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Name: john
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Investment Thought of the Day

Posted by john on Monday, December 15, 2008 2:10:35 PM
Last week on his show, Jim Cramer unveiled his "All-Pro Safety" picks, which focus on yield. As of the airing, these stocks had a collective dividend yield of 7.1%, and, of course, were selected on the premise that the dividends were safe. Here's the list:
BMY
GXP
KMP
NAT
VZ

Notably absent from this list is MO - perhaps Cramer has an aversion to tobacco, but I wasn't aware of that. A few things to thing about regarding this list. First, let's hope the incoming administration isn't stupid enough to raise the tax on dividends. Second, if inflation picks up substantially, the real value of that dividend is going to get whacked hard, though you would hope that this would be offset by increasing share prices (yields are high because prices are low, inflation should be an indicator, at least at first, of an economy picking up steam).

Finally, be aware that I am not a registered investment advisor, am not qualified to give investment advice, and do not own a crystal ball. I am just conveying Cramer's thoughts, which I found interesting. After all, if you want to flee to safety, you can opt for a 3-month at .01%, or a 7.1% yield that probably isn't extremely less safe. 
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Today's History Lesson

Posted by john on Saturday, December 13, 2008 1:02:02 PM
"With the end of the Terror, Talleyrand had been rehabilitated and returned to France. Hamilton knew that he was avaricious and regarded public office as a means of obtaining money. The cynical Frenchman once told a mutual friend that 'he found it very strange that a man of his [Hamilton's] quality, blessed with such outstanding gifts, should resign a ministry in order to return to the practice of law and give as his reason that as a minister he did not earn enough to bring up his eight children.' After Hamilton returned to New York, Talleyrand was en route to a dinner party one night when he glimpsed Hamilton toiling by candlelight in his law office. 'I have seen a man who made the fortune of a nation laboring all night to support his family,' he said, shocked. After becoming French foreign minister in July 1797, he rejoiced at the plunder placed at his fingertips. 'I'll hold the job,' he confided to a friend. 'I have to make an immense fortune out of it, a really immense fortune.' He proceeded to scoop up an estimated thirteen to fourteen million francs during his first two years as foreign minister alone."
Ron Chernow, "Alexander Hamilton", pp.548-49.

Obviously, I am in the process of reading Mr. Chernow's outstanding biography of the outstanding personage on the $10 bill (and making darn little progress!). The above (timely!) quote is from a passage describing an incident during the John Adams administration, in which the French foreign minister gave our new nation great insult by his refusal to negotiate in good faith relative to French privateering predation upon American shipping. Charles Maurice de Talleyrand-Perigord, of course, later becoming infamous for his role in the Louisiana Purchase ("You have made a noble bargain for yourselves and I suppose you will make the most of it.").

America's "Quasi-War" with France, though mostly forgotten, is instructive as a reminder of the intense partisan passions surrounding the question of which powerful wagon our fledgling nation should hitch itself to: France (the Republicans led by Jefferson), or Great Britain (the Federalists, best exemplified by Hamilton). In any case, both euro powers viewed our new nation as a rich cow to be freely milked, hence Talleyrand's grotesquely insulting terms for peace.

This period is also instructive in that it shows how different the realities of the present are from those of the past. Specifically, it is amazing how greatly the politics of the late eighteenth and early nineteenth centuries were dominated by a near-acceptance that our affairs would either be peacefully subsumed, or enveloped through conquest, by either Great Britain or France (see, e.g., 1812, War Of). Though many at the time did foresee America becoming the power it has, even the most optimistic did not see this as inevitable or a foregone conclusion. 
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RIP Annabelle Kaluna'alanui Fyfe

Posted by john on Wednesday, December 10, 2008 11:45:01 PM
Annabelle Kaluna'alanui Fyfe was my Grandma. She was one of a kind. Personally, I think she was the greatest human being ever. I also think I'm not alone thinking that. Here she is in the late-1930s. Born November 22, 1917, Kealakekua, Hawaii (Big Island); died December 7, 2008, San Leandro, California. This armchair historian won't have any trouble remembering those dates.

Nor will I have any trouble remembering her in her place as one of the Greatest Generation. The wives/moms who held it together at home for four years while the dads (Grandpa) were in harm's way won the War as much as any industrialist, general, or rocket genius. How few of us alive today could imagine what that must have taken. We can never honor their memory too much.

It is as regrettable as it is inevitable that so few of them are left to help steady us as we meet today's comparatively meager challenges. Certainly she helped me face my meager challenges. Theirs was a quality of character, which seems so rare and so needed today, forged, as David Maraniss illustrated through his portrait of their contemporary Vince Lombardi, "When Pride Still Mattered". I know that Grandma exemplified this.


Here she is when I graduated from college back in '82, with Grandpa to our right. That I might have made her happy ranks among my proudest moments.

I'm not going to describe in detail just how much she means to me. I'll probably never tell anyone. Karen has an idea. Suffice it to say that my quest for a purpose in life has ended: it is to see her again when my time comes, where she is now. Grandma, Jesus, and Ronald Reagan.

Her three children, Sylvia ("mom"), Robert ("Chuggie"), and Carole can speak in more detail about her life, and I will cheerfully defer to them on that score. I could not, however, let this occasion go by without taking this small step to see that any concerned know where I stand on the subject of my Grandma.

I'm going to miss her terribly. Of course, I'm comforted knowing where she is now. Still, I'm going to miss all the links she personified: to the old Hawaii, to the Greatest Generation, to the best moments of my childhood, and so on.

I understand that Grandma's journey from the cares of this world to her Eternal Reward in the Kingdom of the Almighty was peaceful and without undue discomfort. My prayers were answered. Hers was a long life, well-lived, and she was adored by many. How lucky I am to be able to say she's my Grandma.
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Quote of the Day

Posted by john on Wednesday, December 10, 2008 11:42:27 PM
"With all thy getting get understanding."
Malcolm S. Forbes
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More Scary Charts

Posted by john on Wednesday, December 10, 2008 11:40:46 PM
Yesterday Carter Worth, Chief Technical Analyst at Oppenheimer, appeared on Fast Money to discuss recent stock market action. Notably, he presented a 30-year chart of the S&P a la Louise Yamada. Although not nearly as negative, he acknowledged the obvious point that the S&P is bouncing along very long-term support, and that failure to hold here opens the possibility of substantial further declines.

Mr. Worth noted that the sideways trending is consistent with his training and experience. These issues (will support hold or not) don't tend to resolve themselves in short order. He expects much more trading within recent ranges before this matter resolves itself.
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Governors Against State Bailouts

Posted by john on Tuesday, December 09, 2008 1:06:37 PM
Last week Governors Rick Perry (Texas) and Mark Sanford (South Carolina) offered some very interesting thoughts in a WSJ piece they authored entitled "Governors Against State Bailouts". Helpfully, the governors pointed out that "every penny would have to be borrowed" to prop up ailing state governments. They caution that in the usual rush to "do something" (in this case, regarding the various fiscal crises among state governments), it would be wise to first "do no (more) harm to our country's finances."

This is a critical point: by diverting scarce resources (by borrowing) from economic best uses, and directing them to governmental entities whose governing models are clearly failures, the feds will likely accomplish little other than perpetuating fiscal doldrums, irresponsibility, and slow growth.

As an alternative, Governors Perry and Sanford suggest a model they have in fact successfully utilized - "improving soil conditions for business by cutting red tape, reforming our legal system and our worker's compensation system." Andrew Jackson called this approach "reform, retrenchment, and economy". I would call it a nod to Hauser's Law - supply-side reforms geared toward raising growth rates, and not tax rates, restores fiscal health, and beget a virtuous cycle of continuing growth.
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Today's Economics Lesson

Posted by john on Tuesday, December 09, 2008 12:25:54 PM
"The Mirage of Inflation"

"The more knowing inflationists recognize that any substantial increase in the quantity of money will reduce the purchasing power of each additional monetary unit - in other words, that it will lead to an increase in commodity prices. But this does not disturb them. On the contrary, it is precisely why they want the inflation. Some of them argue that this result will improve the position of poor debtors (the U.S. government?) as compared with rich creditors (owners of government debt?). Others think it will stimulate exports and discourage imports (a China strategy of the Bush Administration?). Still others think it is an essential measure to cure a depression, to "start industry going again,"(bailouts?) and to achieve "full employment (infrastructure spending?)...

"So inflation... may indeed bring benefits for a short time to favored groups, but only at the expense of others... It leads to the overexpansion of some industries at the expense of others. This involves a misapplication and waste of capital (throwing money at GM). When the inflation collapes, or is brought to a halt, the misdirected capital investment - whether in the form of machines, factories, or office buildings - cannot yield an adequate return and loses the greater part of its value. Nor is it possible to bring inflation to a smooth and gentle stop, and so avert a subsequent depression (1981-1982)...

"Yet the ardor for inflation never dies... Inflation is the auto-suggestion, the hypnotism, the anesthetic, that has dulled the pain of the operation. It is the opium of the people. And this is precisely its political function. It is because inflation confuses everything that it is so consistently resorted to by our modern "planned economy" governments (Washington to take over Detroit, the housing industry, etc.)...

"Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow (hence Jim Cramer doesn't care - he'll just profit from the game while it lasts, and tough luck to anyone not as smart as he is). It discourages all prudence and thrift... It often makes it more profitable to speculate than to produce (housing bubble anyone?)... Its inexcusable injustices drive men toward desperate remedies (Obama). It plants the seeds of fascism and communism (not a problem for Obama?). It leads men to demand totalitarian controls (wage and price controls, nationalized health care). It ends invariably in bitter disillusion and collapse (unless a Ronald Reagan appears)."

Henry Hazlitt, "Economics in One Lesson"
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And Then There's the Ultimate Contrary Indicator...

Posted by john on Tuesday, December 09, 2008 12:53:22 AM
The Irascible Don Luskin, from his site, poorandstupid.com:

Paul Krugman in Stockholm to collect his Nobel loot, and lecture the world on the the end of the world:
"A scenario I fear is that we'll see, for the whole world, an equivalent of Japan's lost decade, the 1990s -- that we'll see a world of zero interest rates, deflation, no sign of recovery, and it will just go on for a very extended period," he told a news conference.

Krugman added that in his worst case scenario there would also be a series of extremely serious crises "in particular countries that are in big trouble."

What an insight. "Crises" in "countries that are in big trouble." Does that mean there will be no crises in countries that are not in big trouble? But I digress...
"We can easily be talking about a world economy that is depressed until 2011 and maybe beyond," Krugman said.
"If there's a safe place I can't see it."

Buy everything. Buy it now.
Thanks to Chris Ciancio and Ajeya Tatake.
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Dennis Gartman Weighs In

Posted by john on Tuesday, December 09, 2008 12:51:16 AM
Okay, you figured out that I was watching Fast Money today. And what a day it was in the world of money. First, there is the continuing saga of the Detroit Three bailout. Then, there's the Obamalama's weekend pronouncement on fiscal stimulus. So here is Dennis Gartman's take: "Obama is not going to pay any attention to the deficit, nor should he." Mr. Gartman thinks inflation is definitely an issue for the future. In this regard, he points to the very important facts that (a) as of now, the Fed is not monetizing debt; and (b) velocity is non-existent. Conclusion: "you want to own things that, if you drop 'em on your foot, they hurt."

I think Mr. Gartman is largely correct, however I'm not as optimistic as he is. In principle, I am not strongly against the idea of deficit-financed stimulus (though I'm very concerned that piling deficits upon deficits in a very inefficient manner, as is almost certainly going to happen, smacks of stagflation down the road). Further, it's nice that the Fed has not yet had to "monetize" (purchase government bonds in the open market as a means of pumping cash into the economy), but it would, franky, be a miracle if this happy circumstance lasted forever (note that with short-term bills paying essentially zero, and the 10-year at 2.74, somebody is monetizing for them... for now.)

Velocity non-existent? I'm going to assume this is true, because it sure looks like it. This is an argument for stimulus of all sorts. Sadly, we are likely going to get all sorts of inefficiently-applied stimulus on the demand side, and not a word about stimulus on the supply side (which would be where the velocity issue could be best addressed).

Bottom line: I think Mr. Gartman puts a seasoned, reasoned voice to the optimism we're now seeing on the Street. I want to emphasize, I don't by any means think there is no prospect for a sizeable bounce in both GDP and the stock markets; my concern is for what happens when people like Mr. Gartman decide that inflation has become an issue for the present. It's going to happen, and I don't mean in 10 years. But for now, I think you have to pay careful attention to his "hurts the foot" thesis.
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Jeff Macke Weighs In

Posted by john on Tuesday, December 09, 2008 12:50:08 AM
The bailout, "let's be honest, will never work." It's a "band aid on an ax wound." To Pete Najarian's remark that the bailout plan is "not so great" for common shareholders, Macke the Knife responds "not so great apparently being Armenian for absolute hose job."
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Investment Thought of the Day

Posted by john on Tuesday, December 09, 2008 12:48:26 AM
Today's ITD comes from Peter Thiel, principal of Clarium Capital Management, a "global macro" (I think that means "big picture") hedge fund. Mr. Thiel made the following observations on CNBC today with Maria Bartiromo.

"I think the economy will stabilize faster than people think, then have more problems down the road than people think...

"We got into this mess because of excessive debt, and we're going to get out of it by papering over it with more debt?"


I think this is consistent with my recent observations. (Obviously, this should be much more impressive to me than to the highly-esteemed Mr. Thiel.) First, Mr. Thiel's view is consistent with my belief that as pure panic abates (.01% 1/mo.; .01% 3/mo.!), both the economy and the stock market will rebound somewhat. After all, all that money on the sidelines is going to go somewhere. Second, we have yet to hear anything from any source indicating that inflation, down the road, is not going to be an issue. Take a look at the action in commodity and infrastructure stocks, as well as the home builders.
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A Health Care Company that Makes Cars

Posted by john on Saturday, December 06, 2008 7:44:43 PM
That's the description William McGurn offered for GM in his WSJ column last week. Though this epithet is in no way Mr. McGurn's original material, he's to be congratulated on some very original thinking regarding a very old automaker issue - legacy costs in the form of health care obligations. The scope of the problem? GM "provides health care benefits for a million people today - only a fraction of their actual workers."!

McGurn's idea? Offload responsibility from employer to employee, using the hot new formula of Health Savings Accounts (HSAs) plus low-cost catastrophic coverage. Unquestionably, this would reduce costs for everyone. Why? Massive efficiencies to be gained by giving more control over spending decisions to consumers, who would not be "at the mercy of business managers and union leaders who agree to cut health benefits as part of a corporate rescue".

Moreover, as McGurn notes, this would not only benefit workers, and obviously auto companies (which would be liberated to act less like health care companies), but also those American workers who have no health coverage at all, yet who would be, under any bailout, "taxed to fulfill the generous promises made to the UAW".

The Quixotic McGurn challenges Rick Waggoner to use his platform before congress this week to encourage the membership to grease the wheels for such a transition. Alas, this is about as likely as Congress altering CAFE standards, another sure-fire way to aid Detroit sans bailouts.
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Today's History Lesson

Posted by john on Saturday, December 06, 2008 10:55:37 AM
"At the Constitutional Convention, the delegates had decided to create a federal district, ten miles square, in an unspecified location. This decision generated melodramatic speculation. Some people found the idea of a separate capital fraught with danger, fearing a privileged enclave. Governor George Clinton envisioned the ten-mile square as the scene of a presidential 'court' disfigured by royal trappings and marked by 'ambition with idleness, baseness with pride, the thirst of riches without labor...flattery...treason...perfidy, but above all the perpetual ridicule of virtue.'"

Ron Chernow, "Alexander Hamilton", pp.324-25 
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The Chevy Volt - That's the Ticket!

Posted by john on Friday, December 05, 2008 10:06:18 PM
The Chevy Volt is GM's forthcoming plug-in hybrid. It will have to be re-charged for 6 hours to provide 40 miles of gasoline-free driving. It is acknowledged to be unsalable without multiple government subsidies. With subsidies, it will be priced at $40K, at which it will still be a money-loser. Recall, Detroit is pilloried for selling vehicles that still can be made and sold profitably. Nevertheless, the omniscient Obamalama wants to condition a UAW bailout on a mandate that Detroit made more "green" cars. Hmmm. If consumers wanted "green" cars, would a mandate be necessary? More specifically, if consumers wanted Detroit's "green" cars, would such a mandate be necessary?

As Holman Jenkins gloomily describes the above scenario, "Washington here is just marching Detroit deeper into an unsustainable business model, requiring ever more interventions in the future." Mr. Jenkins further speculates, with good reason, that on this path, nationalization is the next stop. How'd that turn out for British Leyland? I'm seeing years, if not decades, of massive taxpayer subsidies to keep Michigan afloat, at a huge cost to GDP growth and the nation's fiscal health, leading ultimately to a sale (re-privatization) to healthy foreign-based makers, upon condition that massive deregulation occurs.

Mr. Jenkins suggests (again) that we ought to just scrap CAFE altogether and allow Detroit to produce a product mix that will maximize profitability - rather than being forced by CAFE rules to build excess small cars in UAW plants. Remarkably, the less we hear from Washington about reforming CAFE - a 1970s relic that pre-dates the explosion of high-mileage Japanese sales - the more we hear about "conditions" (i.e., micromanaging) to Detroit from Washington. Has anyone considered that this is a big reason why Detroit landed in this unfriendly place to begin with?

Folks, the same people who created the housing bubble and bust are now going to run Detroit. Thus we have the Chevy Volt, a very imperfect vehicle, which nevertheless serves as a most worthy exemplar not only of where Detroit is headed in this brave new world of Washington control, but also of what is in store for the greater economy. As I mentioned on Tom Sullivan's show some weeks ago, all thinking people should know where this road ends. It's called stagflation - if not serfdom. 
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Quote of the Day

Posted by john on Friday, December 05, 2008 11:03:27 AM
"When government decides to solve something, we have learned to be wary. The cure may not always be worse than the disease, but it is usually bigger and it costs more."
Ronald Reagan, Oct. 29, 1972
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