Friday, October 31, 2008

It's Dues Paying Time

Carl Haefling has one of the best articles I've seen on the current economic crisis and its potential consequences:

Carl Haefling on Paying Your Dues

The hard lesson learned, and this seems to keep repeating itself, is that in a Capitalistic economy if there is a good idea that creates wealth quickly, it will be identified, copied and mass created until it creates failure. We have seen that happen over and over in the financial markets and with corporations who are successful for a period of time and almost inevitably fail. Demand destruction has effectively ruined Bear Stearns, Lehman Brothers, hundreds if not thousands of mortgage companies, and forced banks and related businesses into merger or bankruptcy. More and more companies will go out of business, the unemployment levels will expand, and there is little that Obama or McCain can do about it. The decisions made by the Bush Administration and the Fed have drastically reduced our choices in funding our financial obligations and the various programs that our citizens have become accustomed to.

It is now dues paying time.

Mr. Haefling also has some choice words for libertarians:

Libertarians for the most part believe that the higher nature of humanity will surface and ultimately allow for a free market to prevail. I believe that is naive at best.

Ouch. I don't think libertarians believe the "higher nature of humanity" will surface in a crisis. It's the other way around, actually. The lower nature of humanity will lead to mistakes, and we have two choices: one, increase government and its interference into our private lives; or two, accept the consequences of our mistakes without burdening those who did not participate in our follies.

NY Predicts 47 Billion Dollar Deficit

NY forecasts a budget deficit of 47 billion dollars over the next four years:

LA Times Article

Over the next four years, New York must confront a budget gap of $47 billion...Projected state budget deficits nationwide are expected to total at least $100 billion by fiscal 2010.

Almost sounds small when compared to 700 billion...almost.

Bill Fleckenstein on the U.S. Dollar

Bill Fleckenstein, a hedge fund manager, hates what we've done to the American dollar and says a weaker dollar won't fix our trade deficit:

http://moneycentral.msn.com/content/P93626.asp

We don't export enough to solve our trade deficit. What we need to do is stop consuming beyond our means and start saving, which is what will be forced upon us eventually.

Bill's Archives:

http://articles.moneycentral.msn.com/Commentary/ByAuthor/BillFleckenstein.aspx

Thursday, October 30, 2008

Foreign Debtholders and National Debt

It's one day early, but Happy Halloween. If the above chart doesn't scare you, click on the link below and view the national debt:

http://perotcharts.com/home/

The Big Picture (apologies to Barry Ritholtz)

The stock markets went up substantially today and yesterday because the Fed cut interest rates to 1%. Interest rate cuts usually cheapen a country's currency, lower the available interest rates for CDs and regular savings accounts, and make commodities, like oil, more expensive. Thus, the joy of seeing your stock market gains should be tempered by the fact that in real terms, if you are a saver, your chances of losing to inflation have increased dramatically. One valuable lesson I've learned from the recent turmoil is to increase exposure to commodities if I know the Fed is going to cut interest rates. I had done so indirectly by investing in a Brazilian fund and it is now paying off handsomely--at least today. Who knows what tomorrow will bring? I had also recently invested a small amount in TIP, which may help as a hedge against core inflation.

As for directly saving, I had hoped to buy an ING 4.25% CD, but apparently Washington Mutual (now JP Morgan) places a five day hold on any transfers. The 4.25% offer still exists, and I am hoping ING maintains it, at least until tomorrow, when my transfer money is available.

Call me a young curmudgeon, but all of this strikes me as folly. The reason we got into this mess is because Greenspan lowered interest rates to 1% and held it there for too long, and now, to correct the problem caused by the lower interest rates, we are going to lower interest rates to 1%--the exact same action that got us in trouble in the first place. I can't help but think of the old saying that insanity is doing the same thing over and over again and expecting different results. We better pray Bernanke is good at timing the economy and will raise interest rates as soon as possible. Otherwise, we might be in for another pop in a new bubble five years from now.

Wednesday, October 29, 2008

Margaret and Helen on Goldwater

Apparently, Margaret and Helen have taken the blogging world by storm:

I’m old enough to remember the Republican party of Barry Goldwater - when the party stood for fiscal responsibility, small government and personal freedoms. I remember when I could talk with friends about politics and just agree to disagree. And then religious nut cases decided that if you didn’t agree with them you were immoral. So they went and elected George Bush President so he could take the Republican Party from being a party full of respectable people to a party filled with asses, jackasses and yes - [people] like Sarah Palin.

Margaret and Helen

It's nice to have people who remember what real Republicans used to stand for.

Arbitrage Opportunity?

Rohm & Haas Co. (ROH) shareholders approved a deal with Dow Chemical (DOW). The offer is apparently going to be an all-cash deal, although there is some risk that the deal's terms may change. I just bought 40 shares of ROH today. ROH is selling at around $68/per share, and DOW's offer was to buy them at $78/per share.

BUD is another possible arbitrage play, but I have not bought any shares of BUD.

The efficient market hypothesis would say that the lower price is due to the risk that the deal will not get financing and will collapse; however, in a world of 1% interest rates, that kind of risk should not be providing an arbitrage opportunity of 10% or more. Warren Buffett, of course, hates and disagrees with the efficient market hypothesis. These are interesting times.

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Steve Forbes on Gold and the Fed

Steve Forbes, in November's Commonwealth Club magazine, says ignore the Fed and look at gold prices:

How do you know whether this thing [market situation] is getting better or not? Don't listen to the Federal Reserve--they speak what sounds like the English language but is designed to leave a fog of confusion. [Instead] Just look at the commodity markets, particularly the gold price. This has worked for 4,000 years; it'll give you a good indication whether they're doing it right or wrong. Right now, gold has come down a little bit, but it's still high, $870 or $880 an ounce. If it stays in that range, expect that more strange things will happen. If it comes down to the $600, $500 range, and they keep it there--don't let it fall below that--we'll be okay; we'll get out of this pretty quickly. Just watch the commodity markets, not what these folks [at the Fed] say.

Snarky. And probably true. As of October 29, 2008, gold was between $740 and $750 an ounce.

Tuesday, October 28, 2008

Alec Baldwin on Family Court

Behind Alex Baldwin's funnyman persona is a libertarian--at least when it comes to the family court system. In the Commonwealth Club's November 2008 article (pp. 45), The Ex-Files, he talks about "parental alienation" and government corruption. Most citizens think the court system is there to protect them and be fair. Mr. Baldwin's experience should hammer home the reality that court systems are not blessed with any special fairness--they are government agencies, and like all government agencies, have the same incentives and disincentives to work hard and to achieve just results.

The difference in family court, Baldwin argues, is that the incentives are aligned to work against the family and against fairness:

The whole custody evaluation system in Los Angeles is corrupt. It is bankrupt. That is the problem. The judges can do whatever they want to do, which is what you learn about all courtrooms in this country.

In other words, your case is only as good as the judge you (randomly) get. Baldwin points out that state court judges are subject to political pressure, causing an "implied corruption":

These judges are there by appointment, or they run for political office. Either way, there's a mechanism by which they can be punished if they don't get it. If they don't serve the pit boss, you make a call to Sacramento and say, "Get rid of this woman." ... So there is implied corruption in the terms that they work for these law firms.

[J]udges and lawyers are never going to help us. Schmucks like me walk in...and they suck it [your money] out of you. They think it's great. Why change that?

In other words, the incentives for lawyers to work things out are misaligned in civil litigation, and even more so in family court.

I used to work in a family law firm's offices, and the first action they usually took upon being hired was to file for a restraining order and include the worst possible allegations against the opposing side.  Allegations of physical or verbal abuse (no matter how slight) would be submitted to the Court, which expected these kinds of allegations and seemed inclined towards granting a restraining order.  So of course the other side would get one or try to get one, and now you've got these emotionally-charged allegations going back and forth, which required the use of mediators, facilitators, and numerous government employees. If you ever get divorced, look up collaborative divorce--it may be cheaper and, more importantly, easier on your soul.

Update on November 23, 2008: I found a link to Alec Baldwin's speech:

http://weimarworld.blogspot.com/2008/09/alec-baldwin-discusses-la-family-court.html/pres02.htm

Monday, October 27, 2008

Cops and Robbers

In today's SJ Merc (October 27, 2007, page 2B), John Woolfolk talks about police officer pay in San Jose:

Basic pay for a San Jose officer is now $108,167, excluding overtime; with benefits, the total cost comes to $147,614.

Note that the basic salary excludes overtime pay, which can be substantial. The SJ Police Department is now asking for a 4% raise. Each 1% in raises costs San Jose taxpayers 1.9 million dollars each year. If the city is inclined to grant any raise, it should be in the form of a higher salary, which can be more easily tracked than benefits. The costs of increased benefits, such as pensions, are almost impossible to determine until they become due.

Vanguard's John Bogle on Investing

John Bogle on Investing:

http://www.nytimes.com/2008/10/26/business/26bogle.html

“If you were to put your money away and not look at it for many years, until you were ready for retirement,” he said, “when you finally looked at it, you’d probably faint with amazement at how much money is in there.”

Corporate Bond Yields: the Best Indicator?

I was watching CNBC today, and one manager made perfect sense. He said stocks were low based on valuation, but he was in cash. He indicated he was going to wait until the market stabilized before investing in stocks, because right now, the market was behaving irrationally, and he did not want to risk timing a recovery too early. He also said that when yields on safer (GE, etc.) corporate bonds narrowed, that might be the time to buy stocks. He was long cash and corporate bonds. If you want to follow his advice, you may want to consider buying iShares S&P U.S. Preferred Stock Index (PFF), a preferred shares ETF, and/or T. Rowe Price's Corporate Income Fund. I own PFF, and may buy some of the T. Rowe Corporate Income fund.

The Government's Pension Plan

The AP's Erica Werner on why government employees aren't like average Americans:

http://finance.yahoo.com/focus-retirement/article/106022/Meltdown-Retirement-Blow-Is-Softer-for-Lawmakers

She has some interesting points about why government's interests may not be aligned with the people's interests.

Sunday, October 26, 2008

Frigor Chocolate and the Economy

So many people have made sensible comments about the bottom being far off, I feel anxious. Their arguments, unfortunately, make sense:

1. The recession is just beginning to hit Europe.

2. The unemployment rate will rise, as companies lay off employees (e.g. Yahoo).

3. The ARMs (adjustable rate mortgages) are going to be re-set at higher interest rates, causing more foreclosures, and placing more downward pressure on housing prices.

4. The dollar will weaken, as the Chinese and Japanese begin to put more of their money in Euros to diversify their holdings.

When anxious, I suggest eating chocolate. Here is a link to the best chocolate I know of, called Frigor:

http://www.cailler.ch/en/sor/fri/default.asp

At least Warren Buffett is buying U.S. shares, so the optimists have good company.

Saturday, October 25, 2008

Death Penalty Economically Unviable?

Gerry Uelman writes that the benefits of the death penalty don't outweigh its costs (Fall 2008, Santa Clara Law, pps. 10-11):

Because the death penalty is being sought, the prosecution and defense must actually prepare for two trials, one to determine guilt, the other to determine the sentence...those elements added approximately $500,000 to the cost of a homicide trial.

The bottom line: a conservative estimate of the current cost of our death penalty law in California is $137.7 million per year...to total $232.7 million [after implementing commission's recommendations].

I used to be pro-death penalty until I saw how the system works. I am still pro-death penalty in principle, but from an economic perspective, most studies show it's better to have life without parole. The other benefit of life without parole over the death penalty? Humility. The ones that were wrongfully convicted may get a chance to prove their innocence through DNA or some other new method.

Friday, October 24, 2008

Stocks Update

I just did the math, and from December 7, 2007 to today, October 24, 2008, I've lost around 24% in my retirement funds.

Remember, if your accounts decrease by 10%, you need to make more than 10% to break even. Thus, my portfolio has to go up 32% so I can get back to where I was in December 2007. Sigh.

Update on October 27, 2008: another blogger is in the same boat:

http://escapebrooklyn.blogspot.com/2008/10/sounds-good-in-theory.html

Thursday, October 23, 2008

Capitulation, Japanese-Style


Apparently, Japan's market has now gone down to 1982 levels. Oh, it gets even worse--DJIA futures are down 352+ points last time I looked. [It got worse--see chart above.]

http://www.bloomberg.com/apps/news?pid=20601101&sid=aRTtcZqFRnII

Sigh. I wish I could go to sleep and wake up in May 2009, when I think the Dow will be back up to 10,000. In any case, I call capitulation. I called it too early before, but I call it now. October 24, 2008. Capitulation.

Update on October 24, 2008: no 1,000 point drop today, but it's still a bad day--DJIA still down 200+ points.

Atwood on Debt

Atwood hits the nail on the head in her 10/21/08 NY Times Op-Ed:

Atwood Op Ed

But at some point we stopped seeing debt as a simple personal relationship. The human factor became diminished. Maybe it had something to do with the sheer volume of transactions that computers have enabled. But what we seem to have forgotten is that the debtor is only one twin in a joined-at-the-hip pair, the other twin being the creditor. The whole edifice rests on a few fundamental principles that are inherent in us.

In my "OCM" post, I made the same point:

OCM Post

It wasn’t just leverage that caused this financial collapse—it was the attenuated way in which various people could make money. For example, a mortgage broker could loan hundreds of thousands of dollars over the phone to an applicant or after meeting him for half an hour and filling out some forms. After this initial contact, the broker had no interest whatsoever in the applicant/debtor. The broker received a fee from the bank for giving it the loan, and the bank sold the loan it generated to other investors as part of a larger package. The story is old now, but deserves to be told, because too many people miss its crucial point: attenuation leads to irresponsibility.

Somebody Saw It Coming


Check out the Economist's cover, dated March 2007. Hat tip to "Escape from Brooklyn" blog:

http://escapebrooklyn.blogspot.com/

South America Decoupling from U.S.?


Is South America finally decoupling from the U.S.? The CS Monitor seems to think so:

http://www.csmonitor.com/2008/1024/p06s01-woam.html

Greenspan at the Confessional

I hate to kick a man when he's down, but the NY Times beat me to it:

http://www.nytimes.com/2008/10/24/business/economy/24panel.html

I remember Greenspan raising interest rates towards the end of his tenure (ah, the days of earning 5% on basic money market accounts). Greenspan did see the excess--just not soon enough.

As Tom "American Treasure" Toles implies in this 3/4/05 Washington Post cartoon, how independent was Greenspan? Was much of Greenspan's unwillingness to raise rates was because of the Bush administration's policies and Greenspan's desire not to lose his job?

Living on a Prayer

From The NY Times:

http://www.nytimes.com/2008/10/23/garden/23foreclosure.html

Forty-four percent of employees live paycheck to paycheck, according to a survey conducted by MetLife in late 2007, and 48 percent of American households have less than $5,000 in liquid assets according to Edward Wolff, an economist specializing in the study of poverty and income distribution at New York University.

Funny: Bernanke to the Rescue

In these volatile times, we gotta have some humor. Here's a funny Bernanke montage explaining the monetarian philosophy (i.e., when times are bad, the government should inject/drop money to stimulate the economy). Make sure the music is on--it's the music that makes everything so good:

http://moneyhelicopters.ytmnd.com/

Hat tip to Prof. Mankiw.

European Econ Forecast

Clever economic weather forecast from the FT:

http://www.ft.com/cms/s/0/3af6c64c-9eb6-11dd-98bd-000077b07658.html

Hat tip to Barry "The Big Kahuna" Ritholtz.

Hoover Institute

The Hoover Institute has a great link to some educational videos:

http://www.hoover.org/multimedia/uk/

Not exactly economics per se, but close enough.

Wednesday, October 22, 2008

Tuesday, October 21, 2008

Don't Worry, Be Happy

NY Times says many Americans won't be affected by the bailouts because relatively few of them pay any taxes:

http://economix.blogs.nytimes.com/2008/10/20/americans-shouldnt-worry-about-the-bailout/

Law: Performance Reviews

Here is an interesting article on whether companies should keep doling out performance reviews:

http://www.hrlawyersblog.com/2008/10/articles/hr-management/getting-rid-of-performance-reviews/

From my experience, performance reviews are used against the employer and constitute one of the few pieces of evidence readily available to a potential plaintiff.

Colin Powell on an American

Colin Powell on Kareem Rashad Sultan Khan:

http://news.yahoo.com/s/mcclatchy/20081021/pl_mcclatchy/3078971

There is a picture accompanying this article elsewhere that apparently belongs to Platon for the New Yorker. The picture shows the soldier's mother, Elsheba Khan, clasping her son's tombstone. It is not to be missed:

http://www.newyorker.com/online/2008/09/29/slideshow_080929_platon?slide=16

Natural Gas Partnership

Russia, Iran, and Qatar may create a natural gas partnership/cartel, similar to OPEC:

http://news.yahoo.com/s/ap/20081021/ap_on_re_mi_ea/ml_gas_cartel

Think now would be a good time to invite Russia into the G-7?

Here is what I said earlier on the G-7 (Earlier Post):

With those three new players [including Russia], the G-7 can exchange political capital for hard cash. Then, we can show them the advantages of being part of the club. Perhaps then, Russia might feel less inclined to continue to occupy Georgian soil and will avoid establishing a consortium of natural gas producers, which would include Iran.

AllThingsD on Yahoo and Yang

AllThingsD has a good post on Yahoo:

http://kara.allthingsd.com/20081021/yahoo-earnings-what-to-expect-when-youre-not-expecting-much/

I am surprised no one is mentioning Bostock anymore. He is more unpopular than Mr. Yang. I like Mr. Yang--don't forget, without him, there's no Yahoo at all.

Update:

Yahoo stock up around 5% in after-hours trading on 10/21/08. Here's why--Yahoo met expectations and earned 9 cents a share, excluding special items.

From
http://sanjose.bizjournals.com/sanjose/stories/2008/10/20/daily40.html:

Marketing services revenue was $1.56 billion, 1 percent increase from the same period of 2007.

Excluding items, the company's income would have been $123 million, or 9 cents a share, compared to non-GAAP income of $153 million or 11 cents a share for the same period of 2007.

Analysts, on average, expected earnings of 9 cents a share on $1.37 billion in revenue.

Some more encouraging words from the earnings call itself. Susan Decker speaking:

We have no debt. We ended the third quarter with $3.3 billion of cash and marketable debt securities. As of the end of the quarter the value of our direct and indirect interests in the publicly traded securities of Yahoo Japan, alibaba.com and Gmarket were valued at approximately $7.9 billion in the public markets or over $5.50 a share.

Earnings, Yahoo and Calm before the Storm?

Yahoo (YHOO) releases earnings after the market close today. I am on pins and needles. CEO Yang should have some good news, and if not, he should consider a temporary sabbatical.

Yahoo isn't the only belle of this week's ball--tomorrow's the big event:

http://biz.yahoo.com/ap/081021/the_day_ahead.html

All those major companies are reporting earnings. If the market doesn't drop more than one percent, I will be very, very happy. I am betting, perhaps foolishly, that most company-specific bad news is already priced in. Although I've reduced many positions, my retirement accounts are still around 80% in stocks and mutual funds.

Recession?


Apparently, a majority of U.S. states are now officially in a recession:

http://abcnews.go.com/Business/Economy/story?id=6075580&page=1

I'm not sure what to make of this--usually, when the mainstream press starts calling a recession, we're in its middle or late stages, not the beginning.

Anyway, the above chart isn't sad or tragic--we've become somewhat desensitized to recession calls. If you want to see something really sad, read up on Mattie Stepanek. Keep the Kleenex nearby before you make the jump:

http://abcnews.go.com/GMA/story?id=6069915&page=1

Monday, October 20, 2008

Scott Burns on Financial Nitwits

Scott Burns raises an interesting and terrifying issue--what happens when all those ARMs adjust upwards? I see an "uh oh" in the future...

http://assetbuilder.com/blogs/scott_burns/archive/2007/08/10/the-nitwit-sector.aspx

Also, if financial services is 20% of all market value, what is going to replace it as its percentage shrinks? I don't see any killer apps on the horizon--do you?

Peggy Noonan on Sarah Palin

Peggy Noonan, one of my favorite columnists, has broken party lines and questioned the Republican Party's VP choice:

http://www.peggynoonan.com/article.php?article=438

Talk about a true maverick.

The Two-Headed Monster

Denis MacShane, in this quarter's WQ (Autumn 2008, p. 51), reminds us that we desperately need a third party:

I'm reminded of President Julius Nyerere's joking retort decades ago to American visitors who criticized his one-party state in Tanzania. The United States is a one-party state, too, he would say, but since America is so big, it takes two parties to do the job.

Touché.

The Three Ideals?

Joshua Kucera had a good line about Greenlandic culture in the Autumn 2008 WQ edition:

Both Danish and Greenlandic cultures "value communitarianism, egalitarianism, and emotional restraint."

It's not as poetic, but to me, it sounds substantively better than France's "Liberté, égalité, fraternité."

Bruce Schnei­er on Terrorism

I don't usually like Jeffrey Goldberg's articles, but this one is hilarious and tragic at the same time:

http://www.theatlantic.com/doc/200811/airport-security

I couldn’t believe that what Schneier was saying was true—in the national debate over the no-fly list, it is seldom, if ever, mentioned that the no-fly list doesn’t work.

Gotta love Bruce Schnei­er's honesty and intelligence. Here is his blog:

http://www.schneier.com/

http://www.schneier.com/blog/archives/2008/10/me_helping_evad.html

PinDebit Blog on Visa

The PinDebit blog (pindebit Blog) has a great article on Visa:

http://pindebit.blogspot.com/2008/10/it-all-about-visa-forbes.html

They apparently liked my post on Visa:

http://pindebit.blogspot.com/2008/10/visa-1st-annual-sh-meeting-called-non.html

G-7 Redux

The CS Monitor has an interesting article on the economy:

http://www.csmonitor.com/2008/1020/p16s03-wmgn.html

Froehlich suggests the G-7 reflect the "changing global landscape" by adding China, India, Mexico, South Korea, Russia, and Brazil, all with economies exceeding $1 trillion in size, to the current members – the US, Britain, France, Germany, Canada, Italy, and Japan.

Sounds similar to what I suggested in this post:

http://willworkforjustice.blogspot.com/2008/10/g-7-to-rescue-dont-bet-on-it.html

Saturday, October 18, 2008

Friday, October 17, 2008

Visa's Shareholder Meeting (2008)

(CEO Joseph Saunders and me)


Visa's first annual shareholder meeting was held on October 14, 2008 at the San Francisco Museum of Modern Art. You would think that the very first shareholder meeting of an internationally known company would be exciting. Unfortunately, the meeting was anything but.

I spoke with a Visa (V) employee prior to the meeting, who said that October 14, 2008, happened to be the first day that employees could sell their restricted shares. Given all the volatility in the stock market, it must have been an interesting day for Visa employees. (At least someone was experiencing interesting times.)

The food spread was small and consisted of the basics--bottled water, some drinks, and coffee. Security guards hovered around shareholders, which seemed strange--who is going to show up at 8:00AM at a shareholder meeting to cause trouble? Perhaps the company was concerned shareholders who had bought at the 52 week high would arrive en masse, but the stock is still slightly above its pre-IPO price, so many shareholders haven't actually lost anything. It appeared that around 15 non-employee shareholders appeared for the meeting. One woman insisted she owned 4000 to 5000 shares, but didn't have a proxy statement or other proof of ownership. She was not let in. To give you an idea of the meeting's entertainment value, this incident was the highlight.

Shareholders were let into the museum's theater and saw Mr. Joseph W. Saunders, Visa's CEO, and Visa's general counsel sitting at a table in front of a blank theater screen. Eagerly awaiting some kind of presentation, many shareholders were let down when the informal portion of the meeting consisted of only ten minutes of Q&A. With 6 billion dollars in the bank, surely Visa could offer some branded trinkets (a notepad, at least) or a preview of its upcoming commercials. Alas, most of the meeting was just the CEO and CFO answering questions. I suppose for its first meeting, Visa wanted to take no risks at all, which, ironically, made it look like a small, unprofessional company instead of the international brand it is.

I asked about Visa's exposure to consumer debt. The CFO said Visa had "no debt issued to consumers." Visa is only a financial intermediary. It facilitates transactions between banks, shoppers, and retailers and receives a fee for its limited participation, called an "interchange" fee. If a customer defaults, the bank that issued the credit card is on the hook, not Visa or Mastercard (MA). For this reason, Visa has an almost fail-proof business model. Collecting a fee for safely transferring money is boring, but profitable--again, Visa has 6 billion dollars in the bank. A shareholder asked how safe this cash was, given recent financial turmoil (e.g., some money market funds had "broken the buck"). The CFO answered that of the 6 billion dollars, less than 30 million dollars were held in illiquid auction rate securities, and Visa was in the process of unwinding those positions.

I knew Visa had some debt, so I asked about Visa's debt obligations. This is where the meeting became somewhat interesting. Apparently, the day before the meeting, Visa settled litigation involving Discover Card (DFS). Some of you might remember that Discover, American Express, and a collection of retailers had sued Visa, Mastercard and several issuing banks alleging anti-trust violations. In a nutshell, retailers, especially small businesses, are concerned that Visa and Mastercard have virtual monopoly power because banks may have colluded with the two companies to exclude competitors. The plaintiffs alleged that the exclusion of Discover, American Express, and other potential competitors placed many retailers at the mercy of Visa and Mastercard, who could increase interchange fees at will.
More below on the litigation:

Anti-Trust Lawsuit:

http://home3.americanexpress.com/corp/pc/2004/lawsuit.asp

Settlement:

http://www.bloomberg.com/apps/news?pid=20601103&sid=axrdWpuRyQPQ&

There may have been some truth to the allegations--we've all heard of retailers rejecting Discover and American Express cards. One of my favorite lines from Futurama has Fry trying to use an old Discover card in the future and being told, "Ooh, sorry, we don't take Discover." Also, Discover and American Express, unlike Mastercard and Visa, do have some exposure to consumer debt, perhaps to facilitate being more involved in the interchange market.

The CFO said the terms of the settlement required Visa to pay $800 million to Discover (DFS) at $200 million per year for four years. This is good news for Discover, which may see a slight but significant impact on its bottom line. (More on the impact of the settlement on Discover after the jump: Article)

I asked whether the DOJ or FTC was involved in the settlement. The CEO answered that neither agency was involved, which means government intervention may still occur. I asked whether any "non-financial concessions" were made as part of the settlement agreements. The CEO answered with a resounding, "No."

After the meeting, the CEO Saunders was gracious enough to grant me a picture with him. Mr. Saunders seems like a genuinely decent person and lacks any trace of arrogance. Another shareholder said he reminded her of "bread and butter America and the Midwest," and it's an indication of the kind of respect Mr. Saunders inspires. I have no idea whether Mr. Saunders is from the Midwest, but these days, companies could use more CEOs who exude honesty and throwback values. Unfortunately, the same cannot be said of Visa's Investor Relations. After I took the picture with the CEO, a woman from Investor Relations immediately approached me, telling me repeatedly not to publish the picture. Then, she took out out a piece of paper and demanded to know my name. After telling her she was behaving rudely, I gave her my first name and this blog's website address. The next day, someone did a search on my blog for "Visa." Why is Investor Relations so paranoid about a picture? One expects more confidence from a company that is supposed to have solid international standing.

To characterize my experience with Investor Relations, I was going to borrow Chuck Thompson’s line about being “blocked at every turn by an army of protective minions reminiscent of David Spade as Dick Clark’s personal assistant on Saturday Night Live”; however, the analogy wouldn't be exactly applicable, because the Investor Relations employee tried to block me after the picture was taken, as if my camera somehow had a way of morphing the CEO into Satan himself. (See first picture above for yourself–the CEO looks good and healthy, which
Joe Nocera and Apple shareholders might appreciate). So, one last bit of advice to Visa: leave the Wehrmacht, er, overly nervous employees, at home next time. Shareholders, being owners, should be treated like friends, absent erratic or strange behavior. Attempts to block them from gaining access to company officers make a company look insecure, weak, and unprofessional. Let’s hope a company that relies on its good public image will teach its employees the delicate art of handling admirers.

There was some upside to being accosted. Investor Relations' misplaced energy produced an epiphany: Visa's greatest strength--its ease of making money without taking on risk--is also its greatest weakness. Its business model is so simple, Visa employees and officers might feel compelled to overreach out of sheer boredom. Privately, another shareholder complained that Visa was holding too much cash and should return some of it to shareholders in the form of an increased or special dividend. Historically, companies tend to make bad decisions and acquisitions when they have too much cash. Symantec (SYMC) is one example of this phenomenon--just review its acquisitions of Axent and Veritas. Let's hope that Visa's CEO and top brass really are "bread and butter" American types. If not, Visa could be in for a wild ride.

To sum up, the first Visa shareholder meeting was a non-event. The CEO, CFO, and general counsel shined, even if no one else did. Next time, if Visa has a video or pays more attention to the informal part of its presentation, shareholders might feel more vindicated for getting up at 5:00AM to catch the train to San Francisco. Another shareholder gently admonished Visa for not introducing its Board of Directors, as is customary at shareholder meetings. The CEO indicated he appreciated the advice and would remember to do it next year. Because it's Visa's first year being public, Visa gets a pass for having a dull, ordinary meeting. In the future, however, shareholders should hope that Visa settles into its new public skin and acts more confident.

Disclosure: as of October 17, 2008, I own around 20 shares of Visa (V); between 90 and 100 shares of Discover (DFS); and no Mastercard (MA) shares.

Update on 10/20/08: here is the Futurama bit:

Fry: "Do you take Visa?"
Clerk: "Visa hasn't existed for five hundred years."
Fry: "American Express?"
Clerk: "Six hundred years."
Fry: "Discover Card?"
Clerk: "Hmmm...sorry, we don't take Discover."


A Fishful of Dollars

Funny: Reality of Elections

"Points in Case" has some hilarious articles. This one seems perfectly timed:

http://www.pointsincase.com/articles/we-drunk-chick-united-states-america

If the link doesn't work, google the author, "Eric Cheesic," and "We the Drunk Chick of the United States." This one's destined to become a classic. Here are some excerpts:

[N]either of these candidates cares about you and me. They really don't. It's just a big pissing match. The match isn't conservative verses liberal; it isn't even John McCain versus Barack Obama. It's Republicans versus Democrats—-McCain and Obama are just the PR firm picked to sell you the wares. They are a face and a name to be associated with the big political machine that is the United States of America...

So where does the American public come in?

Well, here's the deal: we, the people, are the drunk chick at the bar. We are expected to do very little. Our responsibilities are to:

  1. Obey all the rules posted above the door to the bathroom (The Constitution).
  2. Pay for the food and drinks we consume (taxes).
  3. Leave the bar when it's closing time (die).

Warren Buffett Says "Buy"

The Oracle of Omaha to the rescue? Warren Buffett has issued a "buy" signal:

http://www.nytimes.com/2008/10/17/opinion/17buffett.html

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.

Over-Correction Overhyped

I am tired of reading articles about how we are not near the low, and how markets tend to over-correct when rebounding from a crash. Almost every article I am reading now talks about the possibility of over-correction, i.e., another 20% drop in the S&P 500.

First, the prevalence of such pessimistic articles is a contrarian signal. Second, Warren Buffett just highlighted that he was buying major U.S. stocks (he's probably adding to his Coca-Cola (KO) and Wells Fargo (WFR) holdings), because he thought they represented reasonable values. And third, almost all the articles base their theory on the 1929 and 1987 crashes. See, for example, this article:

http://www.minyanville.com/articles/spx-charts-TD-technicians/index/a/19550

The above article and ones similar to it fail to distinguish between 1929, 1987, and 2008. In 1929, the government acted too late. Bernanke himself has cited a failure of speedy government intervention as one cause of the Great Depression. In 1987, again, the government arguably did not intervene quickly enough and did not pump into the market substantial taxpayer monies to inspire investor confidence. In addition, the crash of 1987 did not lead to a prolonged bear market--within two years, markets had begun moving substantially higher.

Now, in 2008, not only is the U.S. government inserting between 700 billion and 2 trillion in the markets, but worldwide governments (the G-7) are following suit. Thus, the current situation is completely different from 1929 and 1987. As an attorney, I see briefs all the time where opposing counsel uses one line from an appellate court's opinion that supports his or her client, but fails to mention that the case involved completely different facts, diminishing its applicability. Investors and writers who compare 1929 and 1987 with 2008 are making the same amateurish and unfortunate mistake.

Warren Burger on Self-Restraint

In PAPISH v. BOARD OF CURATORS OF THE UNIVERSITY OF MISSOURI ET AL. (1973), a case about the limits of free speech on campus, Justice Warren Burger dissented. His dissent advocates self-restraint as a core American value:

In theory, at least, a university is not merely an arena for the discussion of ideas by students and faculty; it is also an institution where individuals learn to express themselves in acceptable, civil terms. We provide that environment to the end that students may learn the self-restraint necessary to the functioning of a civilized society and understand the need for those external restraints to which we must all submit if group existence is to be tolerable.

http://www.law.umkc.edu/faculty/projects/ftrials/firstamendment/papish.html

Wednesday, October 15, 2008

Are You Rich?

Are you rich? It depends on where you live:

http://www.usnews.com/articles/business/your-money/2008/10/09/what-it-takes-to-be-rich--where-you-live.html

The problem is, the numbers represent an average, not a median, which reduces their relevance. On the bright side, there are lots of lovely numbers for stat geeks like myself.

National Geographic on Iran: "Knowledge of self is knowledge of God"

National Geographic has an interesting article on Iran and its past:

http://ngm.nationalgeographic.com/2008/08/iran-archaeology/del-giudice-text

They like to say, for instance, that when invaders came to Iran, the Iranians did not become the invaders; the invaders became Iranians. Their conquerors were said to have "gone Persian," like Alexander [the Great], who, after laying waste to the administrative practices, took a Persian wife to do the same in a mass wedding. Iranians seem particularly proud of their capacity to get along with others by assimilating compatible aspects of the invaders' ways without surrendering their own - a cultural elasticity that is at the heart of their Persian identity.

The author,
Marguerite Del Giudice, really did her homework--it's very hard to define words that have no direct translation in English, but she aptly defines the word, "taarof," which means "fighting for the lower hand." To understand this word provides substantial insight into Persian culture. The article also lists the best Persian poets: Rumi, Sa‘id, Omar Khayyám, and Hāfez .

Thanks to Alison Bryan for the tip (August 31, 2008 posting):

http://www.alisonbryan.com/blog/

Bear Markets

© Wall Street Journal

Market Gyrations

I sold off several positions on Tuesday. I wanted to do a stocks update, but I am in the middle of trial prep, so I will offer only my remaining open positions over 2,000 dollars:

EMC
EZU
PFF
SWZ
YHOO

My biggest loser thus far? Yahoo (YHOO). Unfortunately, I continued to average down, and my average buy price is around 18. The lesson? Never catch a falling knife, no matter how cheap the stock seems.

David Brooks on the Stimulus Package

In yesterday’s New York Times, David Brooks says the stimulus plan didn’t work:

It was a failure, because “people spent only 10 percent to 20 percent of the rebate dollars and saved the rest...Martin Feldstein of Harvard calculates the package added 80 billion to the national debt while producing less than 20 billion in consumer spending.”

More evidence the phrase, "We're the government, and we're here to help you," should inspire automatic fear.

Tuesday, October 14, 2008

NBA Layoffs

You know the economy is bad when the NBA starts laying off people:

http://sports.yahoo.com/nba/news?slug=ap-nba-jobcuts

The NBA, like most other major American businesses, is focusing on international expansion. Maybe Hamed Haddadi can help them out...

Update: Check out this post on Don Nelson and Corey Maggette if you're a Golden State Warriors fan:

http://willworkforjustice.blogspot.com/2008/12/basketball-don-nelson.html

Monday, October 13, 2008

Economy

Great article from Ron Scherer (www.csmonitor.com) about Americans finally shifting their attitudes towards finances:

http://www.csmonitor.com/2008/1010/p01s04-usec.html

Since last October, household net worth has fallen more than $6 trillion...That calculates to roughly $55,000 per household.

This is one time where I am happy to be below the average. Americans, for the first time, are realizing that having too much debt is unwise, which should cause a short-term bump in our savings rate.

Stocks Update: October 13, 2008

The market went up dramatically today, but because it went down 20% last week, most people are still down at least 10% or more.

I made over 600 dollars with my short term Morgan Stanley trade, but it didn't reach the 2000 dollar mark, so the trade is not included below. I had bought only 100 shares at 8 dollars/share last Friday.

I sold my GOOG too early. Had I sold just two hours later than I did, I would have made 2000 dollars, but I dumped as soon as I broke even. As they say, better luck next time.

(I hold EMC and Yahoo in two different accounts, so the percentages below for those two positions are slightly inaccurate.)

Open Positions

CCT = -16.77
EMC = -12.41
EZU = -25.52
GXC = -15.23
MMM = -5.32
SWZ = -22.24
VPL = -22.49
YHOO = -21.52

[Average of "Open Positions": losing/negative average 17.69%]
[141.5 / 8]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
EWM =-11.61 [sold 9/22/08]
EWS = -12.98 [sold 9/22/08]
GE = -6.4
GLD = +8.61 [sold 9/22/08]
IF = -49.00 [sold 10/13/08]
INTC = 0.0 (excluded from average; insignificant movement)
KOL = -10.36
MGM = - 4.17 [10/3/08 - 10/13/08]
PFE = -5.5
PNK = -16.7
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4

[Overall Record for 7 days+ trades: lost an average of 6.94%]
[
-104.07 / 15 trades]

Held less than 7 days:
DUK = 0% (excluded from avg) [8/07/08 - 8/14/08]; GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GOOG (5.4) [9/29 - 9/30]; GOOG = 0% (negligible percentage, excluded from avg), [sold on 8/13/08]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%); KOL (13.2%) [9/17/08 to 9/19/08]; MMM (0.5%); MOS (10.4%) [10/6/08 to 10/8/08]; MRK (0.1%); NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; STT (2.68%) [10/1/08 to 10/3/08]; STT (0.4%) [10/3/08 to 10/7/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]; TTWO (2.2%) [9/9/08 to 9/12/08]

[Overall Record for ultra short-term 2 to 7 days trades: gained an avg of 3.57%
]
[60.78 / 17 trades; as of 10/8/08]

Daytrades:
C = +11.49 (09/01/08)
PFE = +0.5%

GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
STT = +0.3
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record for daytrades: Gained an average of 3.35%]
16.79/5

Compare to S&P 500: losing/negative 29.57%
[from May 30, 2008 (1385.67) to late-day October 13, 2008 (975.89
)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Up, Up, and Away?

It's a good day. The Dow and Nasdaq indices are currently up over 6%, but so far, most of my long-term trades are still in the red. I did very well on a Morgan Stanley (MS) trade, but I only had 100 shares. When the dust settles on Friday, I will feel more comfortable about celebrating.

Saturday, October 11, 2008

G-7 to the Rescue? Don't Bet on It

The news that the G-7 is meeting is not great news. The G-7 is Canada, France, Germany, Italy, Japan, United Kingdom, and United States of America. With the exception of Canada, Japan, and possibly Germany, none of the other countries' consumers can pull us out of this morass. For example, the average British consumer is more in debt than the American consumer, and even the German consumer is barely keeping his head above water (or did you forget all those formerly East Germans needing jobs?).

We need normally isolationist China and Russia to step in, and it's insulting to them that the G-7 is not already the G-9. WWII is long over, but the financial and political paradigms are all based on a post-WWII world. It's time to grow up and get the players with the most cash reserves and natural resources into the game. This crisis won't be over till China and Russia get officially invited to the club. Personally, I would invite Singapore and make it the G-10. With those three new players, the G-7 can exchange political capital for hard cash. Then, we can show them the advantages of being part of the club. Perhaps then, Russia might feel less inclined to continue to occupy Georgian soil and will avoid establishing a consortium of natural gas producers, which would include Iran.

Bridgewater Report from 2003

Words of doom: "At this point [2003], the U.S. makes up only 30% of the world economy but sucks up 80% of the world's savings."

Here is the link to the whole report (PDF file):

http://www.rapp.org/wp-content/112203-bridgewater.pdf

(copyright belongs to Bridgewater)

HTML version here:

Bridgewater 2003 Report

(copyright belongs to Bridgewater)

Friday, October 10, 2008

Nassim Nicholas Taleb

From Conde Nast's Portfolio.com comes a fantastic interview with Nassim Nicholas Taleb :

http://www.portfolio.com/views/columns/the-world-according-to/2008/08/14/Interview-With-Nassim-Nicholas-Taleb

Here is one excerpt:

The structure of uncertainty in the world is vastly greater than we think. So let's stop playing the narrative fallacy. Take economics, for example. How many economists figured out that when people go to the store to buy products from China, they're raising the price of oil at the pump? How many people thought of that? They raise the price at the pump just by going there.

Interesting fellow, this Mr. Taleb. His book, The Black Swan, received rave reviews, and I liked it but wouldn't necessarily recommend it over Wheelan's Naked Economics, Malkiel's A Random Walk Down Wall Street, or Greider's Secrets of the Temple.

Random Thoughts

With GE reporting decent earnings and no corresponding effect on the overall market, I have only three thoughts in my head:

1. The beatings will continue until morale improves.

2. The market can stay irrational longer than you can stay solvent.

3. Omnia munda mundis. (All things are pure to the pure in heart.)

I'm not sure why the last one popped in my head, but perhaps it's my subconscious asking for divine intervention. After today's buying, my retirement accounts are now fully invested. From December 7, 2007 until today, my retirement accounts have decreased 22.6%. The S&P 500 has fallen 42.8% during the same time period. My retirement accounts need to increase 29% to get back to December 2007 levels (a decline of 1% in your portfolio requires more than 1% to get it back to the pre-existing level--it's counter-intuitive, but true). I would say today is the bottom, but I've been wrong before.

Thursday, October 9, 2008

Debt Clock

The national debt has become so large, the debt clock can't keep up:

http://www.mlive.com/flintjournal/voices/index.ssf/2008/10/and_the_debt_clock_says_time_t.html

You have to love the title: What time is it? "Time to kiss your future goodbye."

I Was Wrong

My September 18, 2008 call of capitulation was wrong. See call after the jump:

http://willworkforjustice.blogspot.com/2008/09/capitulation-is-hereagain-good-times-to.html

But today, on October 9, 2008, I feel like I called the bottom only a few weeks too early--which isn't a capital crime. Here is my take on the current situation, which I posted on Barry Ritholz's website:

It all depends on GE and Google. That's it--the double G's will determine whether we make or lose money. No other real catalyst on the horizon--interest rates have been cut, and money pumped in, so both the money supply and interest rates have been manipulated. After HP's positive earnings, I am feeling sanguine, despite the blood on the streets.

I bought a commodity fund for my 401k today, T Rowe Price's New Era fund. Being relatively young, I am a buyer at these levels. I just wish I had more gunpowder. My Roth IRA is already fully invested.

Wednesday, October 8, 2008

What the Japanese Stock Market Tells Us

Remember the Japanese and their banking problems? Japan is much different from the U.S., but this chart does not bode well for the U.S. stock market. Japan currently has the world's third largest GDP (on a purchasing power parity basis). Check out this article:

http://news.bbc.co.uk/1/hi/special_report/1997/asian_economic_woes/34500.stm

The Japanese economy was growing at a headlong rate, and companies were expanding and investing as never before.

The trouble was that much of this investment was being financed by an extraordinary boom in property and share prices. Property and shares were used as security for huge bank loans - and when the property markets and stock markets suddenly crashed at the beginning of the nineties the whole spiral of borrowing, asset price inflation and investment came to a full stop.

And despite many government initiatives to kick start demand, Japan's economy has remained fairly stagnant for the last six years. The stock market has been flat too, making it difficult for companies...to make profits.

Sound familiar? Defensive investors know that consumers will always need health care and consumer staples (e.g., Unilever products); however, investors looking for more than a 5 to 7% annual return are evaluating other options. After all, the key to getting high returns is determining the next high growth economic area and/or product.

U.S. companies realized earlier than most Americans that their growth would rely on non-U.S. countries. As a result, most major companies have shifted their emphasis overseas while lobbying for fewer trade restrictions. Now that the American consumer appears to be down and out, the question is whether the world economy can finally gain traction without the U.S. The most obvious way this decoupling will occur is if the American dollar is devalued, creating incentives for other countries to buy American products. If a Chinese yuan buys quite a bit of American goods, the Chinese consumer will feel flush and may start spending more, allowing the world economy to have more than one major source of income. A similar scenario can also play out with the Indian and Brazilian consumers. In fact, non-U.S. citizens must spend more in order to maintain economic stability.

Once you realize how small the American population is--only 5% of the world population--it's fairly easy to see that the most growth will come from abroad. As a result, trade restrictions will harm U.S. companies and their ability to expand and get their products into the hands of other countries' consumers. American companies that fail to achieve high growth rates will lay off workers in order to become more efficient. Thus, improving the job market means helping American companies gain more consumers, which means giving them more access to non-U.S. consumers. To achieve easy access to the international market, we have to negotiate with other countries and have fewer restrictions to encourage a free flow of ideas, money, and traffic. As much as we may hate to admit it, reducing trade restrictions and devaluing the American dollar may actually stabilize the world economy in the long run.

At the end of the day, what choice do we have, really? The American consumer is tapped out. Other countries' consumers must step up to the plate, and we need to encourage them to do so. In an era where the world economy requires more trust between countries, the latest failure of the Doha Development Round is an ominous portent. Thankfully, the failure of governments is not determinative.

The American corporations that succeed will be the ones who understand that the American consumer is but one small slice of a very large worldwide pie. In an era of cynicism, skepticism, and security fears, we must regain our confidence and look to maximize our international footprint through trade and superior products. The "Post-American world" can no longer be an amorphous, distant concept if we are to succeed--Americans must begin to see the world as one large marketplace in which they have the advantage because of their greater access to technology (Google, Yahoo, eBay, Intel, etc. all made in the U.S.A.); the world's common language (English); an above average health care system (better health means more productivity); and entrepreneurship (it can take less than a week to set up a small business in California--for fun, compare that time with India and its small business rules/red tape).

I never thought I would advocate a weaker domestic currency, but sad times create sad consequences. The time has come to work harder and re-gain our stature in the world. When the non-U.S. buyers come, America must welcome them with open arms and the American attitude formerly known as optimistic. America is down, but as long as we have immigrants arriving and hoping for a better future, you cannot count America out. For better or worse, we are still the world's major repository for dreams. That's why I don't see a Japan-style economic morass happening in America--Japan is getting older and has never liked immigration. As long as we stay away from protectionism and encourage responsible immigration, we will do just fine.

VeriFone (PAY) Shareholder Meeting

VeriFone's (symbol: PAY) 2008 annual shareholder meeting took place today at the Doubletree Hotel in downtown San Jose.

VeriFone, Inc. is a payment-processing-technology specialist. When you use your credit or debit card, someone has to handle the transfer of information from Point A to Point B in a secure format. VeriFone is trying to position itself as the worldwide financial middleman. However, it has been plagued by accounting scandals and as a result, its stock price is near a 52-week low.

The meeting was a bare-bones event. VeriFone did not have a presentation. The informal portion of the meeting involved only a Q&A session and lasted under 10 minutes. Only water was served from a cooler. Only three non-employees attended. I asked about the financial irregularities. The CEO said VeriFone had replaced the CFO and the general counsel in an effort to reform the company. He said the specific accounting problem was that the company overstated inventory and understated the cost of goods. (This accounting problem would cause the company to report an incorrect higher net profit for most of last year.) Class action lawsuits have been filed against VeriFone, and the 10K did not list any settlements or pending resolutions.

I asked several other questions about the company's business. The CEO's responses are below:

1. VeriFone already has 65% market share in the U.S and Canada, and Hypercom is their primary competitor. The main reason VeriFone does not have more market share is because the market wants an alternative, even if that alternative is not as good as VeriFone.

2. (The 10K states that profit margins are lower in the U.S. and Canada, but VeriFone is seeking to expand more internationally rather than domestically.) The reason VeriFone is focusing on international expansion is because emerging markets are not saturated. Only around 1 to 20% of retailers in Brazil, Turkey and other emerging markets use payment-processing technology, and the opportunities for growth are much better.

3. VeriFone's competitive advantage is that it spends the most on R&D and has the most employees. They are a safe, if not the safest, choice.

As a value play, it's hard to go against VeriFone. At the same time, it's also hard to promote a company that had ethical issues as recently as last year, especially in a post-Sarbanes-Oxley world. I personally think there are better companies in which to invest, but others may want to consider VeriFone after it resolves outstanding litigation.

Disclosure: I own less than 30 shares of Verifone (PAY).

Tuesday, October 7, 2008

Who Pays Taxes?

The WSJ (A25, October 7, 2008) had more statistics on the tax debate:

The top 20% pay 67% of all federal taxes--including not just income taxes, but payroll taxes, corporate taxes, and death/estate taxes. The top 1% of earners pay 26% of all federal taxes.

If Republicans want a return to the Reagan era, pointing out raw numbers isn't the way to get there. The average American knows the rich make the lion's share of money in this country. He also knows that no matter what the percentages and numbers are, unlike the average American, the rich don't have to worry about housing, food, or health care. Despite this knowledge, taxes have continued to come down for years in this country because the average American doesn't hate most rich people. In modern-day America, the majority of super-rich people don't inherit their wealth--they earn it, which gives them some immunity from European-style envy. Thus, the key goal of low-taxation advocates shouldn't be fairness per se. Instead, the goal should be to assure that everyone's tax contributions--no matter what the amount--are spent improving access to health care, infrastructure, and other quality-of-life services as well as cutting wasteful spending. A single dollar collected that goes towards more laws, more useless agencies, more unnecessary subsidies, and more lobbyist requests will damage everyone's faith in the system. In short, low-tax advocates must convince everyone that all taxes collected are going towards necessary services.

Americans want to be rich, so bashing the rich won't work in America as a primary political platform. The average American probably cares more about a) whether his or her tax dollars are spent for necessary services rather than special-interest spending; and b) whether taxes are enough to cover necessary services. Thus, the debate should be about what services are necessary, how the government can best deliver them, and whether the government is the best entity to deliver those services.

Barry Diller on Online Advertising

Barry Diller had an interesting interview today in the WSJ.

You really want to get a headache? Try to understand Internet advertising. Social networking advertising is being discounted because there is so much inventory [of available ad spots], and because methods have not yet been found to make it very effective. Will that get figured out? I absolutely believe it will. What form will it take? Absolutely unknown.

Mark Cuban seems to have found a potential solution/form in www.hulu.com

Monday, October 6, 2008

Update: DJIA Down 550 Points

Yes, it's a bloodbath today in the markets, but I am buying. In fact, I've spent more money today than I ever have, if you include my 401k purchases. As for individual stock picks, I bought GOOG, STT, YHOO, GE, and even some WYNN. Visa (V) looked interesting, too. Remember, Visa and Mastercard don't loan anyone money--they're just middlemen who get a transaction fee. In contrast, Discover and American Express have a more risky practice of loaning money themselves to certain customers or exposing some of their own assets to risk. I predict this recession will be over by May 2009, having started in December 2007. I hope to flip GOOG this week.

Saturday, October 4, 2008

Best...Spoof...Ever



© Columbia Business School Follies

http://www0.gsb.columbia.edu/students/organizations/follies/Follies/Welcome.html

Mark Cuban on How to Get Rich

More evidence Mark Cuban is a straight-talking genius:

http://blogmaverick.com/2008/10/04/how-to-get-rich/

I identify with the ketchup and mustard sandwiches (for me, it was Jack in the Box's 99 cent chicken sandwiches). I have a long way to go before even getting a tiny fraction of Cuban's net worth, but I am happy I currently have no debt after going to law school.

Friday, October 3, 2008

Dave Ramsey's Plan

It's a moot point now, but here was Dave Ramsey's proposed plan:

http://www.daveramsey.com/common_sense_fix.txt

I mention it only because it recommends eliminating the capital gains tax entirely. His rationale is that rich people will use their own money to invest in the market--rather than risk not beating inflation by staying in cash or 2% money market funds--and the market will rise again on the backs of the upper class's investments, not general taxpayers. You have to admit, it's an interesting idea.

Stocks Update, October 3, 2008

What a crazy day. After the House passed the bailout bill, the stock market actually went down. I made several trades and managed to do reasonably well, except I re-bought STT too soon after selling. I am currently experiencing a loss on STT and hope to sell within two weeks.

Also, the percentages for EMC and Yahoo are slightly off, because I dipped into my non-retirement accounts to buy some shares. I am losing a few hundred dollars on the trades in my non-retirement funds, but nothing that significantly impacts the percentages below.

I added MGM to my open positions at about 2,000 dollars' worth. Vegas relies on now-nervous California citizens for much of its income, but I am willing to bet a small amount that Vegas has some more tricks up its sleeve. I also wouldn't be surprised to see Dubai provide the 500 billion dollars needed to complete the latest MGM project. I still don't like MGM's CEO, J. Terrence Lanni, so I probably won't add to my MGM position.

My major positions are now STT, YHOO, SWZ, and GXC. Yahoo stock seems priced far too low.

Open Positions
CCT = -7.95
EMC = -13.58
EZU = -16.73
GXC = -12.15

MGM = -3.45
IF = -33.37
STT = -8.45 (afterhours price)
SWZ = -12.62
VPL = -13.80
YHOO = -16.09

[Average of "Open Positions": losing/negative average 13.82%]
[138.19/10]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
EWM =-11.61 [sold 9/22/08]
EWS = -12.98 [sold 9/22/08]
GE = -6.4
GLD = +8.61 [sold 9/22/08]
INTC = 0.0 (excluded from average; insignificant movement)
KOL = -10.36
PFE = -5.5
PNK = -16.7
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4

[Overall Record for 7 days+ trades: lost an average of 3.92%]
[
-50.90 / 13 trades]

Held less than 7 days:
DUK = (0%, excluded from avg) [8/07/08 - 8/14/08]; GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GOOG (5.4) [9/29 - 9/30]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), KOL (13.2%) [9/17/08 to 9/19/08]; MOS (10.4%) [10/6/08 to 10/8/08]; NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; STT (2.68%) [10/1/08 to 10/3/08]; STT (0.4%) [10/3/08 to 10/7/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]; TTWO (2.2%) [9/9/08 to 9/12/08]

[Overall Record for ultra short-term 2 to 7 days trades: gained an avg of 3.57%
]
[60.78 / 17 trades; as of 10/8/08]

Daytrades:
C = +11.49 (09/01/08)
PFE = +0.5%

GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
STT = +0.3
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record for daytrades: Gained an average of 3.35%]
16.79/5

Compare to S&P 500: losing/negative 20.67%
[from May 30, 2008 (1385.67) to October 3, 2008 (1099.23
)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

California Out of Money?

According to Reuters, California Treasurer Bill Lockyer said the most populous U.S. state's cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.

Governor Schwarzenegger is apparently going to ask the federal government for 7 billion dollars. Good timing--after 700 billion, 7 billion is going to seem eminently reasonable.

When Californians vote on their various propositions, they should remember California's budget problems (i.e., no money). Almost every Proposition requires more money. When in doubt, vote "no." The only Proposition I will be voting for is Prop 11. Everything else seems to require money Californians don't have.

Thursday, October 2, 2008

Wisdom: Father Theodore Hesburgh

From Father Theodore Hesburgh, courtesy of the WSJ (9/30/08, A15):

People are tough on people, but I love people, and the great, great, great majority of people are very good. We have our share of sinners, even in all the great religions of the world, but I think the fact that people keep trying is the most important thing of all, and I'd like to be one of those who keep trying.

Tom Toles on the Bailout

In honor of the bailout, I give you Tom Toles. The man is an absolute genius.

http://www.washingtonpost.com/wp-srv/opinions/cartoonsandvideos/toles_main.html?name=Toles&date=09242008&type=c

(September 24, 2008, Washington Post)

Wednesday, October 1, 2008

More Short Term Mania

I was successful in completing a two day Google (GOOG) roundtrip yesterday. This morning, I bought some State Street (STT) and Citigroup (C). I am hoping to sell today or by this Friday.

From a technical standpoint, the risks of trading have increased, despite the higher chance that a revised bailout bill will pass. Most financial stocks hit all-time lows this week or last week, so the smart money has already been made. On the other hand, I just saw a headline, "Dow 7000 in the Cards?" so perhaps there is still enough fear for a decent-sized bounce when the bailout bill passes.

One note: the "revised" bailout bill doesn't seem much different from the original. Apparently, the key change was raising federal deposit insurance to $250,000. Some reports indicate the revised bill contains AMT relief, but Congress already passed a tax plan last week with AMT relief.

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Update
on October 2, 2008: sold my C, still have my STT, but hope to sell soon.
Update
on October 3, 2008: sold my STT. Both trades were profitable.