted that there were three dissenting votes, mainly from the hawkish side who presumably would like to have kept the Fed's options open to raise interest rates.
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No surprise that the administration is the big loser in this chapter, since it is now so clear to all but the most "convinced" progressives (never right but always certain) that what everyone is demanding is real spending discipline. Meanwhile, the administration and the President seem to be obsessed with its political message. This quote from yesterday's message from the President on the convulsed markets has become all too typical: "the package should include tax reform that will ask those who can afford it to pay their fair share." A President trying to position himself above politics would have ended the sentence with the word reform, but Obama cannot resist the impulse to engage in class warfare, which is key to his ill-conceived re-elect strategy. The WSJ editorial writer put it best, quoting a friend: "The Obama administration needs to stop trying to disarm the fire alarm and start trying to put the fire out."

By the way, what would be our fair share? Aren't the "rich" paying a disproportionate share of our taxes already?

As for the S&P downgrade of Federal debt, instead of pointing out that economically, it was really a non-event (simply making official what should have been fairly obvious) Obama and Geithner degenerated into intimidation mode, taking S&P to task for their action and claiming that the downgrade was based on a $2 trillion mathematical error. Today, Democrats in the Senate piled on, threatening to subpoena S&P officials to testify at hearings.

In its ineffectual nod to "job creation," Obama has proposed (or rather, demanded) that the payroll tax reduction (waiving 2 per cent of the employee's social security withholding) from the failed stimulus be extended, along with the 99 week unemployment benefit period. Neither of these items creates a single job of course. The two per cent reduction in withholding does not apply to the employer's share, therefore does nothing to encourage either large or small business to hire. As for the extension of unemployment benefits, I view that as a negative for the economy. Not only does this add to employer costs for funding those benefits, it alters the equation for job seekers, causing them to demand more before taking a job but leading to the further erosion of their skills.

Of course, incentives are not considered by this gang that can't shoot straight.

All extending these measures will do will be to increase the overall Federal debt, hasten the looming insolvency of social security, and discourage able workers from returning to the workforce.

Sadly, Tim Geithner has decided to stay on at Treasury which means he can continue his apparent mission to compile the worst record at that post in over 30 years. He has also become a shill for the administration's class warfare policies, further reducing his almost non-existent credibility.
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In happier news, the Mets have reacted to their latest flurry of injuries by engineering remarkable come-from-behind wins against the hot Padres the last two nights. We were in the ballpark for Monday night's rally, and it was really fun.

Yankee fans were on cloud 9 following their very clean win over the hated Bosox Friday night and anticipated winning that three game series. Instead, it was the Red Sox coming up with two devastating wins, as CC was bombed Saturday and Mariano actually blew a save. Rivera also took the loss at home against the Angels tonight.

Baseball is certainly fun in its unpredictability.
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As followers of this blog might expect, the market swoon has us in buy mode. On
8/5, we bought 100 shares of Hartford Financial Preferred (HIG.PR.A) at 22.64. On Monday, we bought 100 shares of Flir Systems (FLIR) at the opening for 24.01, of course not knowing how much cheaper it would get over the course of the day.

Why Prices are Cascading

2011-08-04T11:18:00.003-04:00

As expected the debt limit increase passed, with belly aching by both Tea Partiers and Liberals, but with healthy margins. Congress never refuses to write itself an increase in its line of credit, even when it makes a pretense of self-discipline.

An interesting reaction to the denouement has been that the financial markets have voted thumbs down. In my view, I would interpret the market slumps (everything but metals and certain foreign currencies) as a protest against the softness of the savings so far identified. In fact, the markets interpret the deal as another instance of our leaders kicking the can down the road, the Tea Party's success at changing the nature of the conversation notwithstanding.

Of course, one problem with market reactions is that the market doesn't speak specifically or definitively, so anyone can make the interpretation they like. Progressives think the market is upset because "austerity" exacerbates the double dip recession possibility. So one must accept that people of different world views will have extreme difficulty in having a civil and enlightening conversation about these issues. To me, reviewing the liberal blogs is like visiting fantasy land. They revile the Tea Party and consider THEM the crazies. In fact, the Tea Partiers are the only people facing the reality of our crippling fiscal situation. Hence the rise of Cantor and especially DeMint.

After a technical bounce yesterday, the market is resuming its devastating slide today. We opened down a hundred points today and as this is written, trail by about 220. That means we are down about a thousand Dow points in the last ten sessions. This is reflective of a concern about the health and ability of corporations to deal with a significant double dip recession experience. Frankly, the bottom today could be quite a bit lower.

In fact, corporations have largely enhanced their balance sheets since 2008, though I have detected some weakening in the second quarter reports. Though scary, this probably represents a nominal buying opportunity; nominal because I expect the inflation that we will soon experience to offset the price gains when they come in. In fact, it will be inflation that drives stock prices higher once equilibrium is restored.

This is a very difficult time to be on the Federal Reserve Board, though they brought much of this mess on themselves. The fact is that we NEED higher interest rates, and we need to reduce the Fed's balance sheet, not increase it again as they seem to be tempted to do now via QE3. How does the Fed take these actions on the precipice of another downturn? This is yet another reason why the Fed needs Congress and the Administration to cooperate by reducing spending.

Why do we need higher interest rates? Right now, corporations and banks are hoarding cash, as they have since 2008. Would you invest in any venture involving risk at a yield of near zero? How many of you are buying CD's, and providing capital for accumulation purposes, at such low rates? That is what the Fed seems to be asking business and consumers to do. Not going to happen, and the economy will remain dead in the water until a normal risk/reward ratio is restored.

Meanwhile, the Fed continues to prop up banks by paying them much more on their reserve deposits than they have to pay what consumer deposits they can drum up.

Furthering the problem is the regulatory madhouse unleashed by the Obama Administration, and the one they have promised by enacting PPACA and Dodd Frank. That just raises business costs and risk. Other frictions include the failure to submit the trade agreements for approval, a nod to the administration's union buddies.

If all this sounds like a rerun of the Carter Administration, that's because it is. Luckily, we reversed course in 1980 after four years of this kind of nonsense. Let's hope the electorate in 2012 has some of the same common sense.
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Back at my computer, and the markets have finally closed, as I expected, down much more, over 500 Dow points and even worse on the NASDAQ - over a 5% loss. This was a day that resembled the bad days of 2008 in that every time the market tried to poke its head up, the big players came in and squashed it. Paul Kangas might call it "mindless selling." Nice earnings reports were greeted with double digit losses. Dividend increases were ignored. It was really a day to lay low.

Maybe now, readers will understand why we have been moving money gradually into preferred's, gold and TIPS. Even there, only TIPS thrived in today's rout, indicating there is more fear about inflation than deflation. More on that in a second.

This was a day that only Bob Prechter and his followers could love. As the Eliot Waves came crashing down around us, one wonders whether Prechter will ultimately be vindicated after all. I would say that he already has, at least economically if not in terms of his stock price predictions. We are certainly well into a decade or two of flat to no growth.

On the other hand, Fed actions to inflate the dollar seem to have thwarted Bob's expected deflation and the attendant slump for gold and commodity prices. In fact, I think there is a good chance the Prechter scenario might have occurred if not for the irresponsible fiscal and monetary policy of the country since 2005 or so. Instead we face an inflationary, no growth period, something like what we experienced during the Carter years. It will be different though; I'm just not yet sure how.

So where does the market go next? We don't know and we don't forecast. We do react to market developments, methodically, unemotionally, and in accordance with our investing formula. I will say that what happened today just doesn't feel as much like a bear market as it does the end (or very near the end) of a short but very sharp correction. There was capitulation today, and that is necessary to go through before we start back up. I just don't see how a bear market starts when all these companies are raising earnings guidance and dividends. That doesn't add up for me.
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We did take a beating today along with most other players, one of the worst ever. I suppose we might be down for the year now, or even at best. We have been buying, at what seemed like good prices at the time, but not now. On Monday, we bought 200 shares of American Dental Partners (ADPI) at 11.67. On Wednesday, we bought 400 shares of Pulte Homes (what, again? PHM) at 6.24. We do what the formula says, but these are both speculative stocks that most folks should avoid, particularly in such volatile markets. We'll fish in the preferred pond tomorrow and reassess over the weekend.

Good time for our periodic disclaimer. Neither Redwavemusings, nor its author are investment advisors, and the comments and securities mentioned here do not represent advice nor recommendations. The securities and our investing strategy are likely to be unsuitable for readers (and everyone else, including moi).

The Eleventh Hour Non-Surprise

2011-07-31T21:34:00.004-04:00

As expected, at the eleventh hour, we seem to be on the verge of a debt limit agreement, no thanks to the President and the Treasury Secretary who have been nothing but relentless in politicizing the issue because they believe it inures to their re-elect benefit. Of course, they are not entirely to blame - the debt limit has always been a political football. Both parties have made it difficult for the other party's administration to raise the limit in recent years even though everyone knows it must be raised. In fact, Obama himself famously voted against raising the limit in 2006.

What is different this time is that after the Bush administration allowed the deficit to balloon in 2006-2008, due to the war, the failure to veto a single spending bill, the Medicare part D, and finally the financial crisis, (before anyone even starts to complain about the tax cut, let's remember that it juiced revenues until the 2008-9 recession hit) Obama doubled the deficit in his first year, accelerating the red ink above and beyond anything his predecessor ever contemplated. In fact, while GWB ineffectually rued the expanding deficits, Obama seemed to embrace them as a Keynesian solution to the recession. In that respect, his stimulus spending has failed totally.

On top of that, the looming expenditures attaching to the ill-conceived Affordable Care Act (a misnomer if ever there was one) threatens to accelerate deficits to yet another level. So true conservatives and Tea Party types view the raising of the debt limit as another blank check for Congress to write, an offer it never refuses. They have been determined to extract true deficit control in exchange for the debt limit increase this time. Some of their ideas make a lot of sense, the requirement for specific cuts over ten years at least equal to the debt limit increase, possible repeal of CLASS, and tax reform. Others - the balanced budget amendment for example - not so much.

In any event, according to my friend David Espo's wire service report released within the last hour by the AP, the deal contemplates two stages with a commission determining the terms of the second stage. In the first stage, entitlements and tax rates both escape change. So the deal is likely to have elements of each of the Reid, McConnell and Boehner proposals. The leaders will be trying to round up the votes tomorrow, and I think they will succeed, though both Tea Partiers and liberals will be hard to rein in since they will find objectionable provisions. But I think voters will demand that the measure pass.

The political fallout from all this is hard to predict, but I see no reason to change my view that the President has been badly hurt and now has a pretty much indelible image as a free spender and a class warrior, neither of which will help him in 2012. Worse, he looked ineffectual. I think the Tea Party folks will benefit since they seemed to be the ones really taking our fiscal mess seriously. I expect the way has been paved for DeMint to replace McConnell at some point and Cantor to replace Boehner.

As for GOP candidates, I guess Bachmann may be helped a little, but I don't expect her to be the nominee anyway. I didn't think any of the prospective GOP candidates, including Romney, provided useful input. I guess this means that the option to draft one of the attractive sitting governors is still on the table for the GOP.

As for the country, the debt limit debate was important in that the terms of debate have been reset. But to get things working, we've got a lot of changes to make. These include repeal of the Nixon era law against impoundment, repeal of PPACA, repeal of much of Dodd Frank, resetting regulatory agencies throughout the federal government, wrapping up the two wars (what are we still doing in Afghanistan anyway, now that bin Laden is dead?), approval of the three (at least) free trade agreements with Columbia, Panama and South Korea, and very importantly, tax reform. The Fed will have a difficult job in making the necessary interest rate increases without tipping the budget into a death spiral. These will be challenging times indeed.
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I have to admit, I don't really know what to make of the News Corp hacking scandal. Apparently this has been normal operating procedure among the UK tabloids, and that includes the corruption of police and political figures. It is amusing the way the left pounced on the Murdochs during their hours of public agony.

For me, this seems another clear case where criminal activity has taken place, but not the crime of the century and the reaction seems disproportionate. That said, the press, like the academic world, seems to have overreached concerning their frequent assertions of special privilege. No problem seeing them get recentered a little.
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The baseball trading deadline was today, and the sport's economics being what they are, you had the usual flurry of deals where contending teams shored up lineups, obtaining front line players in contract walk years from non-contending teams in exchange for unproven prospects. When economics and players contracts dictate personnel moves, fantasy players and other fanatics are amused, but I have to believe kids are turned off. This is why baseball's fan base is at risk and one reason why so many kids play lacrosse and soccer in preference to baseball. It is difficult for kids to be loyal to teams and players when trades are made for economic reasons to the detriment of team performance.

That said, New Yorkers are enjoying the season with both teams exceeding expectations and the Yankees looking forward to their probable post-season appearance. Interestingly, the races for the division leads are more in doubt than the wild cards. It just makes you wonder why Bud is so sure an additional wild card is the answer. I would prefer to see the American League add two teams, perhaps in San Juan and in Mexico somewhere (or Dominican Republic) and then we could have 4 eight team divisions. If Bud wants to include the second place teams in the post season, I could live with that.
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Friday night, the Birdland Big Band was in top form before the usual full house, and they reprised a rare treat - the West Side Story medley that launched the band on its successful weekly gig. They played it in lieu of their normal finishing selection, also entitled Birdland, but no one seemed to mind. Most of us had forgotten just how great the medley arrangement is, played by New York's top band in its own house.
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The Norwegian horror show, reminiscent of Oklahoma City, should bring to mind that with bin Laden dead and Al Queda apparently in disarray, this is a good time for us to pull back, certainly from Afghanistan, which would save some money, and perhaps reverse the momentum toward ill will in the world. We need to modulate our activity in Iraq too, but there is grave concern (and there should be more concern in the Administration) about increasing Iranian activity in the country.

It is clear that not enough of these homicidal nuts are on the proper medication.

In fact, hospitals around the country are reporting shortages of all kinds of drugs
and it is impacting patients. Maybe it's time for us to reconsider the laws governing patent protection and whether such protection needs to be extended or decreased. As for the FDA, I would like to see their activities reviewed top to bottom.

We are not being well served by federal regulators these days, and that's a big reason why private investment is slow.
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We sold 100 shares of XCEL Energy (XEL) on 7/25 at 24.38. We paid 15.78 for these shares on 5/17/04. Then we switched to the buy side, as the market has been on the defensive for a while. We bought 700 more shares of FSI International (FSII) on 7/25for 2.97, a value buy but one you should not try at home, since this is the very definition of a speculative stock. On 7/27, we added 100 shares of International Data (IDT) for 24.97. Then on 7/29, staring right into the face of the phony default crisis, we bought 20 shares of the Inflation Protected Treasury ETF (TIP) at 113.16. The coming inflation will not be phony, I'm afraid.

Politics rules the debt limit debate

2011-07-19T22:08:00.003-04:00

The debt limit kabuki dance goes on, with the dramatic collapse of the "Big Deal" Friday night and the expectation of both House and Senate proposals tomorrow. A good indication of the bankruptcy of the incumbent administration was Obama's embrace of the new Gang of Six (almost) proposal before he had even seen it. This was followed by the incompetent performance of Treasury Secretary Geithner on this morning's news shows. I saw his interview with Chris Wallace (you can say whatever you want about Fox News but Mr. Wallace compares favorably with all three of the other Sunday morning hosts) and it was a real knee slapper.

Wallace was as tough with Speaker Boehner who came off as much more serious and less politically driven than the Secretary. I still think Boehner will wind up passing a shorter term fix, which ostensibly no one wants, but everyone will take, to buy time. This blog predicted the $2.4 trillion deal would happen, and it could, but even less is possible with a shorter time until the debt limit comes on the table again.

It seems clear that everyone's major concern is the 2012 election, but it is almost an obsession with Obama. Geithner raised the specter that the markets would react badly to anything less than the Big Deal, but what the markets really want is for debt to start to reverse and for the dollar to start to move up. Of course the markets also want jobs, but that means the Administration would actually have to pass the three pending trade agreements (especially with Columbia and South Korea), instead of pretending to support them, and for the administration to back off some of its regulatory initiatives. One idea that seems to have bi-partisan support is to repeal the CLASS act as part of the debt limit increase legislation. Might as well since it will never be implemented anyway. What people forget is that CLASS was scored by CBO as a budget positive in PPACA (when it should actually be a negative) and that PPACA would have been negative without it and probably could not have been passed. So repealing CLASS makes sense, but somehow the corollary, that PPACA should also be repealed is not happening. The deal I would support would be a clean debt limit increase in exchange for repeal of all of PPACA and all of Dodd Frank. Believe me, that would provide for a lower deficit and a boost for the economy - but Democrats would view it as a violation of their cannon so it won't happen. Too bad.

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It's also too bad that the Progressive doctrine is so extreme and so uncompromising because just like Conservatives, there is good and bad in what they believe. Here's an example. I'm not much for the environmentalists - I believe they are more anti-industrialist than anything else. But I am convinced that one of their major areas of concern is legitimate. That is, what we are doing to the ocean environment is disastrous. Man is clearly overfishing. We are also dumping shit - literally - into the water, as well as chemicals, acid rain, etc. and this is having fatal impact upon coral reefs and many other essential elements of the food chain. I think this is something all of us should be concerned about - it is a much more serious problem than the occasional oil spill. I think this is a more urgent problem than global warming or any other non-problem keeping environmentalists up at night.
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The unfairly maligned GWB administration (which I will admit was not God's gift to freedom) got another indirect boost from 60 Minutes tonight when it re-ran the astonishing episode concerning Saddam Hussein's diversion of the Tigris and Euphrates Rivers in his effort to eradicate the "Marsh Arabs." Somehow, the environmental lobby does not get so exorcised when GOP enemies commit environmental sins in the cause of their murderous political goals. It does not reflect well on the Left that it opposed Bush on everything. even when he took on and removed one of history's worst mass killers. If anything, it seems we all underestimated the horrors of the Hussein reign of terror, and since our CIA put him in power in the first place, it seems it was also our obligation to remove him.

Look, GWB failed in many ways, most notably doing too little to restrain the free spending Congress of his era, but it is increasingly a bankrupt judgment to say that the removal of Saddam Hussein was anything but a humanitarian impulse.

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Last weekend was certainly a feel good sports weekend. Darren Clarke finally won the British Open, his first major, following a miserable five years that included the death of his first wife due to breast cancer. He is now engaged to what will be wife number two. Also, the Japanese girls comeback win against the US in World Cup soccer was a nice outcome for that beleaguered country. It took nothing away from our girls who also performed brilliantly throughout.
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On July 13, we bought 1200 shares of Hauppauge Digital (HAUP), another $2,000 flyer on this HIGHLY speculative stock. Not for the faint of heart or those inexperienced with dynamite. But it's a value buy due to no debt and the low valuation it probably deserves. On 7/15, we bought 100 shares of Shaw Group (SHAW) following the brutal beating the stock has taken because of its involvement with nuclear power projects and its always questionable management team, perhaps light on the compliance side. On 7/18, we bought 100 shares of ING Preferred (ISP) at 21.20, completing a series of high risk purchases, at least for now. On 7/20, we sold 300 shares of Newpark Resources (NR) at 9.30, purchased 6/22/09 for 2.85.

Both Sides Dig In On Debt Limit

2011-07-12T21:39:00.002-04:00

I invite redwavemusings readers to review the comments appended to our last post. It seems that Dr. C. is concerned that we may have implied that we support GOP and Tea Partiers resisting increases in income tax rates at the higher brackets (or as he would put it, restoration of the rates prior to the Bush inspired tax cuts). So I guess I should clarify. I wasn't implying that holding the line on taxes is the redwave position, I was saying it, clearly and in no uncertain terms. Sorry if I soft pedaled it before.

Actually the redwavemusings position on income taxes is and has been more nuanced. The fact is, middle class taxpayers were by far the primary beneficiaries of the unfairly maligned Bush tax cuts (and misnamed since I believe they were passed by Congress - oh, never mind). That's because most taxpayers in the $250,000 + brackets were already paying their taxes based on the AMT tax calculation, so all the cutting of their rates did was transfer more of their liability from the tax rate line to the AMT line. Their taxes did not go down, for the most part. I know this has been true in my case, since I calculate my own taxes. If you let your accountant do your taxes and you simply sign the return and mail your check, it is likely you have limited if any understanding of how our tax system actually works.

Of course, some upper income taxpayers in states with low or no state income taxes may have actually enjoyed a cut, at least for a while. As the AMT works its way down the income scale (due to bracket creep and the lack of indexing), those taxpayers and actual middle income payers are losing their cut. So if we are going to compromise about anything, let's agree to stop demagoguing about the "Bush tax cuts," OK?

So that's why, for me at least, it's no big deal whether the tax rates are restored, since it won't change my taxes or that of most others in my bracket. It will only transfer some of the liability from the AMT line back to the tax rate line. Who cares? Of course, restoring those rates won't impact the deficit much either.

Also, it has long been this blog's position that the characterization of "carried interest" as capital gains, eligible for the 15% tax rate, is ridiculous. That gift to hedge fund managers should have been corrected long ago, recharacterizing that income as ordinary income.

Having said that, I see no reason for Republicans to compromise on the question of revenues, and I hope they don't. To the extent small businesses might be hurt by raising rates and eliminating deductions, we will only be hurting ourselves, since that will be yet one more reason for jobs to be eliminated (as if this Administration hadn't already provided enough). You might recall we have been through this chapter where eliminating incentives to buy yachts and corporate jets resulted in the near death experience for both industries, and so the loophole closers were repealed out of necessity. In fact, the repeal relating to corporate jets was part of the first Obama stimulus package! It takes chutzpah to berate the GOP on that one.

The other chapter that has endlessly repeated itself for the last 50 years is that various administrations have reached compromises with Congresses controlled by both parties wherein tax policy was enacted with an eye to spending cuts coming later. Somehow those cuts never happen. Now we have Obama, Conrad, Reid et al claiming to have offered all kinds of unspecified cuts when, in fact, there is no deal on the table. The current GOP majority was voted in specifically to impose fiscal discipline, and to their credit, they are for the most part honoring that commitment. They dare not break faith with the voters who put them in place or they will not survive 2012 primary challenges, and they know it.

Except for the coasts, which never seem to lose faith in tax and spend policies, the rest of the country has had it. They are imposing discipline in their states and see it working. They know that the magnitude of current and future federal deficits is out of control, making the Bush deficits look trivial by comparison. They know that actuarially, the entitlement programs are all broke. They know that, even before it starts, PPACA is fiscally unsupportable. They look across the pond and see the fiscal mess that the EU has to deal with after its failed experiments with socialism.

Compromise makes for warm feelings and everyone involved at least temporarily looks reasonable and competent. As a governing philosophy, compromise isn't one. At best, it provides for a suboptimal plan; at worst, it rationalizes continuing down the path of failure. This is not a time for compromise, though I would be willing to move on carried interest, because I think it's the wrong tax accounting in the first place. If we want to redesign the tax system to simplify it and eliminate deductions, i am all for it when there is time. In fact, this blog has said that the AMT for everyone represents a better way while still eliminating the lower half of the income population from the tax rolls (and that's probably too many). But right now, we need to leverage the opportunity presented by the debt limit. $4 trillion over ten years is only a down payment, I'm afraid. $2 trillion is a mere dent. The Dems are trying to make a political point by scoring a trivial amount of the deficit reduction as revenues. That's all it is. There's no need to give them that, though, the problem is a spending problem, not a revenue problem. But you've already heard that. The question is, when Republicans stick to their guns about spending while Dems are equally intransigent about revenues, why are only Republicans taken to task for being uncompromising? Seems to me neither side is moving, but I understand that. They'll move when it's in their interest.
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One good thing this debt limit fight has done is to reenergize Tea Partiers all over again. In fact, many Tea Partiers don't want to raise the debt limit at all. That may be an extreme position, I'll admit, but it would enforce a balanced budget more quickly than a Constitutional Amendment. To accomplish that, I believe Congress would have to repeal the Nixon Era law passed against executive impoundments. And that won't happen while Dems control the Senate and the Presidency.

So let's stipulate that the debt limit will have to be raised. The logical deal will be to reduce corporate deductions in exchange for a lower corporate tax rate. Interestingly this does nothing for small businesses which are often Subchapter S organizations and whose owners pay tax rates at individual rates. But it will sound like each side got something for its base.

But budget cuts are coming. I predict the $2.4 trillion proposal over ten years. At least it's a start.
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By the way, Dr. C., as an accounting guru, is there really a worse proposal than the Dems' suggestion that LIFO be scrapped? I understand that currently low inflation has reduced the impact of LIFO inventory accounting, but what happens when all the inflation that the Fed has cranked in takes hold? I suggest you provide remedial accounting and economics instruction for the dunderheads who came up with this one.
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Lest anyone think otherwise, readers' comments are greatly encouraged here, especially those who might differ from the admittedly opinionated blog author. These comments hopefully will generate a little more discussion here and challenge us to write better, more accurate, and more thoughtful posts than might otherwise be the case.
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On 7/6, we sold another 1000 shares of Sirius XM at 2.17, incurring a small loss even though the price is above the average we have paid for the stock. Our feelings about Sirius (SIRI) haven't changed. we still think it's a coming business, with a much improved product and a potentially better cost structure following its merger with XM. Unfortunately, it will be a long time before its balance sheet is healthy or its book value bears any relation to its stock price. We'll make money on our remaining shares, but we will have to be very patient. We had paid 4.30 for 200 shares on 7/12/06/, 3.03 for 700 shares on 12/31/07 and 2.00 for the last hundred on 6/23/08. On 7/8, we sold 100 shares of Kaman Corp KAMN) for 36.44; we paid 15.75 in 1/8/02. Another "patience is required" stock. Yesterday, we bought 25 shares of Con Ed preferred (Ed.PR.A) for the IRA at 97.46.

What does the 14th Amendment Actually Say?

2011-07-05T22:36:00.005-04:00

As the debt limit issue heats up, we find progressives, and even Treasury Secretary Geithner floating the possibility that the 14th Amendment might provide the Administration the Constitutional authority to ignore Congress and issue new debt itself. To put it charitably, this represents an expansive reading of Article 14, Section 4, which I invite readers to review. To put it bluntly, it reflects on the illiteracy of those who would take this position, and invites the Administration to violate Article 1 of the Constitution (flagrantly, I might add) which reserves the authorization of federal debt to the Congress only.

One might ask what this subject is even doing in the 14th Amendment, the Civil War Amendment which made the former slaves citizens. The purpose of Section 4 was to clarify that Congress would see to it that Union debts incurred would be honored but debts of the Confederacy would not, including debts associated with the institution of slavery.

The fact is that the Administration and its allies are desperately seeking leverage because it is becoming increasingly clear that unlike past times, the GOP is showing little or no inclination to buckle. This is the salutary impact of Tea party freshmen.

This is not to say that we are going to solve our fiscal profligacy all at once. Merely, to say we are going to have what the Left considers draconian cuts in the budget, they are as inevitable as they are necessary.

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July 4th is the traditional halfway mark for the baseball season, yet, the Mets, Pirates, Indians, and Diamondbacks hang around the race and that means meaningful summer baseball even in Flushing by the Bay, at least for a little while. Several good races are shaping up, including competitive races for first place in each division, though the wild cards have clear leaders (whoever finishes second in each Eastern Division). I guess this is why Commissioner Selig is floating his trial balloon concerning a second wild card for each league.

He is also talking about some kind of realignment, that makes little sense to me (6 five team divisions so there are 15 teams in each league, necessitating interleague play throughout the season). My personal preference is that baseball go back to its original plan when expansion began - four 8 team divisions, two in each league, no wild cards. If we must have wild cards, let the second place team from each division play the first place team from the league's other division in the first round. Frankly, I could do without wild cards. We never missed them before we had them, I can tell you.

Where would I go for the two new teams? Outside the continental US probably. Maybe one team in San Juan, the other in Mexico City. If Juarez wasn't a drug infested mob run town, it could be a candidate.

But it will not be happening as long as myopic Bud is running things.
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More and more, Europe is looking like a lost cause to me economically. This does not bode well for us. In fact, it is hard to find a government not spending way beyond its means. That means there is no actual financing going on and leaves the world susceptible to inflation everywhere.

It seems that Man is no longer willing to admit that there are things beyond our means, at least temporarily. Look at the riots in Greece and demonstrations by unions in the UK. How did we get so spoiled to the point that we all demand things we haven't earned? And has our generation done enough to inculcate the work ethic in the next generation and the one after that? Answer - NO!

In short, something's gotta give. It may be sooner, it may be later, but someday, we have to produce as much as we consume. Or consume less. Not good for an economy that depends on growth to make the numbers work.

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On June 24, we bought 700 shares of FSI International (FSII) at 2.98, a value buy. FSI's stock had taken a hit after providing a subpar earnings report and outlook. On 6/27, we pounced on 200 shares of USA Trucking (USAK) at 10.08 a zero buy. Then with the market recovering, we went into profit taking mode. On 6/29, we sold 200 shares of Conrad (CNRD.PK) at 13.10. We had paid 2.25 for 100 on 2/19/05 and 1.30 for 100 on 4/26/05. Back then, the stock had been delisted by management to sidestep Sarbanes Oxley requirements, rare commom sense shown by public company management. You have to have a single minded success orientation to bury that much ego. Never have I made so much on a pink sheet stock. On 7/1, we sold 100 shares of Worthington (WOR) from the IRA for 22.85. We paid 14.27 on 5/19/03/ On 7/5, we sold 100 shares of Gulf island Fabrication (GIFI) for 32.06. We paid 7.04 on
3/6/09, a gain for which we owe thanks to our friends at Tulane University from where we got the recommendation.

Our periodic disclaimer: Neither redwavemusings nor its author are investment advisors and the securities mentioned on this site should not be considered recommendations since they may not be suitable for readers (or anyone else).

Short Relief Rally Ends

2011-06-23T22:18:00.004-04:00

We had a little technical rebound since the last post, but that didn't last long. The market pundits are blaming Greece, but somehow stocks bounced off their lows today when a new plan was floated to help Greece kick the can further down the road. Why the market should like that, I'm not sure.

In fact, the economic scene is just miserable, as described in our previous post. Can we have a more inept Fed Chairman? He sounded like Jimmy Carter yesterday - in give up mode. Next, we'll start hearing about our malaise again.

I've given up on my friendly liberal bloggers. I know I'll never convince them of anything, but that's not the problem. My issue is that people who I thought were smart, just merely misguided, turn out to be actually STUPID. Yesterday, Kleiman's response to why the recovery was so weak was that the stimulus package had not been big enough!! Yikes. It's a good thing Mark is not a medical doctor. I guess if he was, and if the medicine he prescribed was killing the patient, his answer would be to increase the dosage.

Part of why this administration can not do anything right is that they are so myopic, seeing everything in only two perspectives - their own failed liberal orthodoxy, and their overwhelming desire to be re-elected. In fact, Obama shifted into candidate mode several months ago, and every decision is being made with a view on how it might play in November 2012. This is a hell of a way to govern.

The conduct of the Afghan war is prototypical. The campaign line in 2008 was that unlike Iraq (the "war of choice"), Afghanistan was the war of necessity. This blog never bought that, having some sense of history and knowing that foreign powers had a miserable record in that theater (see Britain, Soviet Union, etc). Whatever one thinks of the strategic significance of the Bush foray into Iraq, the Afghanistan objectives were always tactical and clear: remove the Taliban from government (done by GWB) and kill bin Laden (done by BHO). Why is anyone surprised that a majority, emanating from a wide swath of the political spectrum, wants out?

But here's the problem. The mission is not quite accomplished. Yes, the Taliban is out but not pacified. It is far from clear that the current Afghan government can sustain itself. Obama is at fault for never quite committing to the troop surge. Even as he announced it, he put a time limit on it, encouraging the Taliban to play for time. Now that the deadline is here, Obama feels he must pull some troops, for political reasons, but his military advisors oppose that. So we get another halfway measure, with yet another deadline for the Taliban to look forward to. All this does is put our men in the field with one hand tied behind their backs.

In fact, Obama's foreign policy record is a trail of promises and halfway takebacks, from Guantanamo, to Israel v Palestine and the 1967 borders, and on and on. He seems to believe that if he can give a nod to his lefty base while following something like the policy that's really required (but never in committed fashion) he can get re-elected based on the popularity of his personality. And it might work except the public, more and more is on to him. They like him, but they now see him for what he is - a very liberal Democrat, who has taken us down a very dangerous set of policy alternatives while making occasional concessions to governing reality. And it's just not working at all.

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Item - Fed officials say they have done all they are prepared to do to spur growth for now. (That's a relief)

Item - A McKinsey survey showed that 30% of employers plan to drop health coverage in 2014, throwing their employees into the 'exchanges." They have determined it is preferable to pay the fines than it is to obtain and subsidize employee coverage.
(Since this did not fit into the Obamacare budget assumptions nor match the campaign talking points, the administration decide to blast the consulting firm for their lousy findings, and got their friends in the CBO to do the same. It still hasn't occurred to them that something might be wrong with their unpopular health insurance scheme).

Item -Recent actions by the SEC show the difficulties in charging individuals at firms who are blamed for roles in the financial crisis. (If someone hasn't gone to jail by the next Oscars show, Obama's Hollywood friends are going to raise hell. I suggest locking up former Senator Dodd).

Item - Freight railroads are raising rates and making big profits, drawing regulatory scrutiny and customers' ire. (Imagine, private companies booking profits in a capitalist economy. Is that really allowed? Next we'll find out that gamblers lose money in casinos).

Item - The White House delayed part of the health law designed to help consumers appeal insurance claims. (I thought Congress made the laws, and the executive branch enforced them. Is it different because the President proposed the law? Can he just delay enforcement? Was the Constitution amended last night?)
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So the Biden debt limit talks broke down. Not exactly a shock. Of course, immediately, Dems blamed the GOP for having trouble keeping its Tea Party wing in line.

Funny, but why do Republicans get blamed when they achieve discipline (not bi-partisan enough) and then get blamed when they are divided? The media's double standard is pretty obvious. The fact is that both of our major parties have always had factions, they are big tents, not monolithic. Dems have their own tensions between the Blue Dogs and the now dominant liberal wing of the party.

This has been the rule in our politics, not the exception. Go back and re-read James MacGregor Burns' The Deadlock of Democracy - Four-Party Politics in America
(1963). There is nothing new about the parties within the party, though the factions do move around over time. Yesterday's Dixiecrats found a home in the GOP, while some moderate Republicans became more comfortable as Blue Dog Dems. The Tea Party continues to be an asset to the R's and will be a source of energy for them in 2012.
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On June 13, I bought a 100 shares of Hartford Preferred (HIG.PR.A) for the IRA at 24.32, taking advantage of a rare opportunity to buy below par. On 6/15, we bought 100 of Ceradyne (CRDN), again for the IRA at 37.80. This is a value buy and a recommendation from Full Service Broker that has done well. On 6/17, we bought 200 shares of Graham Corp. (GHM) for the IRA, a zero buy. On 6/20, we bought 15 shares of GLD at 150.08. Yesterday, we sold 100 shares of Smuckers (SJM) at 78.11, a taxable gain from our purchase price of 49.05 on 2/23/04.

Angst Plus

2011-06-13T09:19:00.003-04:00

For those who lost interest in the stock market after 2008 proved to be one debacle too many, we can report that after its long rise to the heady heights, stocks have endured a 6 week period of water torture, commonly termed a "correction." That, it may well be, the assumption here being that after this necessary washing out of the weak hands, the trends of commodity inflation and a recovery, albeit among the weakest of the last 60 years, would reassert themselves and be reflected in higher stock prices.

It is very typical of corrections nearing their end that a bit of despair sets in and investors question whether a new bear market is the correct diagnosis, and not a mere correction. In fact, a very plausible interpretation considering a somewhat longer perspective is that the run higher of the last two years was a bear market rally, and we are now seeing the resumption of that secular bear market. If correct, this interpretation would lead to the assumption that we will drop to or through the 2008-2009 lows.

Usually, these kind of thoughts mark the beginning of the end of the correction, except when they don't. That's why the redwavemusings approach long ago gave up the idea of timing markets and tried to build a formula that would react to prices, not forecast them. That formula, with occasional modifications to improve it, has been working for quite a while, but this doesn't mean it must continue to do so.

I have to admit that the chances that we are still in a bear market are too significant to discount. That's because even though we have continued to invest and profit from stocks, we knew and have written in this blog that the economies of the western world are unsound, that policy choices, both fiscal and monetary here and in Europe have been inept, that there are many areas of concern around the world where freedoms do not exist (Middle East, much of Asia, much of Africa) or are precarious at best (much of Latin America). Eventually mistakes must be paid for, not because of some sense of justice, but because decisions matter, they have consequences as GWB would say (an expert on making mistakes).

So rather than rant ad nauseum about how the Administration is letting everything go to hell in a hand basket, I'd rather just itemize a little more succinctly what's wrong and needs to be changed to get our little planet back on course.

1. There's way too much debt. Famously, Ashley Bladen, a Forbes columnist from the 70's and 80's was always kvetching about debt and how we would need a real financial crisis to scare everyone back into "lasting prudence." He was wrong for the better part of three decades as GDP growth here and abroad easily supported the debt that was being taken on. Too bad he wasn't around to see and write about the fulfillment of his warnings in 2008. However, what did not happen was the lasting prudence part. It does seem to have shaken the private sector, and we have even seen consumers snip away marginally at their debts (and also default on some of them). But the message seems to have been garbled in transmission in terms of the public sector, at least on the national level. In order to keep the balls in the air, Geithner and Bernanke have teamed to deliberately increase and monetize federal debt, and by non-trivial amounts. This debt is now almost unmanageable, as interest costs are threatening to subsume revenues. The left believes we should merely increase taxes, since they believe the "rich" are getting a free ride. But this is bunk. The federal budget is heading for 25% of the economy, and will go much higher without real entitlement reform. The poor already pay no taxes, and the working poor only pay their share of the payroll and sales taxes. There is no further redistribution to do. The President's tax commission and the Ryan Plan represent two plausible paths to improvement (not cure, by the way). Even the Pawlenty Plan, a pro growth approach, has some merit. On the contrary, the Administration's plan and budget was no plan at all. On this basis alone, these rascals should be thrown out in 2012.

Abroad, the EU and the UK have done some positive things monetarily and fiscally. However, there continues to be a determination to try to salvage the PIGS (Portugal, Ireland, Greece and Spain) in ways that will continue to pressure the Euro and prop up very weak banks.

2. By getting the scenario of what happened in 2008 very wrong, the Dems and their media allies have won legislative, regulatory and policy changes that are making matters far worse. The media line on 2008 was that large banks, both I - banks and commercial banks, combined with a deregulatory climate to sabotage the mortgage market and transfer wealth to bank CEO's. This made for a convenient story line to sell papers and provide red meat for liberal Dems and their supporters in the academy, but it didn't have much to do with the crisis nor with the real perpetrators, Fannie and Freddie, their Congressional enablers, the rating agencies, and mortgage fraudsters. Nor did it deal with the accounting puritans who pushed their procyclical methodology that caused sound investments to require unfathomable amounts of capital as market prices spiraled below real value.

The resulting legislation (Dodd Frank) and regulatory reaction has not only not cured anything, it has put the economy and the private sector in chains. If Obama and the few economic advisors still working in this administration are scratching their heads over the failure of the jobs number to move up, it's because their dogma does not allow them to see the negative impacts of over-regulation and punitive legislation for what they are. Dodd Frank should be repealed forthwith, and all this nonsense (FSOC, SIFI's and Global SIFI's, and the interference by the G20, the IMF and other national and international regulators) reined in.

3. Why on earth would anyone in his right mind start a meaningful business today, especially one with over 50 employees with ObamaCare looming? If you want jobs, repeal ObamaCare now and start over, understanding that no health system can economically provide every procedure that every person would want. Bring sense to the malpractice system so that defensive medicine can be curtailed and every doctor does not have to start the year $75,000 behind the eight ball due to his insurance premium.

4. Let's have a true bi-partisan approach to tax reform. The redwavemusings solution is to put everyone on the alternative minimum tax, a simple calculation that can be administered fairly, that minimizes incentives, reduces friction, and which can be changed with few unforseen secondary effects. The high tax states will hate this, but most are finally getting the competitive message and realizing that their taxes must be brought in line.

5. Somebody needs to crack heads at the EPA. CO2 is not a pollutant, it is oxygen for plant life, the natural output of animal life respiration. The climate control left must be seen for what they truly are - anti-industrialists. There is nothing wrong with working on renewable energy source technology, but it should be mainly private investment based on discovering technology that will be economically viable. The EPA needs to get out of the way on discovery and distribution of traditional energy sources, including nuclear. Regulators should establish reasonable environmental and safety standards and regulate to those. It is ridiculous that Gulf drilling is still largely curtailed, and Alaskan pipelines are drying up (as the WSJ reported). It is also crazy that Harry Reid and his NIMBY constituents have curtailed the national atomic waste disposal plan. Storing spent fuel rods at individual plants is infinitely more dangerous, as we have seen in Japan.
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I am heartened at polls showing Romney and Obama even at this early date, and believe Pawlenty can achieve similar parity quickly. No surprise the Gingrich campaign imploded, which I never took seriously. I don't think Perry will run. Still waiting on Huntsman to step forward. But it looks more and more like a traditional GOP nominating campaign, coming down to Romney and Pawlenty, who can each argue it's their turn.
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So after all the babying, the Joba Rules, the shut down periods, etc. Chamberlain still is headed for Tommy John surgery. The elbow ligament transplant procedure is now epidemic in baseball. Why? It is probable pitchers always tore this ligament, but before the surgery was available, they disappeared from the game with a "sore arm" or transformed into junk ball (off-speed) specialists. However, I would agree that it is happening more often now.

The reason? The radar gun, and the emphasis on strike-outs are encouraging big league teams and their pitchers to throw harder than they should, harder than they need to. Today, if you can't hit at least 88 on the gun, they say you don't have a big league fastball. In the 1950's, 90 was considered unusual velocity.

The strike-out emphasis is an unfortunate remnant of the steroid era, when medicated boppers could take you deep even with a ball not hit exceptionally well. Strikeout pitchers had an advantage in those conditions.

The lost art is what we call "pitching to contact." That is, purposely trying to get a hitter to put a poorly hit ball into play early in the count, eschewing the strikeout unless really needed (runner on third, less than two out). To achieve the poorly hit ball, you keep the better off balance by changing speeds, get ahead in the count, and make him reach for a pitch on the border of the plate. This minimizes pitch counts, arm and elbow strain, and keeps fielders (and fans) alert. Firing it in at 90 or better pitch after pitch causes lots of foul balls, higher pitch counts, elbow and shoulder injuries, defensive errors due to lack of action, and bored fans.

In the old days, a pitcher like Larry Jackson, with the Cubs and Cardinals or Bill Pierce with the White Sox provided consistent quality starts and lots of complete games despite average stuff. Somehow, you never seemed to get anything you could whale on against them. Juan Marichal and Warren Spahn could control so many pitches, a hitter never really knew what was coming. Whitey Ford somehow always had extra velocity in reserve for the one or two times in a game when he would actually need a strikeout. Dillon Gee, the Mets remarkable rookie (7-0) seems to be a throwback. The Hernandez brothers in recent times have also been guys who really "knew how" to pitch. I would put Petite, Greg Maddux and Tom Glavine in the same class.

Every once in a while there is a freak of nature who can throw so hard and yet not get hurt. Nolan Ryan was like that. So were Tom Seaver, Bob Gibson, Jim Palmer and Robin Roberts. These power pitchers had two things in common - perfect form, using their bodies to generate power and not just their arms, and pinpoint control. To me, they are the exceptions that prove the rule. Baseball needs to teach the art of pitching to contact again, and to impart that knowledge even to would be power pitchers like Joba Chamberlain.
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With the slump in stock prices, we have been buying, while continuing to build assets in preferred stocks, gold and TIPS. On June 3, we bought 100 shares of IDT, a zero buy at 28.02, pretty much establishing our position in that one. On June 6, we bought 100 shares of Aegon Preferred (AEH) at 23.87 for the IRA. On June 8, we bought 200 shares of Quanta (PWR), a value buy at 18.83 also for the IRA. This is our concession to wind power. So far, it is not paying off. On June 10, we gambled on 300 shares of Boyd Gaming (BYD), a zero buy at 7.87. Warning, Boyd is highly leveraged.

Alumni Weekend

2011-05-31T22:31:00.004-04:00

Following a panel appearance at a day and a half conference in Washington, Amtrak and SEPTA took me to Haverford Station on Friday afternoon for alumni weekend. I hadn't been back in about nine years and was anxious to see the campus again, as well as my friends from the Class of 1971. This being an off-year for me, I had no real obligations and could look forward to a return trip for my own reunion next year. So I kind of enjoyed my walk up College Lane and past the Duck Pond to the new Student Center (at least new to me - it was built some 25 years after my graduation) despite my heavy travel bag and the warm humid day. No matter. The campus was just breathtaking, a conclusion I came to at every beautiful corner I would see all weekend. It is truly a privilege to have the ability to go back now and then.

A warm greeting from the host current students and the happy news that I would be staying in 6th entry Lloyd at the north end of campus, and it was up the hill across the quad to the familiar rectangle where the Haverford extras who played the fictional college students in the first Eddie and the Cruisers movie had cavorted for the Rites of Spring. That was an odd scene to see for those of us who had gone to Haverford, since there have never been Greek Houses on the actual campus. Outside 6th entry, a group of 1971 grads were already lounging in a circle of chairs and tables. One called out that it looked like I could use a beer. I congratulated him on his visual acuity (considering our advanced ages) and said I would be right out after dumping my bags. He offered a critique of my chosen order of priority. but promised beer would still be available when I returned. Thank goodness it was, and I soon joined them. The weekend was off to a great start, and I texted the wife, "arrived at H-Ford, already beering."

After dinner in the dining center, there was a tent set up near the library and I saw a number of friends, including college staff, and even a stray classmate (whose wife was BMC "71). Most of the Class of 71 adjourned to a local classmate's house for a party I did not really plan to crash, so I did what I really wanted to do - walk over past the Quaker Meeting House to Lancaster Avenue and my favorite neighborhood watering hole from those long lost days, The Roache and O'Brien's. It was populated with alumni, mostly younger (who isn't these days?), but somehow quite a bit of conversation ensued. One change I didn't much like - there was no Guinness on tap, only in cans, which made Black and Tans impractical.

Day two was really fun. Somehow I caught the end of breakfast at the dining center in time to see my three roommates from the 71 class emerging. One of the three, Bob Schwartz, had received an honorary degree only the week before for his pioneering work as the founder and ED of the Juvenile Defense Center of Philadelphia, a remarkable non-profit which has become the model for similar centers around the country and even the world. We went to a panel of alumni media experts discussing the future of printed media, and the panel moderator was my old friend Dave Espo, now of the Associated Press (this blog spotlighted his coverage of the ObamaCare passage) who had been managing editor of the Haverford News when I was Sports Editor. We attended the awards ceremony in front of Roberts Hall (where Eddie and the Cruisers had their "concert") and then it was time for lunch in the tent. Sitting with Bob, he told me that after the panel, he and Espo adjourned to the library and reviewed some of the old editions of The News from our era. I decided to do the same later that afternoon. But first it was time for a panel on Quaker Values.

This turned out to be flagrantly false advertising, though the three panelists were all at least members of the Society of Friends. The leader of the panel was Joe Volk, Class of 1961, who for the last 21 years, has been leading something called the Friends Committee on National Legislation. They passed out literature from that group, and a quick perusal made it clear that the only true Quaker value we were going to hear about was pacifism. Otherwise, it was the straight Progressive agenda, tax the rich, environmentalism, debt reduction by starving defense, but no cuts at all for entitlements and preserve all other federal programs. Ugh. There were a lot of questions, but at Haverford, no one really challenges the politically correct line. Anxious to get to the library, I resisted the urge to rain on the parade, and decided to just let it go. Smart move, I think. Life's too short.

Next was the library, and a very happy hour re-reading articles from over 40 years ago, including some of my own and some from Pulitzer prize winner - to - be humorist Dave Barry, "69. I'm afraid Barry's work had me laughing audibly - good thing school was not in session and the library quiet rules went unenforced. Frankly, I could have spent days in there.

But I wanted to walk through the "Doug" and time was all too short. The new Douglas Gardner Center is Haverford's spectacular athletic facility, and it lived up to everything I had heard. I was green with envy as I walked around the basketball court, looked in on the huge exercise room with all its new equipment, saw the new squash courts, and all the different hallways honoring Haverford legends. I had taken a peak at the old field house, with its newly resurfaced track where Tom Donnelly's teams dominate Division 3 all winter as the cross country and track teams do outdoors in the fall and spring. The old basketball court has been resurfaced for indoor tennis. Not bad.

Doug Gardner was one of three Haverford alumni who perished in the World Trade Center on 9/11. Why so many from a school that has only about 10,000 living alumni at any given time, if that? Because Howard Lutnick, CEO of Cantor Fitzgerald is an alumnus, and the campus networking system had placed people in his employ. By pure luck, Lutnick was on a family errand when the catastrophe happened and he survived. His money largely funded the Doug, and it was his idea to name it for Gardner. Fittingly, there are remembrances of all three who perished in the building.

After my tour, I went to the bookstore, which is in the student center next door and bought a couple of tee shirts. Next was a walk to Bryn Mawr for the pre-dinner cocktail hour at Goodhart's music room with the Class of 71. Instead, we were treated to a recital by 1971 grads from both schools - cello and piano that took up the whole hour, leaving precious little (i.e. no) time for cocktails. I got a ride back to campus with Espo and we all made our way back to the Doug for dinner, where in addition to very good food, there was ample wine and beer. Highlight of the dinner was a short speech by Jack Coleman, President of the College during our era, now 90 and barely audible, but still a fountain of simple wisdom. He advised that it was not too late for us to do new and great things, a good pep talk for folks seeing retirement just over the horizon. He has certainly provided a great example. Since leaving the College, Coleman has run a bed - and - breakfast and a local newspaper. He allowed that he had not been necessarily the best economics teacher - I was in his class and would agree - but that he was proud of bringing coeducation to Haverford and loved the place like no other. On that, he had company in that room.

I spent some after dinner time with my former roommates and then it was time to go to the old Ryan Gymnasium, scene of many an intramural basketball game, to hear Dingo, the band from our era made up of classmates from 1971 and 1972. They were pretty rusty in the early sets, but hit their stride later on, and had everyone dancing to those good old songs by Steve Miller, the Stones and Spirit. From there it was back to the Roache for a very pleasant few hours of wind - down, ultimately closing the place.

Sunday morning, I somehow got up early enough to make it to the Meeting House for some real Quaker values. The hour went by quickly, mostly in silence as I prefer. There was a large house fly buzzing about, and I remember thinking that no fly in the world was safer than he; no Quaker would ever lift a hand to one of God's creatures, especially during their time of silent devotion.

Returning to the Dining Center for a farewell brunch, I said goodbye to Espo and promised to contact him when in D.C. He wound up driving me and my bags to the train station and I was on my way home, already looking forward to my next visit. As students, we always agreed that the place would be so great if it weren't for the classes, exams and papers. And now, that's how it is!

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On May 20, we bought 400 shares of Great Lakes Dock and Dredging (GLDD) for the IRA at 6.34. The same day, we sold 100 shares of TMO for 65.55 that we bought on 1/10/02for 23.29. On 5/23, we bought 100 shares of IDT for 26.35 as we continued to build a position in that stock. On 5/25, we bought 20 shares of TIP, our inflation protected Treasury ETF for the IRA at 110.85. On 5/26, we bought 300 shares of Marine Max (HZO), a value buy at 7.99. Then on 5/31, we sold 300 more shares of Newpark Resources (NR) at 9.47. The purchase price for these had been 5.40 on 12/29/04. Yesterday, we sold 100 shares of Worthington (WOR) on the opening, a good time to sell as it turned out. We got 21.73 compared to a purchase price of 14.27 on
5/19/03. A tribute to patience as much as anything ewlse.

As we get new readers, I must repeat our disclaimer a bit more often. Redwavemusings and its author are not investment advisors, and none of the securities or strategies discussed here should be considered recommendations. Investment ideas here are likely to be unsuitable for other individuals. In fact, they may well be unsuitable for me.

Two heads - better than one

2011-05-19T22:25:00.003-04:00

So, I sat in front of my computer last Thursday with time blocked out for a blog posting and enough material for the week. For maybe the first time in all the years of my blogging career, blogger was down! The window of opportunity passed, and with it the blog entry for last week. Since our last post, we've been to Harrisburg and Richmond, CitiField and to Cipriani's for a charitable gala and of course Birdland. All this has left precious little time for blogging. This weekend it's off to Cortland for graduation and next week alumni weekend at Haverford, with a trip to D.C. in between. The action is non-stop and we'll take blogging opportunities as they come.

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The politicians have been doing their level best to provide material. Tha French head of the IMF is accused of a sexually predatory attack on a hotel maid while staying at the fashionable Sofitel in NYC (right across from my beloved Penn Club and the fabulous 44 Bar). The IMF has come in for constant and deserved criticism by Steve Forbes for about as long as I can remember so I can't feel bad for those folks, but to put this in perspective, Mr. Strauss - Kahn was a leading opposition contender for the French Presidency, so this is tantamount to seeing someone of Mitt Romney's stature in the French equivalent of Riker's Island.

Not to be outdone, the ex bodybuilder/actor/governor of California outed himself for fathering a child with his domestic help some many years ago, which precipitated Arnie's separation from Maria Shriver. It's just a hunch, but I think there might have been some underlying problem in that marriage anyhow. And to think, my wife never would hire a cleaning service.

In more standard hi-jinx, Newt Gingrich trashed the Ryan Medicare plan before claiming he was maneuvered into the statement by those awful left-wing anchors on the Sunday morning news programs. Time to give it up Newt. In the least surprising political announcement of all time, The Donald bowed out of the Presidential race before getting in. We knew there was no way Donald would ever put himself in a position where he would have to reveal his net worthlessness. Apparently he can't tear himself away from the really vital work he's doing on the Celebrity Apprentice. Also wisely giving up the ghost in favor of the big broadcasting bucks was former Governor Huckabee, another candidate we won't miss very much.

So we are gradually getting down to the serious candidates. The frontrunner may still be Mitt Romney, despite his lame defense and rationalization of the Massachusetts version of Obamacare, passed on his watch. However, we've always thought Pawlenty would make a serious run and he and the less formidable Rick Santorum don't yet seem fazed by the Romney fundraising edge. Then there is Governor Daniels of Indiana, still lurking while his wife decides whether to permit him to run. If she signs the permission slip, we will at last have a GOP candidate with a chance to win. The agitated cries for Governor Christie are four years too soon. He thinks 2016 will be the Republican year and has the convenient inexperience excuse for this cycle. Almost forgotten in all of this is Jon Huntsman, who has studiously avoided taking a position on any issue, and of course Sarah Palin, much to the consternation of Dems who rejoice in her foolishness.

Then there is Michelle Bachman. Is she a serious candidate? I just find it hard to believe. But there she is. We've also got businessman Herman Cain and libertarian Ron Paul making their common sense appeals. The problem for these candidates is that the GOP historically nominates frontrunners who have paid their dues in previous campaigns. If they follow that tradition, the ultimate candidate will be either Romney or Pawlenty and that's that. The only outside shot I could see coming in really is Mitch Daniels. Actually, I think both he and Pawlenty have a better shot than Romney at beating Obama. Romney is a smart guy but I can't see the party getting that energized about him. We'll see.

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It is always so difficult to defeat an incumbent President, though it happened to Carter and Bush 41. LBJ was ousted by elements of his own party. So it's not unprecedented, and once the reflected glory of the bin Laden execution wears off, we'll still have Obama with all his warts - lousy handling of the economy, lousy foreign policy, high gasoline prices, Middle East policy no one can really fathom, including today's strange speech emphasizing Israel's return to the 1967 borders (he must have calculated that he can win NY and lose Florida just as easily without the Jewish vote as with it).

In recent days, the academic left has been beating its chest about the anticipated GOP filibuster of Goodwin Liu's nomination to the ninth circuit. Read today's WSJ editorial for the scoop about why this man should not be confirmed for a Family Court position, let alone the already radical 9th circuit. The Left Wingnuts want Obama to make a recess appointment to put him on the 9th circuit. To my knowledge, recess appointments for judicial posts are unusual to say the least. I took the opportunity (a rare posting these days) to warn my Communist friends that they had better be prepared for the next GOP President to also make judicial recess appointments if Obama makes this one.

I also took the liberty to assure them that as long as there are 41 or more GOP Senators, the only way, Mr. Liu will get into the Supreme Court is with a guest pass.
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Last night, I went to the gala at Cipriani's in support of the Caron Foundation's New York work, a little $500 a plate soiree that raised about $1 million for a great cause - support and cure of addiction (drug and/or alcohol) afflicting so many of all ages in our city. A good friend of mine from our industry, Tom Moran, was presented with a well deserved award for his work, not only in support of Caron but his great efforts in Haiti, Ireland, etc., etc. He is truly a humanitarian, successful in business and at the same time, extremely generous with his time, energy, and dollars. Tom and I share certain political leanings which got me to thinking through some ideas that i began to consider last weekend when my former college roommate received an honorary degree from my alma mater for his work in founding and spreading the concept of a legal firm to represent youth, funded entirely from foundations, donors and government grants. He and another of the degree recipients took the opportunity to expound on the ideals they believe in - the importance of work such as theirs that benefits the community, the environment, etc.

I wondered if I was a graduate in that audience whether I would think that only selfless, social contributions were the work college had prepared me for and the only work worth doing. Upon reflection, I have little doubt that the younger generation will, as we did, keep such ideas in perspective. In fact, the same motivations that have always existed in our society will continue to motivate most of us - security for our families, personal success and gratification, and yes, the marshalling of resources we can use to help those less fortunate.

Luckily, there will always be a few like my roommate who never were interested in material things other than what they need to keep their socially oriented enterprise going. The fact is, we can't succeed without each other. People who staff these organizations like Caron, who dedicate their lives to serving others are so important, but they don't exist without the Tom Moran's of the world, and without the rest of us who contribute what we believe we can to the causes we admire. I think they realize that too, and it's nice when they recognize their benefactors.

On the other hand, I'm not sure what it is that the academic left recognizes. I'm afraid I consider them society's true drones.

By the way, also receiving awards last night were the ageless Patti Labelle and Dr. John. Dr. John capped the evening with a 40 minute performance in the grand tradition of New Orleans blues. It was a terrific evening.
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The great 1986 Mets team had a two headed centerfielder - a platoon really that one sportswriter called Mookie Dykstra. Manager Davy Johnson found a way to get tremendous production from two dynamic players sharing one position. It was a big factor in the Mets' Championship season.

This year, the Mets after a false start, have developed a two headed second baseman. Daniel Murphy and Justin Turner took over as a second base platoon and turned the Mets most obvious weakness into a pretty decent situation. Now both are playing every day, Murphy at first base and Turner at third, filling in for injured stars. Meanwhile, the Mets understudy shortstop, Ruben Tejada has returned to play second where he continues his late season 2010 trend of improving offense to go with his outstanding defense. So things are looking up in Flushing by the Bay. It's still early enough for the Mets to ovecome their bad start and climb safely over the 500 mark. We are forever hopeful.
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Blogger may have been down but stock transactions continue. On May 6, we bought 100 shares of my full service broker, Stifel Nicolaus (SF), at 43.80. The stock had recently split 3 for 2. On May 9, we ponied up 26.80 for 100 shares of IDT for the IRA, a zero buy. On May 12, we sold 400 shares of FSI International (FSII) at
5.23. We had purchased them on 11/12/07 for 1.90. On May 13, we sold 900 shares of Sirius XM (SIRI) for 2.28, taking a loss in the IRA (where losses are no help) since we paid 4.09 for 600 on 4/7/04 and 4.30 for 300 on 7/12/06. This happens when you use the first in, first out method for allocating shares, even though we are ahead on the stock overall. Later shares were purchased for much lower prices. On May
16, we bought 100 shares of Goldman Sachs Preferred (GS.PR.D) for the IRA for 22.42.

We have splits coming for FAST and AAON. May is normally not such a good month for stocks so we'll take all the good news we can get. Today, TMO announced a $3.5billion acquisition that fits strategically, but we have to wonder about a price tag that amounts to about 7 times sales. Even if earnings rise immediately, it just seems like the level of growth needed to support that kind of price is unrealistic. Nevertheless, TMO had a nice pop today. It's the kind of action that makes me want to lighten up a bit.

Obama Dispatches Osama

2011-05-05T23:00:00.002-04:00

My plane home from Florida had just landed two hours late Sunday night at beautiful MacArthur Airport near downtown West Islip when the buzz in the cabin reached unusual levels of excitement. Passengers upon landing these days immediately turn on their cell phones, and ours were greeted with the "official" news that Al Queda's inspirational satanic leader, Osama bin Laden was dead. As we were soon to learn, he was among the victims of a raid by Navy Seals on Pakistani soil, a mission ordered by the President, planned by the CIA, and executed to near perfection. We were also to hear quite a bit of erroneous information in the first 24 hours. It is well known that in war, truth is the first and recurring casualty. There are reasons for this. In the heat of battle, it is human to misperceive, and under extreme stress, equally human to want to believe that events occurred in such a way as to put the teller in a favorable light when, in fact, people are acting out of desperation. Still, you might have thought Administration spokespeople might be more careful to get their facts right.

In addition, the Obama people are learning that even when you do things well, the political jackals will be nipping at your heels. There were many decisions to be made during the course of the mission and its aftermath, and it shouldn't be surprising to hear many critical voices from the left and the right, and the inevitable second guessers. Welcome to George W. Bush's world.

So for better or worse, here's the redwavemusings view, in the form of a handy Q and A.

Q. The raid took place on Pakistani soil, without their knowledge until it was over. Wasn't this a violation of Pakistani sovereignty?
A. Of course.
Q. So shouldn't the administration have informed the Pakistanis, even obtained their permission?
A. Surely you jest.
Q. It now appears that there were limited, if any, defenses in the compound and that Osama himself was unarmed. Shouldn't he have been taken alive and brought to Guantanamo or the States for trial?
A. Osama had repeatedly incriminated himself on tape and celebrated his organization's various terrorist events and murders. A trial was unnecessary and would have been turned into a circus. The cost of securing Osama in a prison a la the Nazi war criminals would have been huge. Instead, the Seals executed him and that was revenge we had coming and justice he had coming. I have no problem with that.
Q. Was it right to bury Osama at sea according to Islamic rites?
A. Following Islamic custom was an interesting touch but probably more than he had coming. Frankly, I agree with Alan Dershowitz that he should have been autopsied as U.S. homicide victims would be. That would have provided any evidence needed to discredit future revisionists (like the people who think the moon landings were staged). I do think the burial at sea was a good idea. Why provide a memorial spot for his followers?
Q. Should the pictures be released?
A. I don't really care that much, and have no prurient interest in seeing them. My assumption is that eventually, they will be leaked, whether the Administration wants that or not.
Q. Does this mean that the CIA is back to the standards of effectiveness we took for granted during the Cold War?
A. Woulds't that were true!

A few other thoughts. There is no way to absolve the Pakistanis in this. They either knew where Osama was and protected him for a long time, or they are just plain stupid. Either way, their lack of curiosity about the compound speaks volumes about their reliability as an ally.

The Dems will never admit it, but the ultimate success of this mission owes a lot to the aggressive questioning of KSM by the Bush Administration. Frankly, it never bothered me whether waterboarding might be torture or not. it made sense to use whatever methods were necessary to extract from people who knew the information we needed. Since Al Queda fighters were not uniformed soldiers and did not subscribe to the Geneva Conventions, the protection afforded other POW's did not apply to them.

So, while this result inures to the credit of the Obama Administration (it's time something did), it also reflects well on the Bush Administration. And the President was both gracious and wise to call GWB and keep him in the loop because of his ongoing stake in the mission.

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On 4/29, we bought 100 shares of IDT, a zero buy at 28.70. On 5/3, we sold 300 shares of Newpark Resources (NR) for 9.40, some more profit taking (and we'll report how much in the next post). On 5/4, we bought 200 shares of RBS preferred (RBS.PR.E) at 15.90. It appears that the Brits are going to keep this bank propped up indefinitely, so we'll keep accepting the dividend payments.

The last few days have seen the market correct pretty drastically, reversing almost all of the recent trends. The dollar has been stronger, metals, oil and stocks down. Folks have made a lot of George Soros reversing his view on gold and silver. He's another crackpot as far as I'm concerned. I think this is just a correction and that the trends will reassert themselves. That is, inflation hedges up, dollar down. I will think that until I see real change in monetary and/or fiscal policy, not just speculation.

When these corrections occur, no matter how much profit taking you've done, it never feels like it was enough. However, thanks to our formula, we did a fair amount the last few weeks and never got euphoric about the long rally, just satisfied. We're in good shape to do some buying here, having piled up ample cash, especially if the correction continues for a while.

5,000 Hits!

2011-04-28T22:21:00.004-04:00

If 3000 hits is a sure fire ticket to baseball's Hall of Fame, I doubt that 5000 blog hits qualifies for much other than perseverance, or maybe just a big mouth. Whatever, thanks to all loyal, and even occasional, redwavemusings readers for taking our weekly blog to a new milestone. And still, there's lots more to say!
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Thank goodness, that birther controversy is resolved! We were all on tenterhooks for that solution. Imagine, it took a lowlife like Donald Trump to embarrass the President into requesting the long form certificate from Hawaii to finally put that nonsense to rest.

So the question is begged, why did Mr. Obama keep us waiting two years to do something that could have been done in days, if not hours. And the answer, like everything else that this incompetent administration does, seems to involve a political calculus. As long as the GOP lunatic fringe and the Tea Party folks were intent on keeping the issue alive, Obama's handlers calculated that it was helping him. However, they became concerned that a full-fledged windbag like Trump might make Romney and other serious candidates look reasonable by comparison. Once that concern emerged, the decision was made that the issue was becoming a liability and needed to be terminated. So the birth certificate was promptly produced.

This just adds to the growing perception that the President and his advisors have little if any interest in anything beyond holding power, and will do whatever is politically expedient. That continues to translate to poor poll numbers for a president whose connection to the people is remarkably poor considering his rhetorical gifts.
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A good example of political expedience over substance is the characterization of the Ryan Plan by the President, particularly with respect to the MediCare proposals. In blatant demagoguery, the President has played the Mediscare card, characterizing Ryan's Plan as a dismantling of MediCare. In fact, MediCare is already dead as a real health program, as anyone knows who has tried to help an aged parent negotiate the minefield that has become geriatric medicine. You get what you pay for, and since doctors are so poorly paid by medicare/medicaid, it is showing in their services, if you can get them to see elderly patients at all.

More to the point, ObamaCare does basically the same thing as the Ryan proposal, except that it rations care through MediCaid (to where it shunts most Medicare patients) using state and federal bureaucracies, while RyanCare rations through private insurance gatekeepers. The difference is that RyanCare has the potential to control costs while ObamaCare will inevitably balloon them.

The point is that to get effective care, people will have to spend their own money outside the government directed program, as Canadians do today. But even if you have those resources, this will be illegal under ObamaCare. At least private options will be available under RyanCare. Also, under RyanCare, government won't be perpetrating a hoax.
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The Bernanke press conference yesterday made history since for the first time, the Federal Reserve Chairman sidestepped questions asked directly by the press, revealing nothing new, just as he does in his quarterly reports to Congress. No matter the mode of disinformation, the Federal Reserve continues on its path of debasing the U.S. dollar, choosing inflation over a sound currency, and perpetrating the myth that we can achieve full employment and a vibrant economy by means of monetary policy tools. In fairness, the Fed will never do the right thing as long as Congress forces the dual mandate of full employment and low inflation on it. Bernanke seems to have settled on an inflation target of 2% annually as ideal for achieving the employment goal. But this locks us into halving the dollar's value every 36 years, or at least twice during the average life span. I don't call that low inflation, and it won't buy us much employment either as long as we have an administration and Congress that pursue stupid fiscal, trade and regulatory policies. The Phillips curve was dead and buried long ago.

Professor Milton Friedman had it right. The best "Fed" would be a computer that used open market operations to grow the money supply at a reasonably low fixed rate year in and year out. Next best solution would be (as proposed by Steve Forbes) for the Fed to peg the price of gold or a basket of commodities. As long as we populate the Fed with "geniuses" who think they can manage the economy, we will have a pendulum that swings from boom to bust. Very few can achieve the record Alan Greenspan did, and frankly, he left the Fed with a mess waiting to happen.

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The report is that Fatah and Hamas are making peace so Palestine can proceed to become a state. However, all the hard negotiations still have yet to begin. One thing for sure - there can be no Palestinian state without a commitment to Israel's right to exist, and we're not hearing that yet.
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Seemed kind of surprising,, but in these parts there was as much or more excitement generated by the first round of the NHL playoffs than the NBA playoffs. This even though all the local teams safely made quick exits. But the hockey series were uniquely exciting for first rounders.

Of course, once baseball starts, that captures my attention, especially when the Mets start playing like humans. We can only hope it lasts.
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You may recall from our last post that we sold 100 shares of the Genesee and Wyoming RR (GWR) on 4/21 for 59.58. We had paid 25.70 on 11/29/06. On 4/25, we sold 100 shares of Littlefuse (LFUS) at 59.99, for which we had paid 25.63 way back on 11/13/2000, before this blog was a twinkle in my eye. The next time someone tells you capital gains tax rates are too low, consider how much of the gain on this trade was merely inflation. Yesterday, we sold 100 shares of Ceradyne (CRDN) for 47.92 from the IRA, after paying 15.96 on 11/3/09. Triples within 18 months are great inflation fighters. For this one, I can thank Full Service Broker who made the recommendation.

We'll return to the buy side, however, briefly, tomorrow.

Poker Blues, Trump, and other Outrages

2011-04-21T21:00:00.004-04:00

For those who think the big news of the week was the S&P downgrade of the outlook for Treasury debt or the plummeting of Obama's and Trump's poll numbers, or the royal wedding preparations or the latest collapse by the Knicks, Mets, Rangers, etc. the answer is no, those are only the second tier stories. The real outrage was the closing of on-line poker's most popular websites. In a fit of Puritanical cleansing, the Justice Department determined that the off-shore headquarters of on-line poker vendors should not prevent them from being closed to U.S. customers, nor did it prevent legal action against their U.S. based owners and promoters. Previously, Justice had settled for making it as difficult as possible for U.S. customers to deposit funds to their on-line accounts, a mere inconvenience for the truly dedicated gamesman.

I understand there are lots of downsides to on-line poker. How do you prevent cheating, how can minors be prevented from playing, what about gambling addiction, etc.? I get all that. And I also get that anti-poker policy has been conducted by both of the last two administrations. But this administration has a uniquely paternal aspect to it, they just think they know better all the time and it's particularly irritating. Worst, they seem to have a bias against anything that has to do with business or the economy. ESPN is going to have a lot of commercial time to sell for its World Series of Poker telecasts this summer.

On the other hand maybe the casinos will benefit if players actually have to appear in person in order to pursue their (a)vocation.

On that note, we should consider that the quasi public leach on the New York horse racing industry, OTB, has closed shop in New York City and is nearing the end in Nassau County as well based on recent reports. Good riddance. Have you ever been near one that didn't have you looking for a place to wash your hands, and maybe your feet? But the real problem with OTB was that it took bettors away from the tracks. OTB advocates naively believed their customers were taken from illegal bookies, but the bookies survive on sports betting, not racing. Meanwhile, the combination of OTB and high takeouts (17% for straight wagering and up to 25% for exotic bets) killed bettors and with them the sport. OTB made the takeouts worse, adding a 5% surcharge to the takeout, plus breakage.

Next to that, the poker rake is all but insignificant.

So New York killed the golden goose that was thoroughbred and harness racing. Today, a track is lucky to attract 10,000 people to even a good card, even with slot machines, bets on out of town races, and all the other "attractions" they've added. There was a time when every broadcast sports report included the results from the tracks, but no more. To revive racing, give OTB a decent burial and reduce all takeouts to 11%. The dumb politicians will never do that though.
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As to the other stories, let's establish right away that Donald Trump is about as serious a candidate for President as Sarah Palin, which is to say he's not serious at all. I even question whether he's really a Republican. He is however, a tireless self promoter and his "candidacy" is just another chapter. By the way, since when is wealth an attribute for a would-be Presidential candidate? And is Mr. Trump even wealthy? Sure, he controls lots of assets, but he also owes lots of money. His companies have made excellent use of the bankruptcy statutes, and the one intelligent thing The Donald does is insist that his contracts omit a personal responsibility clause. He may be the biggest blowhard in the Western World. Which is a shame since by all reports, his father was an outstanding businessman and a gentleman.
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Then there's our President, who seems to feel it's ethically OK to spend the next 20 months of his term campaigning, travelling largely at taxpayer expense while he does his fundraising and speaking. Meanwhile, the rigors of campaigning seem to be more wearing than the job of being President, judging by Obama's surliness recently toward reporters, opponents, even voters. No wonder his popularity is plummeting and 44% of voters already are determined to vote against him (versus 37% inclined to vote for him). In other words, against "none of the above," Obama is behind.

Of course, another reason for his lagging numbers could have something to do with the overall cruddy job he's doing.

Obama's speech presenting his budget deficit ideas was a real joke and went over like a lead balloon with everyone except the hopelessly leftist progressives. First of all, in contrast to the Ryan Plan, there was not a single new idea, his main brainstorm being that we should let the Bush tax cuts for the wealthy expire. That refrain is getting a bit tiresome and as loyal musings readers know, it would make little difference since we're all subject to the AMT anyway.

So it amounted to yet another campaign speech, and a distasteful one at that. Also stupid timing since Obama will need GOP help to raise the debt limit. Too bad there is so little adult supervision in this administration.

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On 4/13, we bought 100 shares of our little conglomerate, Kaydon Corp. (KDN) for 38.09, a value buy. On 4/15, our limit order to sell our last 120 shares of Lubrizoil (LZ) at 134.25 executed, as we knew it would in due time. We had bought 100 shares on 4/5/04 for 32.18 and 20 shares on 12/13/10 for 106.22. Also on 4/15, we bought 100 shares of IDT Corp. (IDT), a new name for 27.59. This was always a telecommunications company, but they now have become an energy play as well. Its subsidiary Genie Energy is developing a huge shale oil project in Israel of all places. You think they're going to have any problem with regulators over there?
Too bad we didn't discover this little tidbit a year ago when IDT was bottoming in single digits. On 4/18, we bought 15 shares of the SPDR Gold ETF (GLD) at 145.22. Yesterday, we bought 100 shares of Thermo Electron (TMO) at 55.41, a value buy. Today, we sold 100 shares of our railroad stock, GWR at 59.58. We'll have the profit numbers on that transaction in the next post.

We Get Letters, Stacks and Stacks of Letters

2011-04-13T22:32:00.002-04:00

Perry Como fans (are any of you loyal readers old enough to remember him?) might remember that his weekly variety TV show featured a regular segment where he sang fans' requests that had arrived in the mail. All of a sudden, redwavemusings is receiving fan mail in the form of comments. We're happy to lead off this week by answering the questions posed by anonymous commenter's.

"A couple of questions, first when will the Mets teach Parnell how to pitch or give up on him? He is killing the team and the season has just started. Next, what do you think of the Knicks chances against the Celtics? Finally, investing, any opinion about Jim Cramer? I have been watching him on tv for some time now and have considered buying his books. What do you think of his advice (not showmanship)"

Bobby Parnell has a great arm but I think he holds the ball too tight and therefore his fastball has no movement. Big league hitters can handle straight fastballs - the velocity doesn't matter. His career success will depend on his ability to learn to add some movement to his pitches while still controlling them. Too much natural talent to give up on just yet.

I don't think pitching coach Dan Warthen is getting much in the way of results so far. There are too many walks, way too much nibbling, and the pitchers who are not strikeout pitchers (pretty much everyone but Parnell) don't seem to know how to change speeds and pitch to contact. We'll give him a little more time, but so far, not good.

As for the Knicks Celtics series, you have to make Boston the favorite, but since the Knicks have finished the regular season so well, and it looks like the new additions are jelling, the series should be very competitive and entertaining. For the Knicks to win, they have to get it done in 6 games. I don't see them winning a seventh game on the Parquet Floor.

Longtime readers will remember I used to quote Jim Cramer quite a bit, and newer readers can find those quotes if they're willing to make a diligent search through the archives. I haven't been watching him much recently. However, I still feel you can learn quite a bit by watching him. What? The importance of research and coming to your own opinion about economic trends and stocks. Understanding what makes stocks move in either direction. Realizing that markets are about fundamentals, though technical analysis is useful in providing perspective. The importance of management. The importance of taking profits (ringing the register). Why investing in individual stocks has certain advantages over fund investing.

Where Cramer and I part company is mainly that I think his focus is too short term for most individuals. Cramer is more patient than a lot of the analysts you see on TV, but 6 months is about the extent of his working time horizon. This is not true in every case. He will keep a stock that's doing well on his buy list for much longer. But if he believes that a positive move is unlikely in the next six months, he'd rather put his money elsewhere. This is a natural tendency arising from his days as a hedge fund investor.

Most individuals should expect to hold a stock for a minimum of a year and should be willing to be more patient than Jim.

I must confess that I have not read his books and can't tell you anything about them, but my assumption is that they must be entertaining and informative.

"I wonder if you care to comment about Rory's collapse in the Masters and about Showalter's Birds of Baltimore? I seem to recall a prior post wherein you announced that you were a fan of that moribund franchise."

Rory McElroy played superbly for 54 holes at the Masters, had a shaky front nine on Sunday, then hit it to the wrong zip code off the tenth tee and never recovered. Golfers often have fragile psychs. The difference between world class play and professional mediocrity is alarmingly small. It is a good sign that Rory bounced back from a similar disaster at the British Open. It is a bad sign that it has now happened twice.

Tom Watson went through similar trials early in his career, and many gave up on him way too soon. He ultimately became a dominant player. If I had to bet, I would say that Rory will have a good career and win majors. But we should remember that Sergio still doesn't have one, and Colin Montgomery never won one. The difference is that neither of them were reliable putters, while Rory is a good putter.

The Orioles are my American League team, certainly not as dear to my heart as the Amazins, but I do follow them. It has been a very lean decade or so for Birds fans. Management is important in baseball as everything else, and Buck is the real deal. I expect the Birds will overachieve this year, but they play in a most challenging division. I'll be very happy with 85 wins, which should be good for third or fourth in the brutal AL East.

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We've now got the Ryan plan and some kind of budget idea from the President though one could hardly call it a plan. A good idea of where the battle line might be drawn is illustrated by this exchange from the liberal blog The Reality Based Community that took place the last two days. I'll let readers guess who Redwave72 might be.

Courage and Seriousness - Jonathan Zasloff

Turns out that although Paul Ryan budget plan cuts $4.3 trillion dollars in spending, mostly for the poor and middle class, it also cuts taxes– mostly for the very wealthy — by nearly $4.2 trillion dollars, leaving only $155 billion in deficit reduction over ten years. You could get that just by cutting farm subsidies in half each year (Ryan lets ag subsidies off very lightly).

But it’s a very courageous and serious plan.

kathleen says:
April 12, 2011 at 8:08 pm
No surprise there. Ryan knows who butters his toast.

Every action on the part of Republicans is intended to destroy the middle class. Keeping wages low is a PRIMARY aim and the reason they don’t really care about the unemployment rate, and those in the (formerly) middle class don’t deserve health care, or clean air/water/food, or good schools, or any say in their working conditions, or pensions, or any leisure time, or really anything at all no matter how hard they work. They don’t even care about us as “consumers” (an offensive term), because there are plenty of consumers elsewhere. Their intent is to thin the herd.

Once you view all Republican actions through this reality, it ALL makes perfect sense.

SamChevre says:
April 13, 2011 at 5:32 am
That press release is not the clearest on the proposed tax cuts.

I wasn’t aware that the Ryan plan proposed any cuts from current levels (not the future pop-up levels but actual current levels) of tax; what am I missing?

Redwave72 says:
April 13, 2011 at 8:37 am
Sam is correct, the plan is not yet that granular. The Ryan Plan does propose cutting certain rates in exchange for elimination of numerous deductibles, many of which are of limited or no value to middle income taxpayers. This was in the spirit of the proposals made by the Obama Deficit commission, whose work product Ryan opposed only because it did not go far enough to cut the deficit. Ryan’s staff expects the tax provisions of his Plan to score fairly neutral; their major impact is to simplify the code and to reduce government mangling of the code to influence behavior. Fact is, unless the AMT is changed or eliminated, there will be no tax reductions. If you did your own taxes instead of farming it out to some accountant or mindlessly entering your data into some software, black box package, you would know that. For anyone whose taxes Obama would increase, the AMT is and has long been the country’s tax system, and its rate, not the nominal rates that are politicized, are what we pay. Lowering the nominal rates simply transfers more of the taxpayer’s burden from the 1040 or Schedule D pigeonhole to the Form 6251 (AMT) pigeonhole without really changing the amount due. Increasing the rate will have the opposite effect. So go ahead, Mr. Obama. Kill the Bush tax rates! I didn’t get much of a cut when they went in, and i won’t get much of an increase if they go out.

Of course, middle income payors will get hurt if they are not on the AMT (those who live in states with low or no state income taxes). And those are the people you progressives supposedly care about! It’s annoying to be your enemies but downright fatal to be your friends!

So, in fact, Mr. Zasloff’s budget analysis of the Ryan plan is not even representative of it. But we are used to that kind of partisanship and sloppiness here.

As for Kathleen’s “reality,” this would only make sense to a seriously paranoid personality. I suggest she allow folks to explain their own motives. Maybe she should simply ask them why, and then make the effort to listen and accurately comprehend the response.

Jonathan Zasloff says:
April 13, 2011 at 9:29 am
@Redwave72:

“Ryan’s staff expects the tax provisions of his Plan to score fairly neutral”

Stop it! Stop it! You’re killing me! That’s so good, you should take it on the road. But thanks for playing.

Redwave72 says:
April 13, 2011 at 12:06 pm
If you trot on down to the library and read today’s WSJ lead editorial, you will see the same thing:

“This overhaul is not even a tax cut – the instructions are to design a reform that is revenue neutral. It would hold tax receipts to their post-World War II average of between 18% to 19% as a share of the economy. The liberal claim that this means a tax cut for the wealthy is based entirely on the fact that marginal tax rates would decline, even though the loopholes (to be closed) primarily benefit higher income taxpayers.”

Full disclosure – I commented before I saw the Journal editorial. Which indicates that careful reading of the proposal combined with an understanding of the tax code is likely to lead to similar analytical conclusions.

A more honest criticism from the left would be that the 18-19% target does not fund the priorities you believe in, like PPACA. At least that would be a true statement and would set up a serious debate that deals with our actual policy differences, as opposed to the silly pejoratives and dishonesty of the class warfare misrepresentations.
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On 4/6, we bought 200 shares of US Truck (USAK) at 13, a zero buy. On 4/8, we sold 100 shares of Amerisource Bergen (ABC) at 40.75. We bought the shares on 11/15/01 at 13.77. On 4/11, we bought 100 shares of ING Preferred (ISP) for the IRA at
21.26. Today, we bought 100 shares of Kaydon (KDN), a value buy at 38.09.

Havin' Fun Now

2011-04-04T21:09:00.003-04:00

There have been so many great games, battles that came down to the wire in this year's NCAA tournament, it is very difficult to keep any perspective about it. With 64 teams, and maybe 15 or 20 actually believing it's possible to go all the way, the tournament is coming down to sort of a lottery. I can tell you there weren't many brackets that had this final four. The Butler UConn game is about to start, and I think we are looking at a toss-up since both teams are so good at pulling games out.

Even on the girls' side, we have had three upsets in the final eight - Notre Dame over Tennessee and UConn, and Texas A&M over Stanford. That leaves another toss-up tomorrow night. Forced at gun point to pick winners, I would have to go with UConn in the boys and A&M in the girls.

And now that the Knicks have made the playoffs, a huge step forward for our moribund pro basketball franchise, baseball is finally under way. My beloved and often hapless Mets didn't win many road series last year, but they have started off with 2 of 3 in Florida, and now move on for a sterner test in Philly. However, they do there, I like the team. The starting pitching will be better than anyone thinks, and the lineup is surely better with Thole and Davis a bit more experienced, Reyes and Beltran back if not 100%, and some bench players in Murphy, Harris, Hairston and Duda. The major weakness looks to be in long relief, a spot a lot of teams could use help with. The Mets have the misfortune to play in a pretty good division, but a strong second would not be a surprise to me, and that puts you in contention for a wild card.

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Speaking of good things, last night's Academy of Country Music Awards show on CBS was a lot better than your average monotonous self congratulations fest. Among the highlights - Carrie Underwood's pairing with Steven Tyler for one of her songs and then an Aerosmith classic; a very nice tune by comeback star Sara Evans; Reba being Reba and singing as well as ever; Darius Rucker singing with the developmentally challenged kids; and finally, the great medley by Zac Brown with James Taylor. And how nice that Taylor Swift's fans put her over the top for Entertainer of the Year over Miranda Lambert who deservedly won everything else. I know Country is not a pure medium anymore, but that was a fast moving, fun three hours.
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The Obama re-elect campaign is officially started with a fundraising goal of $1 billion. Republicans need a candidate. With Romney and Pawlenty the only really serious viable candidates so far, one wonders if someone can convince one of the aggressive governors, Christie, Daniels, or Kasich, to jump in before it's too late. All would prefer making the run in 2016.

For pure courage, you have to admire Rep. Ryan, Chair of the House Budget Committee, and the one man in Washington ready to take on the real budget busting entitlements. If you think Social Security is the Third Rail of politics, wait til you see what Ryan has ready for Medicare overhaul!
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The reclamation of George W. Bush's reputation continues. This from Der Spiegel, Feb.7 (reprinted by WSJ): Suddenly it seems everyone knew all along that Mubarak was a villain and the U.S., who supported him until recently, was even worse. However, it was actually former President George W. Bush who always believed in the democratization of the Muslim world and was broadly ridiculed by the Left for his convictions...Everyone was sure - without knowing any Muslims - that the Western model of democracy could not be applied in a backward society like Iraq. Everyone knew that the neo-conservative belief in the universal desire for freedom and progress was naive nonsense...

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I returned to the tournament bridge scene Friday and Sunday, and have to admit it was more fun than I remembered. For whatever reason, I am more comfortable at the table, and that starts a virtuous cycle involving more competent play. For two days, the master point haul was about 6 and a half points, mostly gold.

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We now count our LZ holding as a cash equivalent, given that Berkshire's closing of the Lubrizoil acquisition is a certainty in my mind. I don't think the questionable stock purchase by a Berkshire officer will upset the deal, and so I am holding out for 134.25, not willing to leave more than 75 cents per share on the table for the arbs. Eventually, my limit order will execute.

Otherwise, we continue to be active. On 3/16, we bought 20 shares of TIP at 109.80. Inflation hedges are the rage, for good reason. On 3/18, we bought 400 shares of Tat Technology (TATT) for the IRA, a value buy at 5.42. On 3/21, we 50 shares of Expeditors International (EXPD) a zero buy at 48.37. On 3/23 we bought 25 shares of Con Ed Preferred (ED.PR.A) for the IRA at 92.41. On 3/30 we bought 600 shares of Frozen Food Express (FFEX), a value buy at 3.45.

Then we switched to the sell side. On 3/31, we sold 100 shares of CRDN from the IRA at 44.85. These shares were purchased on 4/14/08 for 33.18. On 4/1, we sold 200 shares of Conrad (CNRD) at 14.16. They were purchased on 2/19/05 for 2.25. That was when Conrad moved to the pink sheets to avoid the exchange rules that required compliance with Sarbanes Oxley. My kind of management. Today, we sold 300 shares of Petroquest (PQ) from the IRA for 9.30 that were purchased on 4/22/09 for 2.91. So important to take profits.

Time for our periodic disclaimer: Redwavemusings and its author are NOT investment advisors and the securities mentioned here are not recommendations, only a record of my transactions. Such securities may not be suitable for readers, or anyone else.

Musings From Austin, TX

2011-03-25T11:25:00.004-04:00

They call Nashville Music City, but the folks in Austin beg to differ and they have a case to make for the Texas capital and home of the Longhorns. There are a half dozen distinct neighborhoods in Austin, each with its own feel and points of interest, but perhaps none more enticing to my particular brand of moral degeneracy then the East 6th Street nightly playground. Stretching about a half dozen blocks, the neighborhood comes alive each evening as the many pubs, bars and discos each blast their particular slant on blues, rock, and hip hop. The accent is surprisingly heavy on rock, with little or no country in evidence. This is probably because the patrons are largely of college age from U.T. and the other local schools, not so much tourists.

As on Nashville's Broadway, you simply walk in and out of all the bars, many of which have live bands til 2 AM. There is no cover, no minimum, you simply leave what you want in the band's tip jar. I heard a very good blues band (with open mike type participation in the drum seat) the other night at Blue Moon, and some real good rock bands the last few nights, playing mainly covers but adapting them to their own styles rather than trying to reproduce the originals. One very successful example at "The Stage" was a hard rock version of the Paula Abdul hit, "Straight Up." It was hot!

As in most places, the kids take over by midnight, and there were even lines waiting to get in at several bars. The weekend figures to be a little much, and I intend to do some other things (the business dinner circuit calls). Still, if I am looking for a late nightcap, it's just a 2 minute walk from my hotel to 6th.
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Here's an update. Last night, I met a friend and we went with a third who knew a real good music bar on Fifth Street. We walked down to it,and I have to say that Fifth is as good as Sixth except the accent is on hip hop disco instead of rock. We went to a place called Antones that had a terrific band and to the rhthym and blues club back on 6th. But what a great town for music this is!

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For all of Defense Secretary Gates' kvetching about what was involved with establishing a no fly zone in Libya, once the decision was made to do so, the execution turned out to be elementary, dear Watson. Though it occurred in the nick of time to prevent Ghadaffy's extermination of the rebel forces, it came too late to assure an opposition victory either. Indecision has become the defining characteristic of the Obama administration. In this chapter, the heroes were Prime Minister Cameron and Secretary of State Clinton, early and persistent advocates of the no fly zone. Also a tip of the cap to Medvedev of Russia and the Chinese who both withheld vetoes of the UN resolution despite Putin's opposition to the no fly zone.

Of course the precedent to seek the UN's sanction is unfortunate. Since when is it smart policy for the US to grant other countries a veto with respect to our foreign policy moves? The reasons to replace this Administration keep piling up.
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I'm going to postpone my stock reports until I get home next week. Suffice to say we are enjoying the rally.

Pre-birthday post

2011-03-14T21:51:00.003-04:00

The Japan events were horrific. Who will ever forget waking up Friday morning to those incredible replays of the tsunami carrying cars, houses, boats, everything inland. The power of nature is not something man has any ability to withstand.

We live on an amazing planet, a hardy balance of forces that makes life sustainable as nowhere else (yet) to our knowledge. Yet, even its minor squirms and stresses are enough to dislodge our foundations. With the effort it takes to carve out a comfortable existence and cope with the earth's belches and groans, one would think that man would realize he profits not from warring over scarce resources but from cooperating in our efforts to thrive and overcome. Clearly, in the short span of human history, this has never been the case.

But there are hopeful signs, and one of them is in the genuine outpouring and identification with the Japanese people. Though civilized, modern, and today peaceful, the history of the Japanese people has often been one of trying chapters for its neighbors and enemies. It is well that even former enemies today have a strong urgency to help them through their catastrophe.

One thing that helps no one is the urgency with which the environmental left seeks to exploit this episode to castigate nuclear technology and overstate the dangers posed by overheated reactors. An understandable explanation of what is going on in those reactors is provided today in the WSJ by William Tucker in "Japan Does Not Face Another Chernobyl." His message is not to say there is nothing to worry about. Surely, there has been a need to emit a minor amount of radioactive steam, and the reactors can never be restarted once they have been doused with seawater. But Mr. Tucker simply explains the difference between Japan and Chernobyl.

"The Chernobyl reactor had two crucial design flaws. First, it used graphite instead of water to 'moderate the neutrons...' The graphite caught fire in 1986 and burned for four days. Water does not catch fire.

"Second, Chernobyl had no containment structure. When the graphite caught fire, it sputed a plume of radioactive smoke that spread across the globe. A containment structure would have both smothered the fire and contained the radioactivity.

"If a meltdown does occur in Japan, it will be a disaster for the Tokyo Electric Power Company but not for the general public." The fuel rods will simply melt to the steel and concrete floor but no further.

Let's hope he's right. One thing is for sure - the people calling for panic don't know any better.

Radiation aside, the Japanese and their friends around the world will be challenged enough.
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Another calamity of a much lighter variety is in the making and that involves the negotiations around a new agreement between the NFL and its players. I don't often takes the union's side in such disputes, but this is one time I would award them the lion's share of the $9 billion at stake.

Frankly, the owners have been looking to pick this fight since before last season even started. They are making lots of money, but are concerned that they will have to settle for these levels. They have no growth engine. TV seems maxed out, they can't raise ticket prices anymore, the merchandise is all selling out, etc. So to raise revenues and profits, the owners hit on the idea of replacing two of the four meaningless preseason games with regular season games. This would make the regular season 18 games long. I am old enough to remember when it was 12 (like when Jim Brown set a lot of his rushing records).

Trouble is, regulars don't play play much of the preseason anymore, since a few quarters of work is really all they ever needed to be ready. Preseason is mostly for looking at rookies and free agents, and gouging some money from the season holders who have to buy exhibition tickets too. By turning two more games into regular season games, the starters will have to play them. From the players' viewpoint, that means more injuries and even shorter careers and there is not enough money in the game to make that deal attractive.

The players have come up with a creative tactic - decertify their union so that they can successfully make the case that the owners' action will be a lockout (which is what it is). This will allow them to sue in court for failure to act in good faith. If only the Wisconsin public employee unions would switch to a decertification strategy!

So the owners have a rattlesnake by the tail. As usual the fans are the ones who stand to get hurt, since they have bought into the game emotionally if not financially. If there is no football this season, the owners say they will be fine, but that is just clear proof they are looking at this the wrong way. Yes, sports is a big business, but if owners expect fans to care about their teams, they owe it to them to put the teams on the field if its reasonable financially to do so. Believe me, it's way more than reasonable.

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In the meantime, we've got the NCAA's to deal with. i was going to give you my brackets, but forget it, they are even less reliable than my stock selections. Instead, I'll give you Redwave's rules of the NCAA's, which hold up more often than they don't (no scientific evidence for that statement).

Rule #1 is that Conferences tell. It used to be that some of the better conferences, like the ACC, had tournaments and were spent when they got to the Big Dance. Now almost every conference has a tournament, so they're all equally spent. This means the top conferences should outperform the overrated ones. Top conferences always seem to include the ACC and the Big East. In some years, the Southeast Conference is a decent conference. Of course, a top team can come from anywhere, but the Big Ten, Big Twelve and Pac 10 are consistently overrated in basketball.

Rule #2, is that coaches tell, especially those with Tournament experience. You know who they are.

Rule #3 is speed tells. In what sport this side of chess doesn't it?

Rule #4 is that the premium these days is on good rebounding and three point shooting. Shooting 33% from outside the arc is arithmetically as good as 50% inside the arc. In college ball, the arc is not that far out, and you can do even better.

Rebounding is like Casey used to say about catching in baseball (without it you have a lot of passed balls). If you've ever coached a team that couldn't reliably clear its defensive board, you know what I mean.
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The academic left is in an uproar because not only do they believe (apparently without any supporting evidence) that Bradley Manning, the wiki leaks source, is being tortured in his army prison brig, but worse, the media seems to be all but ignoring the "situation." The left has a hard enough time when rights, real or imagined, are abridged, but they could live with that if only the perpetrators were being appropriately ridiculed. The one thing they can't abide is when their howling protestations are being ignored.

In today's WSJ, their reporter quoted the unspecified concerns of those good old reliable reformers at Amnesty International before faithfully reporting that guards were checking on Mr. Manning's welfare as often as every five minutes and that he was forced to sleep in his shorts. On the Reality Based Community's left wing blog today, I asked if anyone had any information contrary or in addition to those reported in the Journal, which did not really sound torturous to me, and none did including my friend the blogkeeper. I said it seemed to me that Mr. Manning was being treated no differently than he would be in a hospital, where some nurses have perfected the art of waking you for medication or fluid drainage just as you finally fall asleep. For that wisecrack I was widely castigated but somehow not disputed. To his credit, Mr. Manning, like any good soldier has not actually complained about his condition himself. Perhaps he well understands that after his Court Martial, he is likely to look back fondly on his now current arrangement.

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Pat Martino, the great jazz guitarist from Philly comes to Birdland this week with his organ group. The other personnel has changed, but no matter, you have to see and hear Pat to believe it. And there's no better venue to do that.

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Friday, I bought 1000 shares of Hauppauge Digital (HAUP) at 2.03. Allegedly, this is a value buy since the company has no debt and trades at a little over two times book. However, this is a microcap and "book value" may or may not be an imaginary number. The company has been causing an on again, off again sensation in day trading circles by periodically announcing products that somehow hook up to your Apple equipment to allow you to watch TV from anywhere, as if that's such a blessing. Daydreamers like me envision Apple taking the company over, if for no other reason than to curtail those annoying product PR pieces.

Speaking of takeover dreams, one came true today when Buffet announced Berkshire was buying Lubrizoil (LZ), one of our long time holdings, which we reduced according to formula not so long ago, only to buy some of it back later. Since we like to sleep, we don't worry about profitable sales that cause us to fail to maximize profits. For every LZ sale that comes a little too soon, there are those we make by formula that come in time, thank you. So, there was happiness today for all of us LZ holders rewarded for our long interest in the company.

I kind of knew Buffet was likely to be targeting one of our holdings when he recently indicated interest in acquisitions, but frankly I expected it to be ITW rather than LZ.

Today, we bought 200 shares of ENI at 19.49, a zero buy.

Inflation is here, there and Everywhere

2011-03-10T22:08:00.003-05:00

Sorry for the long lapse between posts, but we were traveling last week to Albany and Washington D.C., frequent haunts for those of us who get paid to educate legislators and regulators about issues important to our businesses. Of course, world events continue apace, lately moving so fast that the picture seems to be changing before I can even set pen to paper (figuratively, that is). A review is in order.

When last we posted, the GOP Governors, and even an enlightened Democrat or two, were busily trying to rein in, and even reverse, public employees, their unions and their unaffordable benefit packages, particularly pensions. Most important, as we strained to point out, is the political imperative to break down the mandatory requirement of public employees to join those unions and provide a significant amount of cash in the form of union dues. Those dues eventually become cash campaign contributions, perpetuating Democrats and union leaders in their positions where through "collective bargaining," the taxpayers are victimized by the farce of a negotiation between two parties who want the same thing - more and more government workers and cash to keep the cycle going.

The tools chosen by Governors in Wisconsin, Indiana and Ohio have been direct restrictions on collective bargaining, with the ultimate goal of passing "right to work" laws allowing public employees to work without joining the union. The former enables local governments to control their expenses; the latter curtails the campaign cash cycle. Both are ultimately necessary, and that's why in Wisconsin this week, Republicans found their way around their State Senate's quorum technicality by removing the expenditure provisions from the proposal and simply holding a vote on the collective bargaining provisions. Ironically, this was the opposite approach, though similar in method, to that used by US Senate Dems to pass the health reform bill last year, by making it part of budget reconciliation. In both cases, the normal process was legally, and perhaps spiritually circumvented. Predictably, the progressive left has been howling like stuck pigs over the Wisconsin tactic, which was somehow OK when they used reconciliation to get what they wanted.

The left believes they, and the President will have a campaign issue over this next year, but if things go as they have in Indiana, where Governor Daniels fixed his budget mess last year by reining in public unions, the Dems will have a problem on their hands. What the public will remember is that Wisconsin Dems left town (actually, left the state) and were not part of the solution. The fact is that though public unions have grown as private unions have shrunk, only about 13% of Wisconsin workers will be impacted and many of them have had it with union dues too.

So we're pretty happy with this denouement.
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There is a less happy outcome looming in Libya where, due in part to the inability of this Administration to take effective action, or even make a decision, the long time dictator "Khadaffy" is gradually putting down the rebellion that threatened to send him on a permanent vacation in beautiful downtown Caracas. This will predictably lead to a purge perhaps as bloody as the one that Bush 41 allowed to happen in Iraq in 1991. For those who only know history as reported by progressives, the body count in that one was in six figures, compliments of the late unlamented Sadaam.

There are lots of blameworthy people in the Administration but the one person I might absolve, pending more facts of course, is one Hillary Clinton, who from the beginning has provided the only adult supervision in this administration. I am sure she has learned, as did Colin Powell, that the career bureaucrats in the State Department are all but unmanageable. If she has in her pronouncements often sounded like she is off her boss's message, and the last to get the memo on the policy prescription of the day, I would ascribe that to her propensity to say the right and honorable thing, a trait no one else in authority seems to possess.

All this may seem strange coming from this blogger, especially given my low opinion of her during her husband's administration and again in the 2008 campaign, but we try to call them straight and true here and give credit where it's due. I think a lot of us on the right thought (because of Hillarycare) that she was a phony New Dem, but we were wrong. Hillary has done a good job as Secretary of State, and would have done a significantly better job as President than the current incumbent.

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Elsewhere in the Middle East, everything seems to be gradually coming apart, with the result that oil prices are skyrocketing, and gasoline pierces $4 a gallon in the US, perhaps headed for the $10 routinely paid in much of Europe. The Obama administration relented and issued the first permit for an oil well in the Gulf since the Big Leak, but just one. So we have no oil wells coming on stream, no nuclear plants being built, and we wonder why we are dependent on foreign sources. The latest shot fired by the environmental lobby is to cast doubt on the methods by which oil and gas are extracted from shale, though doubt is all they have - there is no evidence yet of any contamination the process actually causes.

As if this wasn't enough to stifle the nascent recovery, we also face the prospect of inflation, evidenced by increases in the prices of virtually everything except homes, which continue to go down in price (the one thing the economy needs to go up!). No surprise there, since the Fed has had inflation cooking in the oven for over two years and redwavemusings has been sounding the alarm for at least that long. Now, there are inflation alarms going off in China, South America, virtually everywhere, since currency is being debased virtually everywhere. As sovereign debt goes up, central banks crank out inflation to reduce the value of those debts - governments' solution to debt crises since Roman times or even earlier. It's just amazing that Bernanke can go before Congress and simply obfuscate (a fancy word for lying) the truth about the inflation reality, but that's what he does. Hopefully, he will be heading out the door right behind Obama. I don't think we will be able to ride out his full term with him in charge at the Fed.

For investors, this presents a quandary since in the short run, stocks don't like inflation and bonds always hate it. So do preferred stocks. But in the long run, common stock prices reflect inflation - hence the name equities - so they are a decent inflation hedge. Precious metals are the best. Currency is the worst. Being in some cash is not so terrible now while you wait for better stock market entry points and for interest rates to go up (when you can commit cash for a longer period). But as a long term investment, your cash will lose its value in the coming inflation.

I know this is 180 degrees from the oft quoted (here) Bob Prechter, who is still predicting a deflationary bust. If only Prechter were as good at economic forecasting as he is at writing and at selling newsletters!

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On March 1, we sold 100 shares of Gulf Island Fabrication (GIFI) from the IRA at 31. We bought this as one of our Tulane portfolio stocks on 3/6/2009 for 9.04. If you don't believe that, you can find the post in the archives where we reported the purchase. Anyway, two year triples are good inflation hedges. On March 3, we bought 100 shares of Graham Corp (GHM) for the IRA at 20.96, a "zero buy." On March 7, we sold 100 shares of Xilinx (XLNX) from the IRA for 35.15. We paid 19.80 on 8/11/2006. Yesterday, we bought 100 shares of MetLife preferred (MET.PR.B) for the IRA for 24.89. Why do we continue to buy preferred's in an inflationary environment? There are several components to managing a portfolio beyond stock picking and timing (and I don't try to time). Asset allocation is awfully important. After a certain age, there has to be an allocation to fixed income. The only thing Keynes may have been right about was his conviction that in the long run, we're all dead. For me, and for many individuals, preferred's are a better alternative than individual bond purchases. Of course, for the vast majority of investors, insured CD's and bond funds are better than trying to pick any individual issue.

The Duke of Flatbush

2011-02-28T22:04:00.003-05:00

It was good to read all the nice things people wrote today in reporting on the passing of Duke Snider. As a young Dodger fan, Duke was my favorite player. By the time I saw Jackie Robinson and Pee Wee Reese, they were both on the downsides of their careers, though still good enough to be key players on the great 1955 Championship team. But Duke was in his prime that year, the third of five seasons in a row in which he hit 40 or more home runs, and arguably would have been MVP had he not been strangely left off the ballot by one voter. Instead, Roy Campanella, a great teammate and another HOF player won his third MVP. Somehow, Duke never made an issue of the slight. It wasn't really his way, and players were more modest then.

The Dodgers of '55 got off to an incredibly hot start and never looked back, going wire to wire and clinching the NL pennant early in September. In the World Series against their arch nemesis from the Bronx, the Bums lost the first two in Yankee Stadium, but came back to win four of the next 5, the clincher provided by a Johnny Podres complete game shutout in Yankee Stadium. Along the way, the Duke hit four homers, tieing the record that Reggie Jackson later broke (against the LA Dodgers) for most homers in a series. Finally, "next year" arrived and Brooklyn had its only world championship.

Snider had joined the Dodgers in 1947 and had a love/hate relationship with the vocal Brooklyn fans in the early years, but he was a fan favorite during his prime years in the fifties. The troika of New York center fielders of that era has never been surpassed, but certainly Snider was considered by most to be number 3, perhaps unfair since he was older than the still improving Mantle and Mays. Like those two unsurpassed greats, Snider was a five tool player in his prime, and though center field in Ebbets was not spacious enough to showcase his defensive talents, his abilities were frequently on display on the road. I can remember him climbing the fence in Crosley Field in Cincinnati and taking homers away from the hated and muscle bound Redlegs of that era.

Bad knees and the move to the left hand hitter unfriendly Los Angeles Coliseum caused a swift decline in Snider's production, though he contributed significantly to the 1959 championship team hitting over 300 with 23 homers and 88 RBI's in less than 400 official at bats. But by that time, he was playing right field mainly, and never quite mastered the Wally Moon shot over the short left field screen. He was a part time player at age 33 the next year. In 1963, Duke returned to New York to play a season for the Mets, but there wasn't much left in the tank. He finished as a pinch hitter for the Giants.

One thing not well known is that Snider used the reputation he gained early in his career as a dead fastball hitter to great effect after his long swing slowed down. He rarely saw many fastballs but the truth was that he didn't much like the fast ball in his later prime years but feasted on the slower stuff he was always seeing. He was expert on waiting and pulling that pitch to right center and onto Bedford Avenue.

After his career, Snider became a successful baseball announcer, notably with the Montreal Expos. I don't know that his career stats would today make him an automatic HOF - they didn't as it was - but by the criteria I like for HOF voting as written by Stan Isaacs, he was a deserving honoree. Could you possibly write a comprehensive history of baseball without mentioning Duke? No way. Linked forever with Willie and Mickey, he was a baseball immortal and forever will be.
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For a rookie Governor, Wisconsin's Scott Walker did a great job on Meet the Press Sunday, patiently enduring the third degree that Conservatives are typically subjected to by the insufferable David Gregory, and sticking to his guns on the need to curtail collective bargaining rights. Putting aside the merits of collective bargaining by public employee unions, which I have addressed in two previous posts, the Democrats' tactic of boycotting sessions to avoid quorums is not going to reflect well on them in the minds of independent voters. At the very least, they should be forfeiting their pay as they decline to show up for work.

In any event, it shows how misguided the left is that they think these situations will backfire on Republicans. Voters have had it with the "public be damned" attitude of these unions and their political allies. By staying on message and maintaining their position, Republican governors are showing how seriously they are taking the need to get fiscal houses in order.

Once again, New Jersey's Governor Christie really made the point in speaking to a union dominated crowd recently. Paraphrasing, he said "Instead of booing me, you should be booing the prior Governors who promised you benefits that the state can't afford. 15 years from now, you will be thanking me for preserving the benefits you actually will receive."

Unfortunately, we are getting no such leadership from the chief executive in Washington. Apparently, Dems believe the can can be kicked down the road forever. Most voters know better, and that's why they are holding newly elected Congressmen's feet to the fire.
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And the leadership vacuum extends to foreign policy as well. To be fair, the President did a nice job managing the Egyptian crisis, though it must be pointed out that it is hardly fully resolved. But on Libya, where are we? Are we really going to allow this nut to strafe his own people without NATO instituting a no fly zone? What about Iran? Wait 'til that protest really erupts. The Mullahs will stop at nothing to retain power, I can assure you. And nothing ever seems to be done about North Korea.

When George W. Bush made his unpopular speech about the axis of evil, he was only telling it like it was and is. The Iraq protesters of 1991 saw casualties in the hundreds of thousands at the hands of Hussein. We didn't need a good excuse to remove that butcher, and the world should be thanking us for the sacrifice we made. Lest we forget, Winston Churchill was not immediately beloved for his Iron Curtain speech either.

Liberals would like to believe that people are not inherently evil, that there is a moral equivalence determination you come to when you look at the story from the other guy's perspective. They can make a case that sounds very attractive for that philosophy, and did so for Stalin, Castro, etc. and do so now for the likes of Chavez, et al. But there are people in the world that are just plain dangerous, and its not helpful to disregard the possibility. If we are the good guys (albeit far from perfect, let's stipulate), then, Mr. President, let's dispense with the apology tours and get on with the hard job of leading the free world.
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It was so thoughtful of Melissa Leo to apologize for dropping the "F-Bomb" during her Academy Award acceptance speech, but really, isn't it an indication that there are so many people who can't utter three consecutive sentences sans profanity? We've all heard such people, they are our friends, our neighbor's kids, pro basketball players, politicians on tape, etc. They all sound like they came out of a Henry Miller novel. On the Grammy's, they bleeped so many lyrics, you couldn't capture the melody (OK on rap songs, there's no melody anyway).

I was always taught that profanity, unless used for some artistic effect, or to make a point in a special way, is the sign of a weak vocabulary.

Also, we had the obligatory political statement from Director Charles Ferguson, the winner for Best Documentary, who somehow felt that with a captive audience, this was the appropriate time to complain that no financial executives had been put in jail for causing the financial crisis. I remember thinking, "Get this A_ _ hole off, put his A_ _ back in his F_ _ _in seat, and shut the H_ _ _ up." And for that, I sincerely apologize.

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On Tuesday, we sold 100 shares of Stifel Nicolaus (SF) from the IRA at 73.24. We bought the shares in two separate purchases in 2007 at an average price of 29.70 (split adjusted). Once the market cracked, we returned to the buy side, purchasing 100 shares of Graham Corp (GHM) for the IRA on Wednesday for 22.92. On Friday, we were buying for the IRA again, this time the RBS Preferred (RBS.PR.E) which continues its dividend thanks to the largess of the British government. We bought 200 shares at a price of 15.09. Today, we bought 100 shares of Newmont Gold (NEM) at a price of 54.60.

After ObamaCare Repeal - Then What

2011-02-21T17:04:00.004-05:00

Our fans continue to cry out for the musings solution on health care, and where to go with ObamaCare (i.e. what should be put in its place after it crashes, either in the Courts or via Congressional repeal). It's well that people are finally considering the possibility, at this point maybe the probability, that PPACA will be put out of its and our misery. What originally may have sounded like a right wing pipe dream has been given considerably more credence by Federal Court decisions and by the dynamics of the 2010 and 2012 elections.

Having said all that, I must stipulate that a good solution to the economics and delivery of health care across our population that will make anybody and everybody happy has not been arrived at. I least I haven't heard one I'm ready to pump for. I have addressed entitlements many times here, including a lengthy series that is well back in the archives, for those who wish to review. At that time, my major message was that we had promised benefits already that we could not afford (this was before PPACA), especially in Medicare and Medicaid and we had better do something in terms of reining in those promised benefits since there was no way in the world we could raise the revenue to support them. So instead of doing that, Congress and the Obama administration larded on to the system an entitlement that threatens to dwarf them all in terms of fiscal irresponsibility, namely PPACA.

So how should we deliver and pay for medical care in this country? Rather than prescribe a system, because I and the other honest people out there haven't figured it out yet, for this post I would rather just lay down some principles that should govern our future efforts.

First, delivering health care is different from delivering health insurance. Frankly, what most of us have today is insurance only in the sense that if you meet up with a catastrophic expense, you won't have to pay it if you are in the right plan. However, very few actual insurance plans exist. Most large companies are "self-insured," which means they have taken over the expense themselves rather than outsource it to an insurance company. What they outsource is the recruitment of doctors and pricing negotiation with those doctors, and the bill paying. So if you think your company is insured by CIGNA or Wellpoint, it probably isn't. They are simply the service provider. This is because companies think their net losses for covering their workers will, in most years, be less than the premiums they would have to pay for real insurance. This is also why they don't have to go to the state insurance department to increase your copays and "premiums." Since there is no actual insurance, the state is not really regulating it, and they only have to comply with ERISA.

Under PPACA, these plans will eventually have to conform to the "insurance" requirements under ObamaCare, which will limit corporations' freedom to design their own plans of self insurance. Many would choose to dump their plans and employees into the state exchanges, pay their "fine" and just get out from under the headache. Obama's promise that you will be able to keep your own plan if you like it will be a non-starter.

The point of all this is to keep in mind that health care does not equal insurance.

In small companies, real insurance plans are purchased, or the employer today has the option to not offer employees insurance. The small employer plans again may collapse under ObamaCare, but small employers will be hurt either way since they will have to provide a stipend or pay a fine.

The degree of security confronting individuals and the self employed has been the most concerning depending on what state you are in. In New York, there is community rating so you can't be turned down or cancelled, but the cost for a typical couple is $2,200 per month. This is because true insurance cannot be profitably underwritten without adjustment (or declines) for pre-existing conditions. No legislation or executive order can change that; it is simple economics. Comprehensive insurance is simply an unaffordable solution for most.

There was quite a bit of experimentation going on in the years preceding PPACA that might have borne fruit but the academic left and the medical school community buried all of that nice work under PPACA. So we don't really know how much stress could be removed from the system by HSA's, high deductible plans, and other private sector initiatives.

I don't think any plan based on insurance can work unless the coverage is focused only on the very costly procedures resulting from illnesses and accidents. This is analogous to the major medical insurance approach of the 60's and 70's. This means that check-ups, routine medicines, and any voluntary treatments (abortion related, sterilizations, sterilization reversals, plastic surgery (except for repairs of damage caused by accident or illness)), and certain diagnostic testing (chosen to prevent malpractice lawsuits) would not be covered. Of course, malpractice awards would have to be all but eliminated. People will have to become smarter and more price conscious medical service shoppers. Hopefully, we would also be encouraging young people to build up HSA accounts so that their later expenses would be pre-funded.

We have 50 laboratories in the various states to test alternative approaches. Surely, we could find a few things that work. We already can see in Massachusetts what doesn't work (and it's alarmingly similar to PPACA), and we see in Canada and Europe the mess that occurs under single payer socialized approaches. Inevitably, you get less medical delivery, worse outcomes, long waiting lists, and sharply reduced incentive for people to go into medicine as a career.

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Of course, the hardest nut to crack is Medicaid. Medicaid as currently constituted is a state - federal partnership, and the states and the federal government are both bleeding red ink. The tip off on the bankruptcy of PPACA should have been its description as an expansion of Medicaid. Medicaid is doomed because our aging population is counting on it paying for their long term care expenses. Not enough people are buying long term care insurance, which is admittedly expensive, and the result is that once these elderly have had their assets stripped, they are medicaid eligible. On top of that intractable problem is that medicaid is a highly inefficient provider of services to the poor, who proceed to the emergency room at the first inclination.

When you point out that taxpayers and governments can not afford the level of care they have promised under this system, the Left responds that it is a moral obligation, that we should cut everything else (presumably including defense) to pay for it, whatever it costs. Frankly, that has been Europe's answer. As a society, it would be useful to begin a wide ranging discussion about the level of care that must be provided as a moral obligation. We also need to consider what to do if our economy cannot produce the wealth it will take to pay for that. Part of that consideration is the friction that reduces business productivity when entitlements take over the budget.
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It would be bad enough if we only had to deal with middle class entitlements and the Medicaid eligible, but apparently, the Left believes we also have to support the high fallutin' lifestyles and political biases of our public employees and their union leaders. At least that is the inference we can make from the reaction to the demonstrations by teachers (who abandoned their classes) and other Wisconsin public employees. To show their allegiance, Democrats in the state Senate took off for parts unknown, out of state, to avoid fulfilling their sworn responsibilities and frustrating those who were hoping for a quorum to conduct official business. This is because they want to avoid a vote they know they will lose on the Governor's proposal to curtail the collective bargaining "rights" for those unions (but not the uniformed services, it should be pointed out, though the Obama people pretended to be ignorant of that). Of course how and why public unions should have these "rights" when their employers are the taxpayers they are supposed to be serving is another question.

As we have discussed here previously, what this is really about is the need to break the viscious cycle that has these unions negotiating with the very (Democratic, usually) politicians they provide campaign funds for. In effect, those politicians sit on both sides of the table and willingly hand the public's tax money to the unions in the form of generous overtime pay and benefits, only to have it come back to them in the form of campaign contributions to help maintain them in office. The GOP wins in 2010 gave some states the rare opportunity to bust this cycle and the time is now. As for the poor schlubs in NY, California, Connecticut and the other states that did not elect Republicans, you can believe you will stop being fleeced when you see it.
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Saw the Birdland Big band again last Friday night, as they performed their rare Philly Funk sets. The capacity house loved it right from the opening number, Cannonball Adderly's (and later the Buckinghams of Chicago) Mercy, Mercy, Mercy. This is one of those rare great opportunities when you can see a "house band" hitting on all cylinders, and there's nothing better. The Big Band plays from 5:15 to 7 and you usually need a reservation to get a table.
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On Wednesday, we bought 400 shares of Newpark Resources (NR), one of our Tulane portfolio stocks, for 6.06, a value buy. On Friday, we sold 200 shares of Safeguard Scientific (SFE) at 19.28. We had bought 100 on 10/14/2002 for 5.82 and the other 100 on 1/27/03 for 8.22. It's been quite a comeback for this stock from the company's near-death experience following the 2000 Tech Wreck.

We have had a tremendous run so it should not surprise musings followers to see us do some formula driven selling. Newer readers can search the early archives for a description of our investment formula, which will help our hit meter on its inexorable march to 5000 and beyond. I hope to have a printed version of the archives at some point, so I could direct these searches more efficiently, but, alas, I don't as yet.

Valentine's Day Muser

2011-02-14T08:33:00.004-05:00

As the Middle East unrest spreads from North Africa to Iran, the Western world watches with a mixture of wonder, hope and trepidation. All three reactions are justified. The internet's social networks have made possible what tens of millions of dollars in western oriented news and propaganda could not do - bringing together the young and still hopeful in Arab lands to capsize authoritarian and sometimes brutal governments. We would hope that something better would replace enemy regimes in Syria, Libya, and Iran, bring civilization to the Sudan and Yemen, yet worry about what manner of political result will occur where authoritarians have been our allies as in Saudi Arabia. Will we have more democracy, and with a population thoroughly indoctrinated over the last 65 years, can democratic Islamic societies really emerge and make peace with Israel in their midst? Can an Islamist government really foster anything resembling a pluralistic society where individual freedoms can be respected for women, Christians and other non-Islamists?

The answers to these questions are probably unknowable, and our defanged CIA is not providing a clue. The Obama administration deserves some credit for its measured response, but at the same time, we wonder whether it is much more than an interested spectator. Somehow, we did seem to exercise enough influence to engineer the military takeover in Egypt, but really, that was the only alternative to anarchy.

It is useful to keep in mind that a lot of what is going on is less about democracy than it is about food prices and poverty. Once again, we need to be reminded that, progressive doctrine notwithstanding, economic freedom and the rule of law are the consistent bulwarks against poverty. If you think China's emergence as the world's second largest economy is evidence against that, think again. On a per capita basis, China is still one of the world's poorest countries, less than a tenth as wealthy as Japan.

Wouldn't it be interesting though if historians some day decide that what we are witnessing in the Arab lands is in fact a delayed reaction to the busting of the hegemony of autocrats that originated, in fact, with George W. Bush's Iraq incursion. Supporters of that effort claimed that democracy would spread around the Middle East as a result, and were ruthlessly derided for their optimism and strategic choices. Time will tell, but I continue to believe that Mr. Bush, though not one of the great Presidents, will continue to rise in stature as history provides better perspective.

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On a lighter note, last night's Grammy show was the usual wildly uneven attempt to provide something for all music genres, ultimately providing a few highlights for everyone and probably satisfying no one. For the younger set, the major cross genre awards provided a repeat of the Norah Jones nightmare, as country's Lady Antebellum's clean sweep of those awards was only prevented by Canadian pyrotechnical rock group Arcade Fire's win in the best album category. Otherwise, to the delight of those of us who prefer country to rap or nuclear holocaust rock, Lady's A's more traditional lyric and pleasing harmonies won the day, capturing Best Song, Best Record, and three other awards. They also provided a short medley that suitably demonstrated their talents.

Among the other performers, it was a decidedly mixed bag. There was a nice tribute to Aretha Franklin that started off the show, though none of the five singers from the various music genres that sang her tunes could even remotely approach the Queen of Soul herself. Justin Bieber may have some talents, but apparently none on the musical side, and his "performance" was just awful. Too bad Simon Cowell wasn't there and miked to provide an instant critique. I thought Cee-lo Green and Gwyneth Paltrow were surprisingly OK. When they rolled out Bob Dylan, he literally croaked through Maggie's Farm, an embarrassing performance where even his harmonica playing was pitiful. For those who think Dylan was really just a poet who could never sing nor perform live in an entertaining way, I suggest you review his performance in The Last Waltz, Scorsese's concert movie of The Band's farewell. The Dylan songs are a highlight among so many great moments in that film.

There was a beautiful rendition by Miranda Lambert of her song The House That Built Me (and she really is, by the way), which fittingly won the Grammy for best female country artist performance. But the highlight of the night was the ageless Mick Jagger, in a tribute to soul man Solomon Burke, bouncing around the stage like a 20 year old, singing strongly and clearly and rousing the audience to a fever pitch. Just incredible.

At the opposite end of the spectrum was Barbara Streisand trying to sing Evergreen, not doing quite as badly as Dylan but close enough for discomfort.

As for Katy Perry, I don't get her at all. Her songs were performed poorly - I didn't think she was close to being in tune - she may be a female Justin Bieber. You would think that singing on key would be a minimum requirement for a live Grammy performance. Of course, pop stars who can sing OK on record but not live are not all that unusual. I always thought that one of my faves, Jimmy Ellis, who sang lead for Disco group the Trammps (Disco Inferno, etc.) sang flat when I heard him live.

It was nice that in the tribute to those who have passed on since the last show, the Grammy's remembered pianist Dr. Billy Taylor, the jazz teacher. I had met him when I was 16 at my cousin's bar mitzvah when I had the good fortune to sit at the same table with him. I knew nothing about him then except that, like a lot of jazz stars, he was my uncle's client. There are many in the jazz world, and many lovers of that music, who owe him debts that can never be repaid.

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We got some favorable reaction to our last post, and in response to reader's questions, we'll have more in the next post about what the next steps should be on health care reform. In the meantime, we'll watch the budget posturing in Congress and comment on that next time too.

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On Feb 7, we bought 200 shares of Peoples United Bancorp (PBCT) for the IRA at
13.29, a value buy. On 2/8, we sold 100 shares of Roper Industries (ROP) at 81.37. We bought the shares on 9/19/01 for 18.22. On 2/9 we bought 100 shares of Graham Corp. (GHM) for the IRA at 23.48, a "zero" buy. On 2/11 we bought 200 shares of the SPR Gold ETF (GLD) at 133.04, also for the IRA. Today, we sold 100 shares of Belden Corp. (BDC) from the IRA for 40.10. We bought them on 8/20/08 (before the swoon) for 38.63.

Egypt and other points of interest

2011-02-05T18:40:00.003-05:00

It was kind of hard to find, but we did receive a new comment (from a new commenter) who had some interest in the January 17 post, but posted the comment in an earlier post (not his fault - we still are not happy with the comment format on blogspot and have been unable to figure out how to fix it). For those who didn't see it (assume that's everyone), and because it poses interesting questions, here it is:

Hi RedWave:

Regarding your January 17th post, it was interesting to see someone from the right interested in paying for the treatment of our mentally ill. Or did "seeing to it" only mean that we should insist on their getting into treatment? If they fail to get treatment without our paying for it, do we then throw them in jail? I do believe we should spend more to provide care for the mentally ill. Still I cannot help but be amused by your ability to point to that, with no mention of background checks for gun buyers. Worried about your reputation with others on the right? If that is the case then be careful they don't think you are in favor of paying for other people's medical problems. Sincerely, Dr. C.

So Dr. C., that's a lot of good questions and a challenging dilemma for the right concerning medical costs for a meaningful population of ill and often indigent souls. Let's consider them in order.

Walk around any city in this country, as I have related in many posts following my business trips, and especially places like New York, San Francisco (perhaps, the worst) Denver, D.C., etc. and you will encounter an alarming number of folks begging for change, and it's clear that the majority are indeed homeless and many are also suffering from mental illness. Most of these people are not dangerous, or even annoying, but this is a life without quality or discernible purpose. Disregarding those who are able and are in fact professional beggars, it would be both humane and responsible to get the mentally ill off the streets and into treatment. Where the illness constitutes a danger to others, it is also a matter of public safety. In any event, providing treatment and shelter for these folks is a legitimate purpose and use of taxpayer funds, at the state and municipal levels. If such people refuse shelter and treatment, jail is a less attractive option (there are vagrancy laws not being enforced); perhaps there is a legitimate state interest in providing a required mental examination and base subsequent treatments, mandatory or otherwise, on those results. So the short answer is the right is not so doctrinaire as to deny the validity of any public services, and I believe my thinking on this is pretty mainstream for the right.

In fact, it is the folks on the left who seem to have insisted on emptying the institutions and thrusting all of these poor folks out into the street. Granted the institutions often needed upgrade and reform, but I just don't get how the current situation is more "humane."

As for background checks for gun purchases, my understanding is that they are occurring, though the left would prefer longer waiting periods. In any event, I will stipulate that current procedures don't keep guns out of the hands of criminals, sane ones or crazy ones, and strengthening those procedures as has been suggested won't either. Nothing short of disarming the public will do that, and I am not in favor of that because the result will inevitably be that only the bad guys will have the guns. Anyway, I think the second amendment would have to be repealed before we go down that road.

As for whether I worry about being in synch with my fellow travelers on the right, I think my Goldwater/Reagan/Gingrich credentials will pass muster. By the way, I don't think the right is any different from the left in that it is pluralistic (not monolithic) on issues and positions, though there is not the rivalry within the movement that Dems like to believe is there. Unlike progressives, those of us on the right usually respect each other's opinions (and even some of the opinions we hear from the left) recognizing that intelligent people will come to different conclusions on these matters. That's what makes these debates fun and why I love to receive such great comments, like yours. Thanks Dr. C.

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The bankruptcy of this administration's foreign policy approach is now being again
demonstrated by our helplessness, and lack of intelligence about what will be next for Egypt. Even though we seem to have no idea, the President has already pulled the rug out from under our long time partner Mr. Mubarak, and called for an immediate move toward a transition government. Thus, again, we give proof to the old adage, "it's dangerous to be our enemy, but downright fatal to be our friend." Watching our cynical and feckless display certainly has to raise concerns for our friends around the world, especially Israel. Just how quickly will any friend be abandoned by the U.S. under stress.

Not knowing much about how this will turn out myself, I do have two observations. First, if we could ever agree on a consistent foreign policy, as we did during the Cold War when with few exceptions, both Democratic and Republican administrations acted predictably and forcefully (we'll ignore the Carter administration for now), maybe we would be more effective. But we can't agree. When Bush 43 advocated for a policy that would spread democracy, even if it meant change from a friendly autocrat like Mubarak, he was roundly criticized for it. The Dems, when they achieved power, seemed to adopt the State Department's preferred policy of benign realpolitik, supporting stability, even if it meant backing small-time bullies like Chavez. So when the populace has finally had it with the autocrat, whether the trigger is economic or political, we wind up on the wrong side and can't back away fast enough.

Second, we are still suffering from the dismantling of the CIA as an effective intelligence gathering apparatus. Since Senator Church's hearings resulted in a toothless CIA (as opposed to the Cold War super agency it once was) we have seen a succession of intelligence failures that have won the agency a reputation rivaling the SEC. And here we are again, basically not having seen the Tunisian nor Egyptian crises coming and not having any idea what happens next.

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What next for health care? Virginia has asked that the Supreme Court review the litigation on an expedited basis, which makes some sense. The pressure to do so is rising because Republican governors have finally figured out that the recent decisions give them the excuse, if not the obligation, to curtail the implementation efforts by their insurance commissioners.

No one really knows how the Court will ultimately rule, whether Kagan will recuse herself (as she should, but probably won't), and whether Congress will ultimately repeal the most offensive sections of the law. What I would like to see is what should happen constitutionally - each state should determine its own approach, which would give us 50 laboratories to see what works. We pretty well know Romneycare is not working, for example. Maybe the state that figures out that a major medical type approach is the only true insurance program that could work will win the sweepstakes.

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When veteran Long Island bridge expert Harry Stappenback passed away last week at age 71, the game lost its tallest master. At 6'11", the gentle giant was a fixture at the late lamented Vanderbilt Bridge Club, and before that at New York metropolitan area tournaments. The highlight of his career was when his team won a national championship in 1987.

New York Times bridge columnist Phil Alder wrote that Harry's teammates in winning a local tournament were 6'6", 6'8", and 6'9" making them the tallest team in New York, including the Knicks.
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In my last post, I noted that we had sold 100 shares of Hubbell at 56.93. We had bought them on 12/22/2000 for 23.56. On the 28th, we sold 500 shares of FSI International (FSII) at 4.43, purchased on 9/8/2009 for 1.01, a nice little gain. On the 31st, we bought 100 shares of ING Preferred (ISP) for the IRA at 20.48. On Groundhog Day, we sold 100 shares of Lindsay Corp. (LNN) from the IRA for 68.95. We paid 20 on 3/5/2001. Patience pays.

Loyal readers will no doubt recall that redwavemusings disregarded the deflation scare and mocked the Federal Reserve's concerns, worrying instead about a debasement of our currency. Since so many currencies are tied to the dollar, and since central banks around the world are pumping up their economies, a worldwide inflationary period has already started. If you factor out the retreat in housing prices from the bubble levels of 2008 and prior, you get some pretty ugly increases in the cost of commodities and living expenses. This is showing up in the prices of food, steel and other necessities around the world.

So the rise in nominal stock prices simply reflects the weakened currencies and the fact that the numbers are getting bigger, not that corporate properties are actually increasing in value. So you can't be short, you have to be long to keep up with inflation, and you have to be in commodities that hedge inflation, like gold. In sum, you have to hedge your cash positions, because the value of cash will inevitably decline.

The State of the Union...Better, Needs Improvement

2011-01-26T22:33:00.002-05:00

The President's annual report card to Congress met the usual high standards of Obamaesque rhetorical skill, as the President continued his charm offensive aimed at independents and conservatives. However, it should be realized that other than reluctantly agreeing to extend all of the Bush tax rates, the President actually has done nothing helpful, and nothing really to depart from the progressive agenda.

Sure, progressives are moaning like jilted lovers, but that's because they are believing what they are hearing. On the right, we are skeptical and then some. As Bill Russell famously remarked about sizing up golfing buddies, "don't worry about their swing, just watch where the ball goes."

Take the regulatory review the President has promised. Digging a little further down, it appears we are merely going to eliminate outmoded verbiage on the books that no one has paid much attention to for decades. Are we going to see actual deregulation where it could help the economy, where it could aid in establishing energy independence, where we could actually become more efficient? Don't bet on it. Though the freeze on new off-shore drilling supposedly ended months ago, not one new well has been given the OK yet. Expedite natural gas from shale? Forget what you heard about natural gas last night. Finally get the trade agreement done with Colombia? What's taken so long? And still no treaty without imposing our work rules and other regulatory standards on our trading partner.

In the end, Obama will not do much of anything without the OK from his friends in labor, the plaintiffs bar, and the environmental activist community. And their basic premise is all about anti-industrialism. And people wonder why we have fewer manufacturing jobs.

What about education, our "sputnik moment." When push comes to shove, this administration is not going to buck the teachers' unions. So, just as Michelle Rhee was making great progress in turning around the worst school district in the nation, Washington D.C., out goes the maverick Democratic Mayor who appointed her in a primary. End of the Rhee reforms. Why? Because the D.C. unions opposed them. These are the President's allies. Mr. Obama made insightful comments about educational role models, but the black community has had one of the best for many years in Thomas Sowell, who has been decrying the anti-intellectualism and other causes of the patterns of failure in that community for years. Yet, rather than hold someone like him up as a model, they have made Mr. Sowell persona non grata in progressive circles for as long as I can remember.

In short, let's watch where this administration goes. Actions are what counts. For all the words aimed at raising Obama's poll numbers among independents, nothing has happened yet that will actually help. When this administration starts to make policy changes in the right direction, not merely talk about them in general terms that it can subsequently disregard, then I'll be the first to give them props.

Meanwhile it comes out that the government sent 89,000 stimulus checks to the dead and the incarcerated.
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While we are dealing with such crappy weather this winter here in the northeast (which I'm sure my liberal friends believe is somehow due to global warming), it is useful to remember that Florida has now escaped serious hurricane landfall for five years. I'm not sure what the cause of such good fortune is, and not especially interested. I do note though that it has delayed the day of reckoning for Florida's underpriced public homeowners insurance provider of last resort.

Imagine if instead of creating a state owned entity to provide underpriced insurance, Florida had allowed private insurers to charge adequate premiums. Five very fortunate years later, those companies might have built up the reserves to handle the storms that will inevitably come. Instead, there is Citizens Property, which will surely become insolvent when that happens. Florida taxpayers will bear the load.

Truly, a lost opportunity.
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Like Rex Ryan, I don't believe the Jets really came out flat Sunday night. I think they missed a lot of tackles they were in position to make in the first half, which I would ascribe to the extreme cold and to the Steelers' excellent blocking schemes and execution, not to mention a very good running back.

Rex did have a point about the difficulty of playing three hard road games versus a team that had a bye in the first round, but Green Bay won three road games against good teams and they will play in the big dance.

As for the second half, the Jets played terrific football. About the only bad moment was failing to score on the goal line, and I didn't like the pass call on third down of that series. Also, I would tip my hat to Big Ben for a great game (forget the stats) and those two clutch passes on the last possession.

So, I know the Jets are disappointed, and so are a lot of their fans, but I have to say it was a great season, a great championship game, and some kind of job by the coaching staff to take the team as far as they did given their obvious season-long deficiencies, which were pretty numerous (placekicking, so-so line play, inconsistency, stupid penalties, etc.)

For the Super Bowl, I think the Steelers came out of that game a little beaten up, losing a pro-bowl center, etc. Aaron Rogers is playing so well right now and so is the Packer defense, so my pick is Green Bay even though I am an AFC fan. That's just the way I see it.
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Last night at Birdland, I saw Hub - Art, a tribute to the great trumpeter Freddie Hubbard, whose career spanned the bebop and hard bop eras. Out front, playing Freddie's instrument, was the leading practitioner of the day, Nicholas Payton. The legendary Donald Harrison was advertised to be on tenor sax, but that turned out to be in error; in fact Javon Jackson was the very capable, though not yet legendary saxman. But the rhythm section was in fact a collection of legends who frequently played with Hub - George Cables on piano, Dwayne Burno on bass and Lenny White on drums. Besides the music, a highlight for me was the opportunity to sit with the band at the bar before the set and hear them exchange hilarious stories (mostly told by White), many about their experiences with the great bassist Ron Carter.

There's just no place like Birdland. Hub - Art can be seen and heard through Saturday night.
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On January 18, we bought 200 shares of Graham (GHM) for the IRA, a "zero" buy at 23.28. (For those new to musings, "zero buys" refer to the smallest holdings on our buy/hold list, and are not purchased necessarily because they are undervalued. Those are "value buys.") On Jan. 20, we bought 100 shares of MetLife preferred (MET.PR.B) at 24.72. On 1/21, we bought 10 shares of Allegheny Corp (Y) at 306.00, a value buy. Monday, we bought 100 shares of AAON, another zero buy at 26.76. Today, we sold 100 shares of Hubbell (HUB.A) at 56.93 out of the IRA for a nice profit (I'll provide the purchase date and price in the next post).

Public Unions, Jets and Other Phenomena

2011-01-17T21:19:00.004-05:00

I've just about read all the nonsense I can stand about how our overheated political debate is the environmental cause of the Arizona shootings. In fact, the real cause seems to be that an untreated schizophrenic got it in his head to shoot the Congresswoman. Period. The fact that he may have leaned politically left seems to me to be a red herring. In fact, like many of his generation, he seemed to be largely apolitical. None of this has stopped those on the left, particularly from academia, and from the New York Times, from somehow blaming conservatives and tea partiers. This has become reflexive. if you want to see which side's discourse is actually more inflamatory, go visit a left wing blog sometime.

Still, they are no more to blame than we are. If we want to stop this kind of violence, we will need to be more aggressive about identifying mentally ill individuals and seeing to it that they are in treatment.
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Martin Luther King Jr. left a magnificent legacy and was perhaps the greatest statesman of the 20th century. But under the heading of nobody's perfect, his belief that public workers should be unionized and bargain collectively, a position espoused and enacted by liberal politicians around the country, has done immense harm and is the basic reason states and municipalities are in such hopeless fiscal difficulties today.

Unions were important in preventing private business from exploiting workers, but public workers have never needed such protection from taxpayers. More to the point, strikes by workers in essential services could be disastrous for local economies and public safety. Even after public worker unions were allowed to form, strikes by those unions were illegal for most of the 20th century. When the annual New Years Eve drama surrounding renegotiation of NY's Transit Workers Union contracts resulted in a strike, it was always accompanied by pictures on the 11 PM news of union leader Mike Quill being escorted to jail.

I don't have a problem with public workers having an association, or union or whatever they want to call it, but I am in favor of limiting or eliminating their collective bargaining rights. And certainly, teachers, transit workers, uniformed services, and other public employees should not be allowed to strike. As it is, the rich pension and benefit plans now in place in many jurisdictions will have to be severely cut back, especially for all new workers. New Republican Governors in Ohio, Wisconsin, and other states are already cranking out such proposals.

This will also break the unholy feedback loop, wherein liberal Democrats have negotiated sweetheart contracts with public unions, in return for generous campaign donations.

In another related development, the National Labor Relations Board is actually suing several states whose citizens passed amendments to their state constitutions guaranteeing workers secret ballots for union certification votes. The essence of the suits is that since card check is one of several allowable voting procedures under federal guidelines, it can't be prohibited by the states. This, even though Democrats and their union allies have been unable to get mandatory card check passed in Congress.

This will be an interesting case that will test whether states can provide higher level rights than are provided federally. Whatever the outcome, I can't believe that this kind of regulatory zeal is going to make the Obama Administration very popular in states where such amendments passed overwhelmingly. Despite Obama trying to look more "centerish" in his approach to Congress, his reliance on regulators to push his left wing agenda is not being lost on the Tea Party and on independents. If it continues, his reelection campaign is doomed before it starts.

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As my daughter and I watched a tired, flat Knick team lose to the inept Sacramento Kings in front of a capacity MSG crowd Friday night, my explanation was "that's why they play the games." The same could certainly be said for the football playoff games over the weekend.

We started with the Ravens defense dominating the first half against the Steelers, as I expected. However, the Steeler offense warmed to their task in the second half. The Raven offense never did. Green Bay continues to impress, with yet another maximum effort. But this was more than effort. The Packer offense, featuring a red hot QB, completely outplayed the Dirty Birds.

The Pack will get a rematch with Chicago, their intradivisional rivals who gave them a major scare in Green Bay the last week of the season, almost keeping them out of the playoffs and putting the Giants in. Giant fans should be forgiven for thinking about what might have been, now that they have seen the Pack cruise through two games on the road. This time, the game will be in the windy city, which appeared to be very unfriendly confines for the overmatched Seahawks. However, it should be pointed out that the Bears' defense did not play all that well in the second half.

Finally, there was my team, the Jets, making the key plays, getting fortunate on a few (particularly some uncharacteristic drops by Patriot receivers), and being the beneficiaries of a strangely ill-timed and really poorly executed fake punt by the Pats. But we also enjoyed the rare sight of a clearly unnerved Tom Brady, and a poor coaching job by the revered "Bellychuck," allowing his team to run down the clock on an overlong second half possession, when trailing by more than one score.

The only winner we managed to predict was the Bears, which was just fine with me. So the question is who can I jinx this week. You have to pick the Packers and the Steelers based on logic. The Pack's offense is on a roll and the Bears D, while generally excellent may be vulnerable. In Pittsburgh, the Jets won a big game on their way to the playoffs. However, the Steelers arguably were without their best defensive player that week and are now pretty much at full strength. So beating them AGAIN on their field will be a challenge. It will be quite a hat trick of opposing QB's for the Jets to take down if they beat Big Ben on Sunday. Not impossible, just not probable.

But that's why they'll play the game.
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On Friday, we sold 100 shares of Bristow Group (BRS) from the IRA at 47.64. We bought these on 3/7/06 at 29.40. BRS is one our Tulane Portfolio stocks.

The numbers are in for 2010. On a total return basis, we grew the portfolios
21.2%, another very satisfactory year of recovery from the 2008 debacle. Our formula, with only a few tweaks, has carried us through the financial crisis and recovered all of that lost ground and then some. We know that it is important to have respect for the vagaries of financial markets, and make no assumptions about performance in 2011. We'll stay in the game and hope for the best.

Combining Business and Touring

2011-01-13T22:33:00.003-05:00

Back today from my visit to the D.C. area for our leaders meeting. Though a bit hackneyed, these meetings can be some fun, particularly when, as in our case, there are co-workers from parts far away, like the UK, Australia, Spain, etc. We had some very good outside speakers too, headlined by former Comptroller of the Currency (during the Clinton years) Eugene Ludwig. He and his brother, playwright Ken Ludwig, are fellow college alumni, and Ken is a classmate, so we had something to talk about after the session.

We also got a chance to go into town for some semi-organized sightseeing. Believe me, when you are staying at one of these mammoth Gaylords, you don't pass up any reasonable chance to escape the grounds, though the hotel is quite nice. This was my third or fourth stay there. Anyway, on Tuesday afternoon, we had our business session at the Newseum, and then had several hours to review the exhibits. This is one I would recommend, as there are quite a few entertaining things to read, watch, and listen to. The most compelling exhibit is the 9/11 area but there was quite a lot more that was also of great interest. One I did not understand was the disproportionate space allotted to an Elvis Presley exhibit. But there's news and there's news.

Yesterday, my museum of choice was the Spy Museum, and this is also quite a bit of fun as well as being educational. I think I covered it pretty well in about 2 and a half hours. A lot of very interesting World War II and Cold War stuff.

Congress pretty much took the week off in recognition of the bedlam that took place in Tucson last weekend. It is amazing that liberals and academics reflexively blame conservative talk radio whenever there is a tragedy of this kind. The fact is that there are plenty of disturbed people around, we see them every day, and the wonder is that we have so few of these mishaps, not so many.

I do think there is a legitimate concern about how easily schizophrenics and other dangerous characters can obtain weapons and ammunition. I don't pretend to know the answer, only that it's a fair question. The tension between society's right to be armed and its right to be protected is one that requires a constitutional resolution, but clearly we are not there yet.
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All this followed a very exciting weekend of pro football. When the Colts kicked a 50 yard field goal to take the lead with a minute to go (it would have been good from 65 by the way), there was deep depression in our basement, but I did reassure my daughter that 53 seconds was plenty of time for the Jets to get in field goal range. Sure enough it happened, the kick was good, we scoured the field for penalty flags, but somehow, the Jets' curse was not operating that day. Chalk up another winning two (er, one) minute drill for Sanchez, and now comes a rematch in Foxboro.

After only going 2-2 last week, but making the call that only one home team would win (who could have imagined it would be the Seahawks?), I am not really sure the world is anxiously awaiting my picks this week. But here goes anyway, keeping in mind that the second playoff week is traditionally when favorites, particularly after a week off, tend to do well.

In the AFC, my heart says Jets but my brain says Pats. They have been hitting on all cylinders and are at home after a week off. The Jets are coming off a difficult emotional win, and will be missing a player or two. I think an upset is possible and will be rooting for one, but it would be an upset if the Jets move on. I do expect a much better effort than the last time in Foxboro.

Ravens v Steelers is another intra divisional rivalry, and we all know how hard it is to beat the Steelers at home. Still I like the Ravens in this game.

In the NFC, the Seahawks played their best game of the year last week, but I also think it's fair to say that the Saints' defense just did not show up. That won't be the case in Chicago, you can take that to the bank. So I like the Bears. The Packers are really on a roll, you just have to wonder how many weeks they can keep going. I think their win streak ends here, since the Falcons have so much speed and are coming off a bye.
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We are still waiting on a couple of year end statements so we can give you all a final number for the gains in 2010 for the redwavemusings portfolio, but it was clearly a very good year. It's not unusual for the stock market to have its rally before the economy does, since what the market does is discount the future. I think the market is telling us that 2011 is going to be pretty good for the economy, though there will be inflation (and, in fact, if you ignore the indexes the Fed seems to be obsessed with and just look at prices, we had some meaningful inflation in 2010). In fact, the big concern that could short circuit the economy is that the Fed has assured too much inflation. The other concern will be the fiscal health of states and localities, with a real chance that there will be defaults in the tax free sector of the bond market.

Our job is to go on our merry way, following our investment formula, considering tweaks to it when necessary. No tweaks for now. On 1/5, we sold 100 shares of Devon Energy (DVN) at 77.64. This was a gain from the 65.61 our IRA paid for it on October 25. On 1/7, we bought 20 more shares of TIP, our Treasury inflation protector at 107.42, for the IRA. On Monday, we put in two transactions knowing I was going to be away from my computer for a few days. First, we bought 100 shares of Schulman (SHLM) at 20.39. Then we sold 100 shares of CRDN from the IRA at
34.54. These were purchased for 27.89 on St. Patrick's Day, 2008.

2011 - Off and Running

2011-01-04T22:19:00.004-05:00

The Knicks had their little let down period and are lately back to serious point accumulation, tonight piling up a cool 128 in an entertaining dispatch of the San Antonio Spurs who have the best record this side of Duke. They now head west for a few games, and when they return on the 14th, my daughter and I will be at the Garden, courtesy of Stubhub (don't even ask how much). We are stoked!

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The Jets played it like an exhibition Sunday, starting the special team players and dressing the practice squad, and still thrashed their in state rivals (actually the only team that plays its home games in New York state), the Bills. So we come in at 11-5, definitely acceptable given the schedule and if you set aside some of the serendipitous adventures along the way. The wild card game will be indoors at Indy, Peyton Manning's personal echo chamber, where the Colts ended our playoff run last year.

It's hard to play Peyton anywhere, but particularly in the dome, where the fans lower the decibel level when the Colts are on "O" and there are no ill winds to disrupt the passing game. By rarely huddling, and calling his play only after looking over the defense, Peyton can tire defenses out since they have to be ready for the snap for virtually the entire time between plays. Defensive substitution windows are also narrower.

However, injuries have depleted Manning's supporting cast so even with the Colts improved defense, it took them until the final week to nail down their division. Since many of the Jets starters had last week off and had a chance to heal up, the possibility that Gang Green can move on to the second round is real. I actually give the Jets a slight edge in this one.

As for the other games, Kansas City is another home team that is going to have its hands full. Believe me, no one wanted to play the Ravens in the first round. In the NFC, New Orleans will rightly be favored on the road against a Seattle team that was 7-9 even though they had two games each against the Niners, Cards, and Rams. I am one who believes a division championship should mean something and don't begrudge the Seahawks their playoff appearance, but this game should be a "Brees" for the visitors.

Normally I would pick Green Bay over Philly given the way the two teams ended. The Eagles were thoroughly routed by the Giants until those last amazing 7 minutes, then lost to the Vikings. The Pack won thanks to two maximum defensive efforts at home against the G-Men and the Bears. Can they put together a third huge effort, this time on the road? I doubt it. So I think the "Igles" will be the only home team that advances this week.

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New York's two wretched tabloids, the Post and the Daily News, have a lot of fun one - upping each other every day to create the cutest headline. So imagine the chagrin the headline writers felt yesterday. Both papers' front page stories concerned an unfortunate suicide attempt in the form of a jumper from a ninth floor apartment, who survived when he landed in a pile of garbage bags left on the street (since the sanitation department hadn't picked up any garbage since before Christmas due to the snow removal efforts). And so we had the rare event where the headlines from both papers were identical - "Trash Landing." We'll call that day a standoff.

Of course, the clear winner today went to the headline writer referencing the lawsuit filed by a female masseuse against Brett Favre and the Jets for his offensive sexual advances toward her - "No Happy Ending."
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New Year's Eve was very pleasant. First, a very nice house party - local so that pedestrians and other drivers were basically safe - complete with a 7 piece rock band. Later a quick stop at the Sea Cliff bonfire, which came up small this year. One wag described it as more of a camp fire. Then a brief, and fairly dull stop at the local Irish Pub for a nightcap, then home to watch marathon Marx Brothers movies on TMC until the wee hours. It really is amazing that 75 year old movies that you practically know by heart can still be so funny, but they are.

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The January NYC jazz lineup is just super and if you have any affinity at all for America's only true original art form, you really should get off your duff and join us at one or more of these great venues. My recommendations (which barely scratch the surface) include Peter Bernstein, Larry Goldings and Bill Stewart at Smalls this weekend, Tenor Sax Joe Lovano at the Village Vanguard Jan 11-16, Chantale Gagne with Lew Nash and Peter Washington at Kitano Jan 14-15, "Tain" Watts quartet with pianist Dave Kikoski at Jazz Standard (great barbecue too) Jan 21-23, the Lew Nash quintet at the Vanguard Jan 18-23, Hub Art featuring Nicholas Payton and Donald Harrison at Birdland Jan 25-29, the Helen Sung Trio at Kitano Jan 28-29, and the Eric Alexander quartet at Smoke Jan 28-29.

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Next week, I go road warrior again, this time to the DC area, from where I might have time to post. In view of our irregular posting schedule, it has been suggested that I e-mail regular readers after posting to let them know some new musing is up. If you want to be on that list, and if you suspect I might not already have your e-mail (or don't know that you are a closet visitor to this site), simply send your e-mail address to me at redwave72@yahoo.com.

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Our year end transaction was on 12/30 and we sold 200 shares of our Australian aluminum company AWC at 10.12. These shares were purchased for 5.99 on 1/22/10.
We began 2011 with a purchase of a new name, Graham Corp (GHM) suggested by my full service Stiefel broker. The price for 200 shares was 20.16. This week was a good illustration of something I learned from my very first broker about Mondays that start off with lurching gap openings in either direction. They are almost always head fakes. Tuesday ("Pivotal Tuesday" he called it) much more often sets the accurate tone for the remainder of the week. And despite the small gain for the Dow today, the market was actually really cruddy, another bad sign when the generals are out in front of the soldiers. Nothing to panic about, but we are guarding against irrational exuberance.

Time for the periodic disclaimer. Neither redwavemusings nor its author is an investment advisor and the securities mentioned here should not be considered recommendations. They are likely to be unsuitable investments for all of us.

Farewell, 2010

2010-12-29T15:34:00.004-05:00

One week to go in the NFL regular season and unlike most years, there's just not all that much to be decided. In the AFC, New England clinched home field, somehow the Chiefs won the hapless West, and the Jets and the North loser (Steelers or Ravens) will be the wild cards. The Steelers and Ravens still have to decide the North, with one getting a bye, the other a wild card. Indy is at home against Tennessee, needing a win to leave the overachieving Jags on the outside looking in.

In the NFC, the Eagles won the East but not a bye. Instead, the byes likely go to Atlanta and Chicago, with the defending champs New Orleans getting one wild card. The other is in doubt since Green Bay needs to beat Chicago on the frozen tundra, assuming the Giants can turn things around in Washington. Of course, Tampa Bay can complicate the tie breaks by scoring an unlikely upset in New Orleans.

The Giants are that incredible poster child for what can happen to an otherwise good team that can't protect the football. I remember when a good Redskins team had that same disease when Sonny Jurgensen threw multiple interceptions every week. When Sonny was injured, Bill Kilmer took over, threw possession passes, and the Skins went on a tear.

But the Giants' answer is not that simple. Not only is Ely vulnerable to the interception, the running backs also seem prone to fumble. One wonders if the freedom in Coughlin's offense that allows skill players to freelance also makes the team vulnerable to turnovers. In any event, I expect the Giants to be more disciplined Sunday and give the Redskins another good thrashing, following the Skins all out upset win last week (and Jets fans thank them). However, it simply may not be enough, though the Bears are motivated enough. Given the problems the Bears' defense is having lately, I don't know if they will beat a desperate Green Bay team in Wisconsin.

If the G-Men miss the playoffs, they are likely to be considered the best non-playoff team since the format went to 12 teams. Small consolation.
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If we thought Obama had righted the re-election express by signing onto the tax cut deal, we have had second thoughts since the administration moved to regulatory cram-down mode as its new method for carrying out the progressive left-wing agenda. In short order, we have had EPA move to regulate carbon, the FCC move to adopt net neutrality rules, and now Medicare announce they will reimburse physicians for end- of- life counseling.

Let's put these in perspective.

Though the Clean Air Act authorizes the EPA to regulate gases and other contaminants it finds (after study) to be dangerous, the determination that carbon is a danger to man rests solely on the dubious proposition that it is a greenhouse gas causing global warming. In exchange, the EPA rules will cause significant job loss and economic expense which could not possibly be justified by any "savings" achieved by its regulations. Furthermore, the EPA has conducted none of the required cost benefit studies as prerequisite to its authority.

When President Obama said that cap-and-trade's failure was no big deal - there are "other ways to skin the cat," this is apparently what he had in mind.

So, contrary to the expressed wishes of Congress (even that last awful Congress), and relying on contrived models purporting to show human causes of global warming (as opposed to any direct evidence), the EPA intends to legislate by means of regulation. It will be interesting to see the reaction in the new Congress. One could envision a veto proof bi-partisan majority reining in the EPA on this one. While they're at it, how about amending the Clean Air Act to prevent any further nonsense of this kind.

With respect to net neutrality, this blog has commented before on this misguided over-regulation. Frankly, anything the FCC has done in the last 20 years is pretty much suspect as far as I am concerned. Believe me, I have no love for the cable companies or any of the other DSL providers, but this is one area where we do not need interference from the Feds. I don't know too many consumers who are actually concerned about the prioritization rules enforced by internet providers.

On the other hand, end-of-life counseling - the living will concept - is an important area of discussion for doctors and patients to address. Frankly, it already occurs routinely. I don't see what's wrong with medical practitioners billing Medicare for this time. This is different from the "death panels" excised from the health reform bill, which were aimed at denying doctor recommended treatments to elderly patients. The problem here is that the Medicare bureaucracy attempted to slip this change in without public notice. More abuse of process.

I note Republican leaders have been treating this last proposal with the delicacy and fair handedness it deserves, and not reflexively reviving the death panel discussion. That's good. The public is going to recoil at the high handed process abuse of Obama's regulatory initiatives, but there is no need to pour gasoline on the fire by opposing rules that make sense. If the GOP can build a sense of evaluating policy issues from the standpoint of serving the public, it will be in position for more gains in 2012, including the White House.

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I happened to catch the MLB presentation of the original film of the 7th game of the 1960 World Series, with Bob Costas interviewing Bill Virdon, Dick Groat, Bobby Richardson and Hal Smith between certain innings. I remembered this game vividly, and recall persuading (with considerable difficulty) our 5th grade teacher to put it on the radio during the school day. We tuned in in time to hear Berra's homer and then Smith's homer. I think I was home in time to see the Mazeroski walk-off.

What a game this was! It had everything, and the world owes Bing Crosby for saving this print (NBC did not!?). To see Clemente, Mantle, Maris, Law, and all the other great players who participated again was really something. Also to hear Bob Prince and Mel Allen, play -by -play magic!

It was Casey's last game as Yankee manager, and maybe for the first time I understood why he was let go at age 70 after the game: pitching Ford in games 2 and 6rather than 1, 4 and 7 against Law, the quick hook on Bob Turley, letting Bobby Shantz bat in the 8th (though he was a good hitting pitcher), he just left himself open to a lot of second guessing. The bad hop that injured Tony Kubek on a double play ball that turned the game - just fascinating to see it replayed.

I am sure this will be shown again. If you get a chance to see it, you should.

----------------------------------------------------------------------------------- We did get 17.8 cents for our last 200 Blockbuster shares - good riddance - versus a purchase price of 17.10 in 2003. Not the way to get rich, but it will lock up our max $3,000 tax deduction for 2010. On 12/22, we bought 300 shares of Pulte Homes (PHM) at 7.34, even as housing seems headed for a double dip. Don't try this at home. On 12/27, we sold 100 shares of CRDN at 31.55, bought for 31.02 on 3/3/08. Of course, our average cost is well below that, but we use FIFO and in this case, it keeps our gains to a minimum. No matter here since it was sold from the IRA. Just following the formula. On 12/28, we bought 100 shares of Aegon Preferred (AEH) at 20.70. Today, we bought 300 shares of Presidential Life (PLFE) at 10.02, a value buy. Two more trading days left in 2010, and one more transaction to put through, probably another sale. Despite the realized losses in out taxable accounts, we offset a lot of those with gains in the IRA, so things have been relatively tax efficient. But mainly 2010 has been a big up year. Remember, the market has discounted an improving economy in 2011, so guard against irrational exuberance. However, typically the third year of a Presidential cycle is also up. We'll see.

In 2010, we cleaned out most of the dogs, took our losses but registered a solid portfolio gain while adding conservatism in the form of preferreds, and inflation protection in the form of TIPS and GLD. Here's wishing a Happy and prosperous New Year to all Musings readers.

Jets Need one more for Playoff Berth

2010-12-21T15:38:00.004-05:00

One truism I long ago learned about pro football is that things are always darkest before the dawn. How many would have suspected that the Jets coming into Sunday's game in Pittsburgh even had a chance to win there for the first time in franchise history? Yet, the experienced NFL bettor would have been on guard against the temptation to bet the ranch on the Steelers. For one thing, it figured to take two weeks for the Jets to adjust to the key loss of Jim Leonhard, and they had been through that. For another, the team's skill players figured to bounce back with a strong performance after two invisible weeks. Pittsburgh was also coming off a couple of maximum efforts and was susceptible to a let-down week.

Still, just as one should not have been overly depressed by the Jets' losses to New England and Miami, it would be a mistake to get too optimistic based on Sunday's impressive win. This team still does not dominate on either side of the line, even in victory. Also, the coaching continues to be a mystery in many ways. The Jets did have success in the first half running off tackle, but mysteriously did not continue that in the second half, running almost exclusively between the guards. On their last two possessions, the Jets misfired on three passes when they should have been working the clock and forcing the Steelers to use their time-outs. In one situation, they had a nice run by Greene to set up second and four, but instead of inserting Tomlinson to pick up an easy first down off tackle, they tried to surprise the defense with two passes, resulting in a punt without forcing time-outs or running down the clock.

There were some imaginative trick plays so we saw the best and worst of coaching decisions, but in the end, the Jets played very well to get in position to win, only to be very lucky that they held on.

As for the Giants fourth quarter swoon, there is really not a lot you can say. They beat up the Eagles for 3 quarters plus, and suffered a coaching and execution melt down that simply wasted that effort. I don't think it helps matters that Coach Coughlin loses his cool in such situations. He spent literally the last eight minutes berating his players, not that they didn't deserve it, but how was that helpful? This after creating a game plan and preparing his team to win despite the loss of his key receivers. It will be interesting to see how the Giants react next time out.

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No sooner do I go crazy for the Knicks than they lose three straight, albeit still playing hard, entertaining basketball. What's a little worrisome is that the team is suffering through a rash of minor injuries to key players that might slow it down for a while. This would be a good time for Coach to give his bench players some extra minutes.
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President Obama never looked better than at the tax rate extension signing ceremony. it is key for him to declare his independence from the progressive base that threatens to drag him down from the White House even as they are marginalized. Nancy Pelosi, the gift that keeps on giving, seemed stubbornly irrelevant during the tax debate, mindlessly repeating the inane talking points that she had distributed to her followers in a speech that made me wonder if she might be suffering dementia.
She had to repeat herself several times, running way over her allotted minutes without adding anything to the discussion.

The left wing bloggers continue to act as if nothing happened last November as they pursue their last few trinkets from this hapless Congress, including Don't Ask, Don't Tell (Don't Care), and worry about whether Bradley Manning is being tortured in his military brig (presumably, he is not getting enough exercise or writing paper; for the left, that now constitutes "torture"). They and Nancy are about to re-learn that there is hardly a form of animal life on this planet lower on the food chain than the minority party in the lower house of a bicameral legislature.

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The US is sadly overextended militarily. Say what you will about George W., and whether Iraq was the correct adventure to embark on, he instinctively knew not to open up a second front in the quagmire that has always been Afghanistan. Obama left himself few options after campaigning on the "war of necessity" versus the "war of choice." I would say that was a mischaracterization of both, but the more important understanding is that to take them on simultaneously is foolhardy.

Equally foolhardy is to start on a military commitment while imposing an arbitrary deadline on yourself, but that's exactly what Obama did in Afghanistan. This immediately put time on the side of the Taliban. Joe Biden, he of the "foot in mouth" disease, reiterated the administration's commitment to the timetable last weekend, even as the administration has been trying to come off it. Can't anybody here shut him up? (answer - No).

What brought all this to mind was the near blow-up in Korea, where surprisingly, cooler heads did prevail, at least for now. We have a REAL commitment to South Korea, and what were we supposed to do if a shooting war actually occurred? Believe me, there aren't enough gays trying to get into the military to make us effective on three fronts.

It seems to me this administration is going to have to figure out a military strategy that makes sense in this dangerous world. Our battles have to be picked more intelligently and less politically. We've also got to figure out an effective strategy for dealing with the real threats, and that would mean Iran and North Korea. I don't believe we are getting much benefit for the sacrifice of blood and treasure we are making in the so-called war of necessity.

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Interesting to see in the WSJ that people are already repeating my thought that the Fed should consider buying Muny Bonds instead of Treasuries. That's better than handing the states money in the form of stimulus payments from the Federal Government. If you own municipal bond funds, you should expect to see a grim statement at the end of December. Don't let it throw you. That's why we diversify.
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On December 13, we bought 20 shares of Lubrizoil (LZ) at 106.22, a "zero buy." On December 15, we bought 100 shares of FPL preferred (NEE.PR.C) for the IRA at 24.32. On 12/17, we think we sold our last 200 shares of Blockbuster at something like 18 cents (and still don't know what would possess people to bid it up that high) but we haven't got the price confirmation yet. Not that it matters, we figure to net close to zero. On 12/20, we bought 200 shares of Bryn Mawr Bank (BMTC) at 17.57.

Triangulation

2010-12-12T13:27:00.006-05:00

In open societies where political majorities tend to form around the middle of the bell curve of opinion, the theory of triangulation says that under normal circumstances, you want to be positioned in or near the middle to win elections. It is unusual when fringe candidates have an opportunity to win, though it does happen. But a reliable strategy for survival is triangulation.

In recent times the masters of this approach were Bill Clinton and Tony Blair. Clinton ran as a "New Democrat," a kind of socially liberal but economically middle of the road candidate, one who had a very good ear for the public's view and a willingness to pay attention to opinion polls. After winning the Presidency, he took a lurch to the left, probably driven by his wife's and advisors' policy preferences, but after a couple of disasters (especially Hillarycare), he recaptured the center in time to win re-election and ride a Republican Congress to a budget surplus. This enabled him to overcome his most outrageous personal behavior.

Tony Blair led "New Labour" into government after more than a decade in Parliament's wilderness, and won a second term despite the lack of any defineable strategy for running the government. In fact, it was his ad hoc approach and search for the moderate solution to every problem that enabled him to be so dominant. The Conservatives and Liberal Democrats actually fed into his strategy since they adopted fringe positions on the right and left respectively. Always looking moderate by comparison, Blair's tenure actually depended on restraining the true believers in his own party. Eventually, they called him on his pre-arranged deal with Gordon Brown, his partner in government, to turn over the reins. But Blair's luck held again. He got out of government in time to miss the worst of the financial crisis and is having a successful career as a peacekeeper and elder statesman. Brown, captured by his party's left, was defeated quickly by a Conservative candidate who more successfully adopted the Blair strategy.

Last week, we saw President Obama make his first real concerted effort to implement a triangulation strategy. In reaching a compromise tax rate extension with Republicans, Obama, really for the first time, attempted bi-partisan engagement. In part, this was simply a bow to reality since Republicans will be taking over the house in January, and might have passed a similar bill in the Senate. If that happened, it would be difficult for Obama to veto.

Interestingly, the House Democrats were the ones excluded from the table, and they howled. We expected the social democrats (who call themseleves "progressives") in academia, labor unions, and moveon.org to howl and they did not disappoint. Already, there were accusations that Obama was a conservative, a closet Republican and other equally ridiculous assertions, followed by the inevitable conjecture about primary challenges in 2012.

For all his rhetorical skills, Obama seems to be an essentially poor communicator. It's all too academic, too self-sure, and lately, way too antagonistic. This time it was sort of... I hate to do it but I have to deal with hostage takers on the right and purists on the left, and this was the best deal I could get...

So now, everybody hates him.

We said this was going to be the solution, it was inevitable, and frankly, the estate tax deal also strikes middle ground fairly well. For those D's who think Obama gave away the store on that one, the government will still be confiscating one-third of taxable estates, consisting mainly of our AFTER TAX savings. I would say Obama struck a more than fair deal for his redistributionist fans.

The reality is that the left's commitment to their class war goal of punishing the "wealthy" and their belief that elites should run our society by means of an ever growing federal government, can not be exaggerated. If you don't believe that, just read the breast beating comments on the progressive blogsites. If Obama is ever going to have a chance in 2012, he will have to show he can separate himself from those folks. Though he made a move away from them this week, I am not convinced that he can ever be a successful triangulator, since he seems to be a true believer too. He has not been convincing about much of anything recently.
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So a couple of bombs go off in the vicinity of Iranian nuclear scientists, killing one, and the best the Iranians can do is blame the U.S. or Israel, they don't know which. Sadly, the U.S. seems to have neither the will nor the capability to pull off this type of operation. I would like to believe the Israeli's still do.
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As far as WikiLeaks publication of all those secret cables is concerned, I think that constitutes an obvious felony, but whether I am right about that or not, the bigger concern is, how was it able to happen? Wouldn't you think there would be some kind of fail safe security procedures to prevent such leaks? Is there any adult supervision anywhere in this government?
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We expected last Monday night's football game to be a disappointment and as Jets fans, had no illusions about our underdog status for the night. That having been said, the Jets continued their season-long difficulties on both lines of scrimmage, and were not really competitive. It's good to be 9-3, and having Miami and Buffalo still at home should get us to 11-5, but how deep can you go in the playoffs if you can't protect the quarterback, run the ball, and get to the other guy's quarterback?
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The Knicks' roll continues, home, away, it doesn't matter. Get the ball, outrace the other team to the basket, then get it back again. It's all offense, all the time under Mike D'Antoni. When was the last time you saw the Knicks over 100 points every night?
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On December 15, 1949, Birdland opened, fittingly with the Charlie Parker Quintet. The drummer for that gig was Roy Haynes. Last Thursday, night, I was privileged to see that same Roy Haynes, 85 years young, leading his quartet at Birdland. Still fit enough to bounce around the stage, pounding his drums from seemingly all angles, hands and feet in simultaneous motion, Haynes presence dominated while still generously leaving room for almost all of the solos to his much younger bandmates. All aquitted themselves brilliantly and the packed house (almost packed for the second set as well) was clearly engaged from the start and aware they were enjoying something really special in jazz. This was among the most memorable of so many great shows I have attended at Birdland.

John Pizzarelli comes in this week, I believe. Check your local listings. Reservations probably a must.
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When we sold 1542 shares of ADC Telecommunications on 12/3 at 12.73, part from the IRA and part not, we took about a $5,000 profit on those shares purchased between 2001 and as recently as 2010 (at 6.27). That cut into previously taken losses over the years on this stock and on its options ( this was a covered call disaster similar to the Enron debacle). I thought the takeover bid was too low, and would have preferred seeing ADCT continue to recover on its own, but it was not to be.

On 12/6, we bought 50 more shares of Honeywell (HON) at 51.28. On 12/8 we bought 15 shares of GLD for the IRA. Our gold position keeps growing, and so does the price, which this time was 135.89. On 12/10 we bought 200 shares of Pfizer (PFE) despite the musical chairs game in the CEO office. The drugs have become income stocks and that's OK with me. Speaking of income stocks, we got a few more dividend increases last week including GE for the second time this year!

D.C. Hi-Jinx

2010-12-03T16:59:00.003-05:00

The Pelosi - Reid show has moved from high drama to low comedy in this lame duck session as the Dems stage show votes to demonstrate to the public that they really want to preserve the Bush tax rates for those with incomes up to $250,000. Never mind that they would screw investors at all income levels by allowing tax rates on dividends and capital gains to rise, or that the people they claim to help would be the ones losing jobs when small business owners decide to lay off workers in order to offset their own increased withholding. Of course, the public is well aware of the D's position, having just gone through a campaign where it was reiterated ad nauseum, and then having decided to repudiate those same Dems. No wonder 20 Dems in the House refused to even go through the motions of voting Yea on the Pelosi proposal, voting Nay instead; those folks (many forced into retirement by their constituents) having got the public's actual message loud and clear.

Assuming you've been to this site before, you already know how this ends, with all of the current rates staying in place for 2 or 3 more years, and with Obama keeping the 99 week unemployment benefit in place for another year in exchange. Of course if anything is going to keep our unemployment rate at 9% or more, that's it, but never mind, we'll throw him that bone, he's so pitiful we just have to do something for him.

More interesting to me is that Obama's deficit commission, which was set up to fail of course, actually turned in an 11-7 vote for a program of serious spending constraints and revenue enhancers that represent breaks with political third rails here, there and everywhere. of course, it could not reach the impossible bogey needed of 14 votes to actually send a formal recommendation to Congress, but 11 votes are not bad, especially considering there was a pretty equal bipartisan split among the supporters. It should also be pointed out that several of the no voters like Congressman Ryan opposed, not because they thought the program too draconian, but because they felt it did not go far enough on restricting entitlements. I love Ryan, but this time, he may have erred by letting the perfect be the enemy of the good. Imagine if they had attained the unreachable 14 votes! That would have set Congress and the administration on its ear. The liberals seem to be the ones bleating about these proposals and they would have been beside themselves if they had passed, something that Ryan and allies might have considered.

Anyway, just having come this close puts some really important changes in play, like eliminating many "treasured" (but useless for most people) deductions and considering whole programs and departments for elimination. Man, if it was up to me, I'd take a meat cleaver to this federal edifice. For starters, we could lop off Energy, the FCC, Education, all support for public broadcasting, etc. etc. Let's decriminalize drugs and distribute them as legal but controlled substances. Let's review and eliminate all manner of federal subsidies - agriculture, higher education, etc. No more earmarks. Let's really bring entitlements back to earth - raise the full retirement age for social security, rationalize medicaid, start over on health reform. The savings would be all but incalculable. The deficits we are running today are criminal, and they will undermine this country if we don't address them soon. The public's message delivered on November 2nd is clear - we're ready to start. At least the commission seemed to hear it, even if liberal D's have not.

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Thanksgiving night, my daughter and I went to the Meadowlands new stadium to see the Jets, and enjoyed a relatively (by recent standards) comfortable win. The new stadium is fine, although there was nothing wrong with the old stadium from a fan's perspective. Presumably there were not enough luxury boxes to suit the team owners. Anyway we had a great time.

This week shapes up as the Monday night GAME OF THE YEAR - SO YOU ARE HEREBY WARNED - a letdown is likely. But at least going in, the Jets are reasonably healthy and highly motivated. The Pats will be unbelievably motivated. Picture yourself as a player on that team and having to face Coach Bullycheck after losing TWICE to the Jets. Man, that's a little too ugly to comprehend. So the Jets will really have their hands full.

As for NY's other team (sorry, Giants fans), they had some first half red zone problems, but otherwise wore down the over achieving Jaguars. When the Jags had the ball in the fourth quarter, almost every play looked like a jail break as Giant pass rushers all but inundated the quarterback time after time. So that had to hearten the Big Blue faithful, maybe there won;t be a second half swoon this season after all. When the Giants look good, they are very good indeed.
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New Yorkers don't quite know what to make of the Knicks' recent winning ways. Is this an aberration or has the D'Antoni "all hands on offense" style finally taken hold. Frankly, it's no matter. At least run and gun is fun to watch. Maybe we'll even go to a game when my daughter comes home for semester break.
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Well, I've been busy, and not just with work. On November 24, we bought 50 more shares of Honeywell (HON) for 49.91, still a zero buy but one performing quite well. We elected not to trade on Black Friday, since the market figured to be a bit thin, but on Monday, we were back at it buying 25 shares of Con Ed preferred for the IRA (ED.PR.A) at 93.90. On the same day, we sold the remaining 500 shares of Ladish (LDSH) from the IRA at 46.50. This stock is subject to a takeover offer, part cash and part stock, as I have previously reported. We paid 13.19 for 200 of these shares on 12/31/08 and 9.51 for the other 300 on 2/17/09, for which I say thank you to "full service broker"" for that recommendation. By the way, some might think it took courage to step up and make those purchases in the midst of the financial meltdown, but what it really took was the discipline to follow our formula, which said buy, not sell, all during the depths of that awfulness.

On 12/1, we bought 400 shares of TAT technology (TATT) for the IRA at 5.50. This Israel based defense contractor may prove to be a lemon, but we are stubbornly following the formula, and this is a value buy. Today, we dumped the rest of our ADC Telecommunications, also the subject of a takeover, and we'll have the details of that transaction in the next post. Sorry for the teaser.

Turkey Day Comin'

2010-11-23T23:12:00.002-05:00

Thanksgiving Day represents a recess - for the lame duck Congress, from work (unless you are in retail), hopefully from stress. Yes, some people actually look forward to Black Friday shopping - not for me though. I prefer the last minute December rush. As for Congress, they have a lot on their minds, income tax rates, an estate tax solution, the new START Treaty (a cause for "debate" on the news shows Sunday morning) and now a renewed crisis in Korea. Yes, the world's a mess, but why is anyone surprised, this administration is just as incompetent in terms of foreign policy as domestic.

It all really came together when the realization hit home that civilian trials of terrorists won't work, and neither does it make sense for the TSA to be patting down dowdy grandmothers. Nevertheless, Obama has to show his base that he is going to stand up to the GOP majority in the House, so look for more stonewalling on all of these issues.

In Dallas last Saturday, at our insurance brokerage convention, George W. Bush was our guest speaker and his appearance was easily the best of the week (beating a tough field that included Tom Peters and Dan Sullivan). Funny how well the same mannerisms that made him look ignorant on television made him endearing in person. (Commenting on the warm reception his book has received, Bush remarked that most people didn't think he could read, let alone write). His self deprecating humor was really fun, but he stuck to his guns on the key positions of his Presidency, Iraq, low taxes, taking the war to the terrorists. Compared to our current President, he looked and sounded competent. He remarked that he feels pretty good these days when people wave, and show him all five fingers.

I think the Bush Presidency was doomed from the start with the media because of Florida, and no matter how many recounts showed him as the winner, the left would not believe any of them until one showed Gore the winner (which never happened). What a shame. I would never try to make the case that George was one of the top tier Presidents since he never stood up to Congress on spending, but he was very good on the war on terror. As for the Iraq decision, subtraction of Hussein was a good thing.

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Another Jets thriller Sunday, this one I would have to put in the Ripley's Believe It or Not category. Actually have tickets for Thursday night so my daughter and I will go to the Meadowlands and sit in the rain to see the Jets tackle the Bengals, coming off their hideous loss to Buffalo.

Most disturbing thing for Jets fans is the continued inability of the offensive line to dominate. In fact, against Houston, they neither run blocked nor pass protected very well. That was especially true after a Houston cheap shot took out one of the starters.

Meanwhile, the Giants lost their second in a row, this one excusable since it came on the road against Philly, but still not a real good game. If I were a Giants fan I would be concerned but not panicky. I can see them going on another tear soon.

The other concern for NY fans is that neither team is playing especially well in their new home.

The Mets ended the Los Metso's era, naming Terry Collins as manager, and hopefully that will bring on a new era of discipline and consistency. We'll see. I thought it was interesting that new GM Sandy Alderson indicated he will be undertaking a review of the team's medical and conditioning staff. Those are the only guys whose record the last few years has been lousier than the players.

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The Fed's QE2 plan has received sufficient criticism here and from other sources and countries. The capper has been the market's reaction which has been to sell long term Treasuries, driving interest rates UP! This is, of course the opposite of what the Fed had been trying to achieve. Yet, in what will be a great irony, I would predict that higher interest rates are what banks need to have the incentive to loosen the credit spigots. Think about it. Why would you loan money in a shaky business environment at some pitifully low interest rate. Higher rates offer banks a chance for a return. So the Fed might actually achieve credit creation through QE2by causing the opposite effect from what it intended. In other words, screwing up in reverse.

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One wonders if anything will save the municipal bond market. Default risks are truly frightening in that sector, especially with the stimulus money that mostly went to the states drying up. Maybe instead of buying Treasuries, the Fed should be buying muni's.

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Last week on Monday, I bought 50 shares of Honeywell (HON) at 47.65, a zero buy. On the 16th, we bought 100 more shares of Goldman Sachs preferred (GS.PR.D) at 22.45. On Wednesday, we bought 400 shares of Newpark Resources (NR) at 5.51, a value buy. Yesterday, we sold 100 shares of Ladish (LDSH) at 46.30, now that it is subject of a takeover offer, half cash and half stock in a company I don't want to own. These shares were originally bought following a recommendation from my full service Stifel Broker on 8/19/08 at 26.00). Another good reco!

Football, Chicken and other sports

2010-11-14T22:18:00.003-05:00

Pro football can be a strange game. The Jets again got pushed around for half the game today, made some great halftime adjustments, took charge, only to see the Brownies execute a beautful drive at the end of regulation to tie the score. Dame Fortune again smiled on my team in overtime, the Jets recovering a key fumble and finally scoring in the last minute of the extra period after a missed tackle. So another game we were lucky to win, but another good job in the clutch.

Then there are the Giants, who have simply been thrashing everyone. Today, they got the Cowboys, a recent thrashee, in Jersey, with a new head coach and a second string QB at the controls. Lo and behold, Big Blue came up flat and lost badly to the 1-7 Cowboys. Go figure. And people wonder why I don't gamble on this sport.

Then there is the sad story of Chad Pennington. In the latter stages of an injury plagued career, Chad lost his starting job at Miami in pre-season only to get a chance today because of injury to Miami's starter. So what happens? Chad's chronically bad shoulder gets hurt early in the game and out he goes. Time to retire, if you ask me. Chad will be a better QB coach than he was a player.

Then there are the Lions, who thoroughly outplayed the Jets in an overtime loss last week, visiting winless Buffalo today. Both of these teams are much better than their records, yet you would think that the Lions would be able to continue their improvement against an arguably weaker opponent. But no, the Bills break their virgin, and the Lions extend their road losing streak to something like 25 games.

On any given Sunday...there will be a dozen or so games.
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David Axelrod was his usual stubborn self on this morning's news shows, and was in good partisan form considering he only has about six months of this thankless job before he returns to Chicago to manage the Obama re-election effort. He'll be glad he has his reknowned thick skin for that one. It was almost comical to observe the administration's tortured efforts to somehow spin the President's G-20 performance last week into something positive. It brought to mind that JFK soundbite from the
1960 debates when he hammered the Eisenhower administration for allowing "American prestige to reach an all-time low." if that was even remotely close to the truth, it must be said that Obama has somehow surpassed even that low point. However, he will have to share that "achievement" with Ben Bernanke, to be fair, since the Fed is supposed to be independent.

Most of what the G-19 was complaining about really amounts to the effect on the dollar of the Fed's quantitative easing (QE2) and other tactics to pump liquidity into the economy. Of course, everyone else seems to get that the Fed is pushing on a string, that there is already plenty of liquidity in our banks and corporations, it is simply that businesses do not believe in this recovery because of the regulatory displacement caused by the health reform law and the financial reform law. Hence, the lack of impetus to invest, hire and take risk. The ultimate impacts of QE2 will be a much weaker dollar and inflation. It is laughable to hear Obama and his cronies explain that they are worried about deflation. Why didn't Obama make Bob Prechter his chief economic advisor if he is really worried about that? He's about the only guy I know who still believes deflation is an immediate threat.

This argument has been going on for a long time but apparently it bears repeating. When prices increase along the supply/demand curve, that is not inflation, that is market dynamics. When the supply demand curve itself shifts up, that could be inflation. Infaltion has one cause - too much money chasing too little input (goods, commodity raw materials, employees, etc.) When output is high and when supply excesses and shortages occur, we can get price changes along the supply demand curve, but those are neither inflationary nor deflationary. Prices retreated during the recession, as they often do, because effective demand was temporarily suppressed and inventories (of houses for example) got too high. That causes output to fall until we get back to equilibrium. But when the Fed keeps printing money to buy Federal debt, we are creating real inflation and that is what will happen. It may not occur immediately, but it will be cranked in inevitably. If you were around and watching, this is what happened during the Carter Administration when Federal debt was monetized by the Fed.

Dems like some inflation. They like a weaker dollar. It helps their base pay off their debts. Their base doesn't save much. Ultimately, inflation is a tax that hurts everyone and then, the bulk of the public demands a stronger dollar and that inflation be cooled. That's when a Paul Volcker and the Friedman school of economists get called in. The damage caused by this inflation will not be restricted to the U.S. since our currency is the world's de facto fiat money. That is why the rest of the G-20 is pissed at us, and insulted that Mr. Obama seems to have slept through his entire Econ 101 course.

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Progressives are also in a lather this week because they believe that Obama is going to cave on all their policy prescriptions, most immediately on the extention of the current tax rates. Wouldst it were true! I think what will happen is that we are about to watch our politicians play a game of "taxation chicken." For once, I do agree that D's must blink first.

The most logical action by the lame duck session would be a compromise to extend all of the current rates for two years, effectively kicking the can to whoever gets elected president in 2012. However, D's will try for a two year extension of the upper income rates and an indefinite extension of the other rates. This would set up a 2012 dynamic where if nothing further happened, the upper income rates could expire, without the ability for R's to hold the middle and lower income rates "hostage."

R's should, and will, of course resist any such decoupling. If that becomes the D's best and final offer, R's should call their bluff and allow all the current rates to expire. The public will be apoplectic about a Congress so stupid as to raise taxes early in such a weak recovery. When the new Congress gets to town, R's and moderate D's (including the many red and purple state Senators defending their seats in 2012) will probably quickly pass the two year extension of all the rates. That will put the chicken ball in Obama's court, and he will have to deal with his progressive base if he decides to forgo the veto.

I still see it that way (the last post included a first draft of this scenario) and it will be fun to watch the academic progressives in their hour of chagrin.
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On Monday, we bought 20 more shares of the TIP ETF (TIP) at 111.69 for the IRA. Then on Thursday, we sold 100 shares of Carmax (KMX) out of the IRA for 33.44. These were purchased on 1/20/09, the depth of the downturn, for 7.99. Sometimes, a little courage does get you a 22 month quad. Other times it gets you a Blockbuster. On Friday, we bought 300 more shares of Gencor (GENC) for the IRA at 7.21, a value buy.

Post election musings

2010-11-07T22:21:00.004-05:00

There are still some races to be decided, recounted, litigated, etc. but our predictions and pre-election guide to the key races were pretty accurate. As expected, GOP gains in the House were at the upper end of expectations, and when all the races are decided, will be just north of the predicted 60 seat swing. In the Senate, the gain appears to be 6 seats, counting Alaska as an R seat whether it turns out to be Murkowski or Miller. In the area of whether this was an anti-incumbent push or a conservative backlash, as we believed, it is worth noting that only 2 R's lost House seats. The message voters delivered was pretty clear - we object to the D's policies and ramming through unpopular legislation by any means available. And we demand fiscal responsibility.

Of course delivering a clear message does not assure that those preferring to hear different messages will get it right. So ever since Tuesday, we still have D leaders beating their chests about their ineffective communications, and how the voters would have approved of their policies if the communication had been better. This is rank elitism of course, and reveals contempt for the voters, but we have come to expect this and even anticipate such reaction from the left. Of course these are the folks who are so often wrong but never uncertain.

Happiest news of the day is the message from Nancy Pelosi that she intends to stay on as D leader in the House, and with Mr. Clyburn determined to remain the Whip, there appears to be no slot for Stony Hoyer, one of the last of the Blue Dog Dems. The more conservative Dems, who were used to obtain the majority in swing districts the last two cycles, took the fall for Pelosi and Reid, just as R moderates were being purged by tea party candidates. So now we have a Congress where both parties are a bit more extreme, and it will be interesting to see what compromises are achieved. The conventional wisdom is that there will be an extreme form of gridlock, but I think the surprise, if any will be to see more constructive agreement than people expect. Some of that agreement will involve undoing the accomplishments of the last Congress, but that can be a constructive exercise.

I think once everybody sobers up, there will be an understanding that the voters have reasserted their right center bias, and that liberals will be sent to the woodshed to agonize over their missed opportunity to socialize America. Dems will be looking at a 2012 scenario where the president must move toward the center, as Clinton did, or lose the White House. I think there is no hope that D's can retain the Senate in 2012 given the seats they have to defend. As for the House, where the GOP really did damage in this election was in the statehouses and governors' mansions so they will control the redistricting process where it matters. That could consign the Dems to minority status for quite a while. They may have no choice but to make policy adjustments.

R's are also acutely aware that they cannot abuse power as they did during the Bush years and expect to remain in control. This means getting things done on taxes, on health care, and on spending. It means engaging in serious conversation with the Administration about how to make things right. Comments like Senator McConnell's concerning the urgency of winning the White House in 2012 are not really helpful.

I think the scenario goes something like this. D's will not get anything done in the lame duck session that is not acceptable to Senate Republicans, who now have 42 seats (Senator Kirk of Illinois takes his seat immediately). I expect a two year extension of all the Bush tax rules and rates for all taxpayers. R's will not agree to the D's suggestion for decoupling any of the income levels, which is just a trap. There will also be the usual AMT fix. There might be a move to compromise on the estate tax, perhaps making the 2009 rules permanent. This could all happen in the lame duck.

Once the new Congress sits, I think we will see an early, unsuccessful move to repeal the Health Law, followed by more successful measures to starve it of the funds needed to implement. That situation will continue until the states' health care suit gets to the Supreme Court, which might take the case on an expedited basis, today's setback notwithstanding. I think Justice Kennedy will tilt a 5-4 decision against the individual mandate, and that will throw the R's and D's into a room to hammer out replacement legislation that is briefer, better, and constitutional. If that happens, everyone can claim victory.

All of this will provoke consternation on the left, and while the administration will empathize, they will simply take those votes for granted and try to reconstruct a winning electoral strategy. In the meantime, with Pelosi and Reid in place but largely declawed, we on the right have the gift that just keeps on giving.
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Election night for me was a mostly cheery affair, though there were some disappointments. You have to admire the Dems' turnout machine, which saved Reid, the governorship in Illinois and probably Connecticut (one of three gains for them against 9 losses, if the vote counts hold), and Senator Boxer in California. To overcome the voter apathy they faced was surely a great challenge. Of course, there were lots of states they just could not win with that ground game, including PA, Ohio, FLA, WI, MO, Michigan and others.

As for R's, they need to improve their turnout game for the day when their voters aren't so charged up. They also desperately need a strategy for appealing to Hispanic and Black middle class voters. Electing several R Hispanics to be Senator or Governor represented a good start. Finally, while the tea party provided so much positive impetus, one lesson learned is that carriers of that message need to be chosen more carefully. R's could have, but didn't win Senate seats in Colorado, Nevada, and Delaware largely because of inept candidates who won primaries.
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On to more important things. I have only recently been paying more attention to country music so Friday night, we joined 10,000 or so mostly adolescent or twenty something girls along with the usual cowboy hat wearing old timers to see Carrie Underwood at the Nassau Coliseum. Carrie has become the Diana Ross or Bruce Springstein of country, singing virtually non-stop for two hours, flying over the crowd in a blue pickup truck, changing clothes every few songs, and singing a duet with a filmed recording of Randy Travis. So it's a real event, but a very musical one. She is unquestionably a great talent and the biggest star in country music today.

One of the problems though with country is that it now sounds more like rock or pop than country. The singers aren't backed by pickers any more, they are backed by rock bands and the volume is way up. When they play an arena, that gives them an excuse to turn the volume WAAAY UP, with the usual echo and distortion problems. This was not really a problem for Underwood whose voice is strong enough to overcome it, but poor Billy Currington who led off was rendered all but inaudible, his voice sounding like it was coming from some far off echo chamber. This was so unfortunate given that his songs are fun and humorous, but unless you already knew them and the words, you were out of luck, and so was he.

Nevertheless, it was good fun. For those who care, the CMA awards show is this Wednesday, which unlike most award shows is actually semi-entertaining. We'll see if they give Underwood her third straight Entertainer of the Year award.
-------------------------------------------------------------------------------------One of the NFL's enduring scenarios is where the allegedly superior team gets drubbed for three quarters by the underdog, only to come back in the final period, often pulling the game out in the last two minutes. Over the years, my beloved jets have been on the short end of that scenario more times than not, but this year, we have been the beneficiaries of these late game turnarounds. As it was in Denver, it happened again today in Detroit where the hapless but much improved Lions were left to wonder just what else you have to do to win a game.

Meanwhile, the Giants' roll continued in Seattle. There is no question that this team is playing better than anyone else right now. Even the curse of the bye week had no effect on them.
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On November 1, we bought 400 shares of Tat Technologies (TATT) at 6.63, a value buy. We were also greeted with the not so surprising news that Wolverine Tube (WLVT) was filing for a prepackaged bankruptcy. Pretty certain that the common shareholders will net their usual goose egg in bankruptcy, I went ahead and took almost a penny for each of my 13,300 shares of this dog, figuring correctly that was $120 that would not be available a day or two later. This is about the last of my real ugly dogs in the kennel and the loss of some $37,000, mostly from the taxable account, assures that I will not have to make an estimated tax payment for the fourth quarter. On Friday, we bought 50 shares of Honeywell (HON), a zero buy, for 49.00.

Stocks continue to do well in the face of inept fiscal and monetary policy. Quantitative easing by the Fed is entering a second round, but quite a bit smaller than we feared. Still, it means more inflation down the road. The bubble in municipal bonds continues to inflate, and I am seriously trying to come up with a solution for the money in my triple tax free fund. I'm afraid I can't keep it there much longer. The states are all hooked on federal money, and that well is likely to dry up in 2011.

Halloween Musings

2010-10-31T18:21:00.004-04:00

This morning's news shows seemed to have a little better grip on reality, but there were still the subtle biases that an alert viewer could catch. In one instance, Charlie Cook on NBC talking about several House races that would give an early indication Tuesday night, remarked that if all three went to the R's, it would be a "really bad night." Meaning a really good night for me. And several stations over the weekend, including the notorious CNN, while acknowledging good new polls for R's in Illinois and PA, said R's were acknowledging defeat in West Virginia (none that I know of) and probably would lose in Washington and California. Well maybe California, but D's are a toss-up at best in Washington.

I have been analyzing the polls very carefully, looking for trends in individual pollster's results, not just overall. This recognizes there are wide differences in polling techniques and accuracy. I may be a cockeyed optimist but I see Dems gaining important ground almost nowhere. In fact, I see undecideds breaking against incumbents as they usually do, helping R's in close Senate races in Washington, Nevada, Wisconsin and Colorado.

Of course, the only poll that matters is Tuesday's. R voters will be out in force. What will D turnout be? Will minorities come out? Youth (probably not, unless in California)? Independents are coming out to throw out incumbents and vote for R's, for the most part.
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I was happy that Mark Kleiman visited our site and left a comment on our last post, even though it did not address the issues, only the author. Sadly, this is all too typical of the arguments D's make, as anyone who has watched the debates knows. Nevertheless, I have to say I agree with Mark that my characterization of him as a "political scientist" did not really do him justice. Today, in the academic community, a political scientist is one who typically studies and writes on very narrow, statistically focused questions. Frankly, the obsession with data has driven a lot of would be theorists to other disciplines.

Mr. Kleiman is really a public policy expert, with writings and expertise in a number of policy areas but especially drug policy and decriminalization questions. He is currently very active on the California Proposition 19 decriminalization proposal. Perhaps his argument with being positioned on the left side of the political spectrum (as I did) is based on the fact that on this and several other issues on which he is an expert, he is in the middle of the road, at least within the academic community. I do tend to agree with him on drug policy. However, political positioning is a matter of perspective. In the academic community, you have to practically be a communist to be left of center (not exaggerating much, either). And on most issues, Mark is, in my opinion, a committed liberal at least. But you can decide for yourself by visiting his entertaining blog, The Reality Based Community.
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The Jets looked out of synch today, especially on offense, and this continues a pattern I find surprising, namely that teams don't do well after the bye week. You would think rest and healing and an extra week to prepare for an opponent would set teams up for a prime performance, but apparently the disruption of the usual practice routine means more.

Twice during the game, Jets receivers lost the ball on seemingly completed passes after going to the ground. Whether or not these interception calls were technically correct, I think you will now see hard battles for the ball after receptions until the league decides that the play is over once the receiver goes down.

The other thing all should note is the well known matter of teams performance changes being so drastic from year-to-year. In a sport where the average pro career is barely more than 3 years, we shouldn't be that surprised, but nonetheless, I wonder if fans have really yet caught on to the improvement in the Rams, the Chiefs, the Raiders, and the Lions, among others. Of course, the Cowboys have been unmasked as a fraud, but does everyone yet appreciate the decline of the Broncos, the Cardinals, and the Vikings?
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The Pat Martino organ quartet has come so far in two years, and I heard them Wednesday and Friday night at Birdland where they played to packed houses. Perhaps more amazing is that Birdland had a packed house Friday for the early show by the Birdland Big Band, which they do almost every week, emptied it after that show and refilled it for Pat! In New York, at least, jazz continues to be very healthy and provides an economical and entertaining alternative to the Broadway theatre for tourists and residents alike.

As for the quartet, Pat's guitar playing is as good as ever, but he allows much more space than previously for Eric Alexander on tenor and Tony Monaco on organ, both of whom thrive in this setting. Of course, with the gig ending last night, Eric will return to his usual gigs all over the City, particularly at Smoke. He is definitely worth listening to in all of his various combos.
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On the 29th, we bought 100 shares of Hartford Preferred (HIG.PR.A) at 24.62 for the IRA. I promised a recap of my results with Books A Million (BAMM). I bought my first shares in 1998 and over the years made 18 purchases of shares, spending over $42,000. The proceeds received for those shares exceeded $104,000. We also received about $6,800 in dividends. Don't ever let anyone tell you that dividends are not meaningful. So in all, counting taxable and non-taxable accounts, we cleared almost $70,000 on this stock. You can't fall in love with any stock though, even your winners. I really have become concerned that the retail book store business model could be blown up, so until I think otherwise, BAMM is off the buy / hold list. I don't think BAMM's various specialties, such as religious publications, can protect it from this trend.

Time for the periodic disclaimer: neither Redwavemusings nor its author are investment advisors, and the securities mentioned on this site should not be considered recommendations. The investment actions described here may not be suitable for readers or anyone else.

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