Tuesday, March 31, 2009
After law school he [Idan] started coaching boys basketball at the local YMCA in San Diego to take his mind off his dreary day job as an attorney.
That's exactly how I ended up coaching youth basketball several years ago. I needed an outlet for my stress, and coaching basketball really helped. Idan Ravin now counts Carmelo Anthony and Chris Paul as clients, so maybe my NBA hoop dreams aren't completely outlandish. Hamed Haddadi, if you're reading this, shoot me an email. I've got some ideas on how you can improve your game.
Mr. Lane provided some details about his background. He started with MFS and then became Redwood's Chief Market Strategist. When margins on the trade execution side of the business diminished, Mr. Lane shifted gears into market research. Mr. Lane appears to focus part of his research on answering the following three questions:
1. What are the underlying fundamentals?
2. Are we in the right sector?
3. What is the overall market environment?
Mr. Lane is a quant--someone who relies on numerical ("quantative") techniques to time the market and to determine market risk. I asked his thoughts on LTCM, the most famous quant-based blow-up in Wall Street history (read the book, When Genius Failed, for more on this topic). This is where Mr. Lane differentiated his product from other quant-based tools. Many quants believe so religiously in their system, even when the data in front of them tells them a trade isn't working out, they ignore it. In contrast, Mr. Lane mentioned human error and being able to recognize when you've made a mistake. Though he didn't come out and say it, he implied that LTCM fell prey to hubris. Mr. Lane also said that when his own bets on Tempur Pedic International Inc. (TPX) and La-Z-Boy Inc. (LZB) went awry, he exited those positions. His decision to take the loss sooner rather than later saved his investors from more downside movement. Overall, I found Mr. Lane to be upfront and professional. He clearly had passion for his work, and his eyes lit up when he began talking about his investment strategies.
I then spoke with Mr. Conte. If Mr. Lane is the gravitas of the operation, then Mr. Conte is the suave go-getter, the East Coast stud who brings energy and drive to every meeting. Mr. Conte talked about the FusionAnalytics program and how it sought to minimize investment risk. He used the term, "tilt," instead of portfolio "re-balancing," saying it was important to allocate assets in the right direction rather than just haphazardly. Actually, he said it more colorfully--he said that rebalancing doesn't make sense, because you could be rebalancing into toxic assets, except he used a scatalogical term for "toxic assets," which made me laugh.
Mr. Conte also talked about conflicts of interest and how many brokers and advisors had no incentive to protect their clients' money. For example, let's say you recommend a stock to your clients. A few months later, the technical indicators show that the stock is poised for a dive. In most firms, there's no incentive to go back to your clients and tell them you were wrong a few months ago and they should sell. That's because many Wall Street firms don't prioritize protecting their clients' money--their models are based on getting as much money as you can and giving your clients bullish tips. Mr. Conte said FusionAnalytics avoided this conflict of interest by charging a percentage of assets under management, allowing them to focus on results.
As I've written several times before, it's important for investors to see investment advisors and corporate executives in person to gauge their credibility. Human intuition, honed for thousands of years, may not always be correct, but it can sometimes save investors a lot of grief. One reason Madoff might have secluded himself from his investors and created an exclusive (read: isolated) existence is probably because he knew his lies would produce tell-tale signals. Mr. Conte and Mr. Lane both came across as credible, decent men. I wouldn't be surprised to see them doing very well in the future. In a world where a Madoff can exist, it's nice to know that a Mike Conte and a Kevin Lane can also thrive.
One final note: during my chat with Mr. Conte, we experienced a 4.3 earthquake. This was Mr. Conte's first earthquake, and I got to share it with him. It's always good to see how investment advisors operate under pressure. Mr. Conte's face got a little red when he realized what was happening, but he kept his composure. Mr. Conte, welcome to California.
FYI: here is an article re: Mr. Lane's timely calls:
Monday, March 30, 2009
"Mankind is too stupid and greedy to save himself."
There's something in the statement's inevitability that brings an immediate lightness to the moment. More on Ferlinghetti after the jump:
Given California's well-publicized budget crunch, it's worth noting that legal pot sales generate $100 million in state tax revenue a year.
That's a lot of dope.
Sunday, March 29, 2009
[T]he Bible says, “Let your light so shine before men that they may see your good works and give glory to your Father that’s in heaven.“ Hopefully, by the way in which you act. The way in which you make decisions.
Here's another quote from the interview, regarding the stages of democracy and civilization:
Sir Alex Francis Taylor studied history for all of his life. When he came to the end of his life, the quote attributed to him was that a democracy can not exist as a permanent form of government. It can only exist until voters discover that they can vote for them selves largess of the public treasury with a result that democracy always fails under loose fiscal policy and is generally followed by dictatorship. The average age of the world’s great civilizations has been 200 years for a nation to progress to a sequence from bondage to spiritual faith, spiritual faith to great courage, great courage to liberty, liberty to abundance, abundance to selfishness, selfishness to complacency, complacency to apathy, apathy to dependence. And from dependence back again into bond age. And so what I’m saying is some of what’s going on here is probably a reflection of where we are as a people.
Saturday, March 28, 2009
Friday, March 27, 2009
CSCO = 16.66
EWZ = 35.95
INTC = 14.26
KO = 45.18
MXIM = 12.00
WFC = 29.65
S&P 500 = 885.28
DJIA = 8,604.99
Nasdaq = 1,552.37
CSCO = 17.31 (+3.9%)
EWZ = 40.85 (+1.3%)
INTC = 15.82 (+10.9%)
KO = 44.85 (-0.7%)
MXIM = 14.11 (+17.58%)
WFC = 15.95 (-46.2%)
S&P 500 = 832.86 (negative 5.9%)
DJIA = 7924.56
Nasdaq = 1587.00
Overall, the return on the above portfolio is a negative 2.2% (not including dividends). This return beats the S&P 500, but my victory is admittedly Pyrrhic. If I had avoided Wells Fargo, I would be doing quite well. In fact, I bought Wells Fargo stock all the way down to 9 dollars and recently sold at around 14 dollars, taking a loss. I just sold Intel and Maxim, too, but plan on buying them back at lower prices. The recent run-up seems too much, too soon. Even so, my major holdings, all in mutual funds, are untouched and mostly in stocks.
I am worried about the T. Rowe Price Latin America mutual fund (PRLAX) and iShares MSCI Brazil Index (EWZ). Despite its name, the T. Rowe Price Latin America fund holds Brazilian stocks. I am concerned because Brazilian government projections seem overly optimistic; demand for commodities continues to be soft; and political rivals appear all-too-willing to undermine President Luiz Silva's authority.
Right now, the above list is not representative of my major holdings. I continue to trade actively in my retirement accounts.
The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.
Update on 3/27/09: an astute seekingalpha.com reader points out that my math above is incorrect (and in my favor):
"You need to check your math. On EWZ, a price move from $35.95 to $40.85 is 13.63%, not 1.3%."
That, my friends, is why I'm a lawyer. I leave the math to the professionals and the expert witnesses.
Thursday, March 26, 2009
Pope Benedict XVI is too traditionally conservative for my tastes, a comment a real Catholic ought to consider as a compliment. Regardless of his political beliefs, the Pope's 1986(!) essay makes some very good points. Take this paragraph, for example:
The great successes of this [free market] theory concealed its limitations for a long time. But now in a changed situation, its tacit philosophical presuppositions and thus its problems become clearer. Although this position admits the freedom of individual businessmen, and to that extent can be called liberal, it is in fact deterministic in its core. It presupposes that the free play of market forces can operate in one direction only, given the constitution of man and the world, namely, toward the self-regulation of supply and demand, and toward economic efficiency and progress.
What the Pope is saying seems all too prescient, given the recent collapse of the banking sector. The Pope continues to make some common sense points when he quotes Peter Koslowski: “The economy is governed not only by economic laws, but is also determined by men.” In other words, the free market may be a relatively good path, but men have flaws, and their decisions impact the free market. It sounds so simple when the Pope says it, you almost want to resurrect Milton Friedman for a debate.
The Pope's main point is that free market systems require self-restraint, and religion provides self-restraint. As a result, a free market system without religion probably won't be ethical and won't include self-restraint. Extrapolating from these points, the Pope is arguing that religion is required to inject ethics and discipline into the ethics-less enterprise of the free market.
Again, the Pope no doubt makes excellent points. Ethics can flow from religion, but he veers off-course when he argues that self-restraint and discipline are necessarily tied to religion. It is true that religion can produce self-restraint and discipline; however, self-restraint can be learned without religion. Given America's wise policy of separating church and state, we need to determine how to effectively teach all of our children self-restraint and other ethical behavior without using religion.
Law schools have attempted to teach ethics without religion, but almost every law school ethics course is a joke amongst students. This is because too much of the course relies on counter-intuitive case studies, such as defense lawyers who know where a body is buried but cannot reveal the location because of attorney-client privilege. Since lawyers have failed to create broadly applicable ethics courses, we need to go back to the time when ethics was a central part of education.
How do we do this? At first blush, it seems simple, because the subject matter already exists. Learned philosophers, which would certainly include religious philosophers, have written volumes on ethics. Sadly, most high school and college students lack the reading or analytical ability to study Immanuel Kant, Socrates, and Thomas More. Ultimately, the problem isn't available content, but the willingness to read and to spend time reading complicated texts. I hate to sound so stodgy, but television bears much of the blame. Given the way humans are designed--with traces of the hunter in all of us--visual stimulation is more powerful than the written word. As long as children are exposed to hours of television on a daily basis, their ability to read and to have the attention span to read profound works will evaporate. Even among the children I coach in basketball, I can see a discernible difference in attention span among the parents who restrict television time and the ones who do not.
But it's not just television that's the problem--the intellectual value of all visual media has declined precipitously. For example, I love old movies. I notice they are slower in pace, but I don't mind. More important, Hollywood designed the dialogue of older films for educated adults; consequently, movies challenged audiences and forced children and teenagers to evolve to a higher linguistic standard to keep up with mainstream culture. Just compare Who's Afraid of Virginia Woolf? and A Man for All Seasons with most of the films in today's theaters. Outside of David Mamet's films, intelligent dialogue is a rarity in most modern films.
How does a society stop the corrosion of intellectual discourse, which includes ethics, when major media channels are dumbing down dialogue everywhere? I don't know the answer, but I do know this: when we implement a culture that prizes reading and books above television, we will be on the right path. Reading great books used to be automatic for society's elites, the college-educated, and the upper class. Today, it's hard to imagine George Bush or Sarah Palin fully understanding Shakespeare or Erich Maria Remarque. Pope Benedict XVI is correct that the free market needs disciplined practitioners to prevent itself from turning excessive. It's too bad he sees only one (unlikely) path to get to the promised land of self-restraint.
Even though people seek trade because of self-interest (nothing more than self-interest is needed, as Smith famously put it, in explaining why bakers, brewers, butchers, and consumers seek trade), nevertheless an economy can operate effectively only on the basis of trust among different parties...
[I]n his [Adam Smith's] first book, The Theory of Moral Sentiments, which was published exactly a quarter of a millennium ago in 1759, that he extensively investigated the strong need for actions based on values that go well beyond profit seeking. While he wrote that "prudence" was "of all the virtues that which is most useful to the individual," Adam Smith went on to argue that "humanity, justice, generosity, and public spirit, are the qualities most useful to others."
Profit-oriented capitalism has always drawn on support from other institutional values...
The moral and legal obligations and responsibilities associated with transactions have in recent years become much harder to trace, thanks to the rapid development of secondary markets involving derivatives and other financial instruments. A subprime lender who misleads a borrower into taking unwise risks can now pass off the financial assets to third parties—who are remote from the original transaction. Accountability has been badly undermined, and the need for supervision and regulation has become much stronger.
I like almost everything Mr. Sen writes. Even when I disagree with him, I see his point of view. I also like Mr. Sen's idea that all Americans deserve basic healthcare: "The failure of the market mechanism to provide health care for all has been flagrant, most noticeably in the United States." Still, I don't see how he gets "the need for regulation" from "accountability has been badly undermined." I suppose it depends on the definition and scope of "regulation"; even so, Congress cannot solve the problem of attenuated responsibility by written fiat. It seems that Mr. Sen gets the root cause (attenuated profit-making) right, but the solution (Congressional acts) wrong. More on this topic here.
Wednesday, March 25, 2009
The first is this: "You should draw your learning out of your books, not out of your brain."
My favorite? "That you should be truly impartial, and not so as men may see affection through fine carriage."
I've said it before, and I'll say it again. The rule of law isn't America's saving grace--the law always arrives last to an important event. If I'm wrong, then Mr. Al-Marri would have had a trial at some point in his five years in jail. People who place their faith in the law do not have recent history to support them.
Movie's website: http://www.sweetlandmovie.com/
Interview with director: http://www.movienet.com/sweetland.html
The world really is a small place and, as we move around it and commingle, we have the ability to recognize our similarities, to go beyond tolerance toward acceptance, to redefine communities and humanity out of new combinations of people, sounds, stories and, of course, food.
Tuesday, March 24, 2009
It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force...
So numerous indeed and so powerful are the causes which serve to give a false bias to the judgment, that we, upon many occasions, see wise and good men on the wrong as well as on the right side of questions of the first magnitude to society. This circumstance, if duly attended to, would furnish a lesson of moderation to those who are ever so much persuaded of their being in the right in any controversy. And a further reason for caution, in this respect, might be drawn from the reflection that we are not always sure that those who advocate the truth are influenced by purer principles than their antagonists. Ambition, avarice, personal animosity, party opposition, and many other motives not more laudable than these, are apt to operate as well upon those who support as those who oppose the right side of a question. Were there not even these inducements to moderation, nothing could be more ill-judged than that intolerant spirit which has, at all times, characterized political parties. For in politics, as in religion, it is equally absurd to aim at making proselytes by fire and sword. Heresies in either can rarely be cured by persecution...
On the other hand, it will be equally forgotten that the vigor of government is essential to the security of liberty; that, in the contemplation of a sound and well-informed judgment, their interest can never be separated; and that a dangerous ambition more often lurks behind the specious mask of zeal for the rights of the people than under the forbidden appearance of zeal for the firmness and efficiency of government. History will teach us that the former has been found a much more certain road to the introduction of despotism than the latter, and that of those men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people; commencing demagogues, and ending tyrants.
Hamilton's ideas triumphed over Jefferson's. As a direct consequence of Hamilton's writing and influence, America received its foundation for modern governance and economic regulation. Could Hamilton envision, at the time he was writing, the kind of country we have today? Of course not. He had, at most, general ideas with no specifics. He could not have known that he was putting in place a framework that would eventually produce the modern car, iPhones, eBay, and other economic wonders. It just goes to show you that when you're doing something, even if you know it's historic, you can never know the full panoply of potential ramifications.
It is a shame that The Federalist Papers are not required reading at every American high school. Unfortunately, it was not until after I graduated law school that I bought a copy and read it. How can we be graduating so many Americans who have little idea of their own country's founding principles? If the test of an enduring empire is whether its citizens know and respect its history, America's longevity may be in question.
Monday, March 23, 2009
1. Not including the more isolated Peppermill and Atlantis hotels, the best downtown Reno buffet is El Dorado, especially if you have a sweet tooth. Their dessert options were incredible. Fruit tarts, cakes, little chocolate pies, flan, more tarts, and gelato.
2. When factoring cost, the best overall Reno restaurant is Harrah's Cafe Napa. I had a wonderful steak and shrimp scampi there ($9.99) and a rib-eye steak the next day. (The Peppermill would be a close second, but it's not really on the downtown strip).
3. I discovered a new drink, the "Brandy Separator." I don't usually drink at all--I order virgin pina coladas and mineral water with lime when gambling--but when I saw this milky concoction, I had to try it. Absolutely yummy. Otherwise known as "Gorilla Milk," it's 1 1/4 parts brandy, 3/4 part Kahlúa liqueur, and 3/4 part heavy cream.
4. The first two rounds of 2009's March Madness were fantastic. At one point, two games were in OT, and then one of them went to double OT. That, my friends, is why you want to be in Nevada during March Madness. You can watch all the games on the multiple casino screens instead of relying on CBS to switch you to a particular game.
One complaint? I hated the refereeing. Some calls were atrocious. Not to take anything away from Siena, but one foul call against an Ohio State player during the last twenty seconds might have cost Ohio State the game. (The player never touched his man.)
Best coached team? Utah State. Every single play was perfectly executed. If their two best players hadn't fouled out at the last minute, they would have won. (See comment about refereeing above.)
Softest team? Wake Forest, i.e. this year's bracket buster. Wake Forest had no defense whatsoever. They could shoot well, but couldn't guard anyone. Wake hasn't produced a Final Four team in several decades, despite counting Tim Duncan and Chris Paul as alumni.
Biggest heart? University of Northern Iowa. After barely making it to the dance (they had to mount a miraculous comeback in an OT conference game to get an invite), they pushed Purdue to the limit. If some calls had gone UNI's way, we'd be looking at a potential Cinderella.
UNI also has the player with the coolest name: Ali Farokhmanesh.
MVP so far? UNC's Ty Lawson. Without him, UNC would be at home right now, watching the games on television. At one point, he was the only UNC player who scored in a four minute time span, which stopped the other team's run.
5. Best Reno sportsbook? Club Cal Neva (not to be confused with Tahoe's CalNeva). Club Cal Neva, during March Madness, had everything a guy and his buddies would want. Two girls in skimpy outfits offering jello shots; huge nachos for five bucks; multiple pitchers of beer everywhere; three rooms of television screens and plenty of seating; and drawings for sports memorabilia. If it wasn't March Madness, though, I'd probably go to Harrah's. They have a classy joint, and it shows.
Sunday, March 22, 2009
Thursday, March 19, 2009
Bracket 1: Missouri, Pitt, Michigan State, and Illinois.
Bracket 2: Villanova, North Carolina, UConn, and Louisville.
I have a good feeling about Missouri, which, given my horrible track record, means they will probably get bounced in the first round. I spent years choosing Kansas to go all the way, and then the one year I didn't pick them, they got the crown. Sometimes, life's funny like that.
Anyway, I will return to California on March 22, 2009 and will begin posting again.
Update on April 4, 2009: All the teams in my brackets above, except for Illinois, made it to the Elite Eight.
The headquarters of Federal Express (Memphis, TN) was an unmarked building near the airport.
No outside signs let you know you've found the headquarters of Warren Buffet's Berkshire Hathaway in downtown Omaha, Nebraska.
Most CEO's don't have a computer in their office. "Seven out of ten CEO's DO NOT have computers."
Enjoy, and have fun cheering for your favorite college basketball team!
Wednesday, March 18, 2009
Tuesday, March 17, 2009
Everyone acknowledges we have to hire good teachers, police officers, and firefighters; however, to prevent the public sector unions from taking more taxpayer funds than necessary, taxpayers need to be ever-vigilant. After all, that's our money and our children's money they're investing and taking.
Public pensions are an especially difficult issue to resolve, because they represent a long-term taxpayer liability. Thus, taxes and services do not need to be immediately raised or cut even if a pension's actuarial projections are incorrect. This absence of a short-term trigger makes it harder to alert taxpayers to the slowly ticking time bomb of pension liabilities.
California's problems are acute because even if pension assets decline substantially, payouts do not change. For example: if a California public pension loses 20% of its assets in one year, retirees still get paid the same amount, even though the pension has to dip into its assets to make the payouts. Why is this a problem? Dipping into a pension's assets usually means the pension is underfunded and will need higher-than-normal returns or more taxes to keep paying retirees. So either taxpayers are on the hook for ever-expanding retiree benefits, GM-style, or pension funds have to take risky investing strategies to bridge the gap between payouts and assets. No incentive exists for prudence. It doesn't have to be this way.
Wisconsin has a prudent policy "of adjusting the amount of benefits paid based on the pension fund's performance." Although this policy causes to retirees receive a benefit reduction, it also creates incentives for conservative investments and fewer tax hikes. If a pension doesn't do well, at least retirees will complain and hopefully cause some changes to be made to sustain the pension without a call for higher taxes (yes, this is partly wishful thinking, but at least someone becomes accountable more immediately). The WSJ also points out that some state employees could be switched to 401k plans, which is something I've advocated in the past. (See here.)
No matter what the solution is to the pension liability problem, action needs to be taken. More of the same isn't acceptable.
Bonus: Shelby Steele writes a very interesting article on Republicans and race:
Monday, March 16, 2009
But the volume of data obscures more than it reveals; financial reporting has become so transparent as to be invisible. Answering what should be simple questions—how secure is my cash account? How much of my bank's capital is tied up in risky debt obligations?—often seems to require a legal degree, as well as countless hours to dig through thousands of pages of documents. Undoubtedly, the warning signs of our current crisis—and the next one!—lie somewhere in all those filings, but good luck finding them...
That's why it's not enough to simply give the SEC—or any of its sister regulators—more authority; we need to rethink our entire philosophy of regulation. Instead of assigning oversight responsibility to a finite group of bureaucrats, we should enable every investor to act as a citizen-regulator. We should tap into the massive parallel processing power of people around the world by giving everyone the tools to track, analyze, and publicize financial machinations. The result would be a wave of decentralized innovation that can keep pace with Wall Street and allow the market to regulate itself—naturally punishing companies and investments that don't measure up—more efficiently than the regulators ever could.
Transparency and citizen-advocacy? Sounds positively American.
Sunday, March 15, 2009
Bonus: Of course, there's a blog: http://www.healthcareguaranteed.org/blog.cfm
Saturday, March 14, 2009
This incredibly capable woman who loved to hike mountains, ride waves, and run marathons, who had cleared our sizable backyard of eight-foot-high brambles and helped me move all our furniture into three houses, suddenly couldn’t do any of those things, ever again.
Not long after getting home from the hospital, when we were having dinner by candlelight at our kitchen table, she burst into tears. “I don’t know if I can do this for the rest of my life,” she said.All I could say was, “We’ll do it together.”
Kudos to Mr. Layng Martine Jr. for being a good man.
Friday, March 13, 2009
Years from now, if anyone wants to see the aftermath of America's financial excesses, they should review these three videos (March 12, 2009, Daily Show).
The most salient part for me was this question, asked facetiously: "A CEO lied to you? Shocking." How did we get to a world where it seems like the last remaining honest CEO is Warren Buffett?
Cramer also makes a great point when he asks, "Where are the indictments for these people?" I remember many banking CEOs going on CNBC proclaiming the safety and financial position of their company. Stewart is right to be angry when he says that CNBC assisted Wall Street in putting the wool over Main Street's eyes. Indeed, where are the indictments?
During the eight years of his administration the unemployment rate went from 4.2% to 7.2%; consumer confidence dropped to an all-time low; a budget surplus of $200 billion became a deficit of over $1 trillion; more than a million families fell into poverty; six million more people lost health insurance; gains of our economic growth went almost entirely to the rich, while middle- and low-income families lost ground; the unnecessary Iraq war caused huge suffering and detracted from the more serious threat in Afghanistan; and perhaps less quantifiably, we suffered a world-wide decline of respect, prestige and power.
Maybe not the worst, but certainly a contender.
Dino J. De Concini
Ouch. From what I remember, George Bush the First was a fairly decent man. Just goes to show you: monarchies and royal families, no matter their various permutations, don't work.
Thursday, March 12, 2009
It's not a perfect breakdown--the government puts $8 billion into the category of "Other." As Krugman and other economists have pointed out, the stimulus may not be enough to create jobs, because around 20% of the monies are going to prevent government job cuts/layoffs. I would like to see a breakdown of which government employees/entities are receiving the $144 billion. That area is ripe for abuse and corruption, because the government is doling out money to itself.
The Peterson Foundation's analysis is below:
Wednesday, March 11, 2009
The Walt Disney Company (DIS) had its annual shareholder meeting in Oakland at the Paramount Theater. Refreshments were minimal--tea, no-name coffee, and O.J. were available, but no pastries or other food items. Mickey and Pluto roamed the halls and signed autographs upon request. More Disney characters appeared after the meeting was over. Security was tight--rent-a-cop guards were everywhere.
The Chairman of the Board, John Pepper, started the meeting. He mentioned Disney's very-timely Pixar acquisition and Disney's #1 ranking (among entertainment companies) in Fortune magazine's most admired companies. After a short speech, he introduced the Board of Directors. Steve Jobs, Disney's largest individual shareholder and a director, was not present.
Next, Disney treated shareholders to an upbeat video presentation that highlighted its diverse product lines. Most people associate Disney with classic films like Cinderella, as well as theme parks and Mickey Mouse, but Disney is really a media company. It derives most of its net revenue from advertising. As a result, Disney has its hands in music (Jonas Brothers), cable (Disney Channel), broadcast (ABC), sports (ESPN), and almost every form of media imaginable. Showing shareholders a short video of Disney's products reminded shareholders that their company was a force to be reckoned with.
After the short video presentation, CEO Robert Iger introduced, for the first time, a trailer for the film, Up, a comedy about a 78-year-old curmudgeon and an 8-year-old boy scout who travel together on an unexpected adventure. Disney then presented an unfinished scene from an upcoming film, The Princess and the Frog. Both sneak previews received vigorous rounds of applause from the audience and can be found on the Internet/Youtube.
After the video presentations, CEO Iger emphasized Disney's commitment to social responsibility. He mentioned Disney's focus on environmental conservation; reducing the influence of cigarettes in the media; and accommodating disabled guests (note: a sign language interpreter was present at the meeting). More information can be found at this website.
The much-hyped "Are You 23?" turned out to be an official online community for Disney fans. See this this link for more information. The "23" refers to the date Disney was founded, i.e., 1923. After all the build-up, I was a little disappointed. I expected more than another vehicle for Disney to stay in touch with their fans.
CEO Iger then turned the meeting over to Chairman Pepper, who introduced and countered various shareholder proposals. All shareholder proposals opposed by Disney failed to pass. There was some controversy relating to the non-DVD-release and non-distribution of the film, The Path to 9/11. For more information, readers can check out the film, Blocking the Path to 9/11: The Anatomy of Smear. One audience member, who self-identified himself as "independent," made comments that supported Disney's refusal to distribute The Path to 9/11. His comments seemed to be well-researched but rehearsed, almost to the point where he seemed like a Disney plant.
Several shareholders lambasted CEO Iger's compensation package. One shareholder was unhappy with the Board's oversight on executive compensation, saying that after Enron, Lehman Brothers, AIG, and Bear Stearns, "The days of 'Just trust us' are over."
AFSCME, an association of government employees, asked Disney to eliminate "golden coffins," i.e., where guaranteed benefits are triggered by an executive's death. AFME's representative pointed out the obvious: "golden coffin" compensation arrangements lack a "pay for performance" connection. There was some irony in having an organization of public employees demand that the private sector rein in unreasonable benefits. After all, public employee pensions are a major source of concern because of incorrect or unreasonable actuarial projections. More on this issue here.
After the shareholder proposals were discussed and voted upon, Disney moved on to the Q&A session. No question really stood out except for one shareholder mentioning that Disney ought to protect itself in case Steve Jobs was unable to vote his numerous shares in the future. Various shareholders also asked Disney to continue its direct direct stock purchase plan to facilitate gifts to their grandchildren.
After the meeting, both CEO Iger and Chairman Pepper spoke with shareholders who did not have a chance to ask questions publicly. This willingness to talk to all shareholders is a welcome change from the norm. Generally speaking, after most shareholder meetings, directors and executives flee outside, flanked by investor relations personnel. This practice is disturbing, because small shareholders can only meet corporate executives at annual shareholder meetings, and companies know this. Thus, a company's willingness to communicate with small shareholders at the annual shareholder meeting is a small but important test of its culture and humility. One day a year is not much to ask from corporate boards and executives. Disney seemed to understand this basic idea. Kudos to Chairman Pepper for setting the tone.
After the meeting, I shook Chairman Pepper's hand and was very impressed with the way he ran the meeting. He personifies confidence, tact, and professionalism. CEO Iger also answered all questions competently and seems to have a firm grasp of the company's business. I overheard various shareholders saying privately that CEO Iger seemed more uptight than Chairman Pepper. After the meeting, shareholders were given a gold-colored D23 pin to commemorate the official launch of Disney's online community.
With its diverse line of businesses, Disney appears poised to rebound once the economy improves. I wish the company would try harder to appeal to adults, especially men, in their 20's and 30's. Outside of ESPN, Disney seems to be ignoring the adult male consumer. For example, it did not get the "March Madness" media contract and seems to be focusing exclusively on children, parents, grandparents, and teenage girls. That's an impressive customer base, but it seems strange to have a major media company ignore younger adults, who are a large segment of the national and international population.
Disclosure: I own an insignificant number of shares in Disney (DIS).
Update on March 12, 2009: Check out this story on the March Madness contract. Apparently, Disney might be able to bid on the tournament rights after next year.
Gotta love the made-up Marx quote. I'm surprised more people didn't pick up on the Caufield reference.
Tuesday, March 10, 2009
Of course, she has a blog:
Sunday, March 8, 2009
Basically, compared to the average investor, the Madoff investor might end up doing better. In addition, Madoff's investors will be getting tax deductions because of their portfolio "losses." Any way you dice it, Madoff's investors got about the same as the average investor over the last ten years. Yet, no one is trying to bail out the average stock market investor.
I said essentially the same thing here, but Cuban has more stats to support his view.
Saturday, March 7, 2009
Exactly what I said before here:
In fact, Democrats like Reich and Krugman are stealing a page from the GOP's playbook. In the old days, Republicans would spend trillions of dollars on wasteful defense projects and then scapegoat poor single mothers on welfare. Now, Democrats are demonizing bankers and Wall Street to divert the public's focus from their own act of generational theft (America's future generations will be paying for the recent stimulus package). So while Republicans ran up deficits to increase the military, Democrats are running up deficits to send taxpayer money to their core constituents--education, local and state governments, and unionized interests. In the end, government gets bigger under either administration--it's just a matter of where the dollars go.
Friday, March 6, 2009
Though some Jewish money managers have proved to be scoundrels at best, like Shylock, it is not because they are Jewish – just as Christianity did not inspire Ken Lay to cheat Enron's shareholders. Indeed, Jews may be the easy historical target, but scapegoating misses the moral of our own failures. The real responsibility lies with all of us.
More from Mr. Greenberg can be found here.
Also, from the NYT, here are some interesting survey results about American Muslims:
One excerpt, showing the diversity within Islam:
But American Muslims are not one homogeneous group, the study makes clear. Asian-American Muslims (from countries like India and Pakistan) have more income and education and are more likely to be thriving than other American Muslims. In fact, their quality of life indicators are higher than for most other Americans, except for American Jews...
American Muslims are generally very religious, saying that religion is an important part of their daily lives (80 percent), more than any other group except Mormons (85 percent). The figure for Americans in general is 65 percent.
By political ideology, Muslims were spread across the spectrum from liberal to conservative, with about 4 in 10 saying they were moderates. By party identification, Muslims resembled Jews more than any other religious group, with small minorities registered as Republicans, roughly half Democrats and about a third independents.
The poll shows that American Muslims tend to be diverse, highly educated, religious, and Democratic.
Thursday, March 5, 2009
Wednesday, March 4, 2009
Paul H. Rubin complains that the exclusionary rule "hinders" law enforcement in detecting and prosecuting suspected crimes ("The Exclusionary Rule's Hidden Costs," op-ed, Feb. 28). He is probably right. The Bill of Rights contains many such provisions that restrict government's ability to detect and punish crime, including the right to be secure against unreasonable searches and seizures, the right to be arrested only upon probable cause, the bar against double jeopardy, the right to counsel, the right against self-incrimination, and the right to due process of law. Evidently, the Founding Fathers believed that there is a higher value than efficient law enforcement.
As for Prof. Rubin's claim that the exclusionary rule "encourages criminals to increase their illegal activity," that is far-fetched. Exclusion of evidence is extremely rare; exclusion of evidence that prevents prosecution and conviction is even rarer. Who engages in criminal conduct based on the assumption that the exclusionary rule will prevent their prosecution? Few citizens, including criminals, can predict when evidence will be suppressed. After the Supreme Court's recent decision in Herring v. U.S., which instructs lower court judges to engage in a kind of cost-benefit analysis in deciding whether to exclude evidence, no judge can say with confidence when evidence will be excluded either.
We have constitutional rights, many of which protect us from the government, also called law enforcement. Either we have remedies for violations of these rights or we do not. A right without a remedy is worthless.
Philip S. Kushner
Mr. Kushner, I have just one question: when is President Obama going to appoint you as a federal judge?
Using data from the National Basketball Association (NBA), we examine whether patterns of workplace cooperation occur disproportionately among workers of the same race. We find that, holding constant the composition of teammates on the floor, basketball players are no more likely to complete an assist to a player of the same race than a player of a different race. Our confidence interval allows us to reject even small amounts of same-race bias in passing patterns. Our findings suggest that high levels of interracial cooperation can occur in a setting where workers are operating in a highly visible setting with strong incentives to behave efficiently.
In other words, it's the Larry Bird/John Stockton/Steve Nash paper. But was there enough of a sample size to create credible results? Other than Steve Nash, Kevin Love, Kyle Korver, and the Gasol brothers, who else would they have covered? Surprisingly, The Arsenalist--a site named after the popular soccer team--answers my question (click on "The Arsenalist"). I can't believe I left out AK-47.
Speaking of interracial cooperation, here is a post featuring a must-see link--it leads to a video featuring "twins" Steve Nash and Baron Davis. Enjoy.
Credit goes to Marginal Revolution for the NBER paper link.
Tuesday, March 3, 2009
The Almanac has other wonderful articles, including one by J. Harvie Wilkinson III, "Toward One America--A Vision in Law." [page 296] Although I am inclined towards libertarianism, Wilkinson made me see why others are against the view that individual rights and self-interest reign supreme:
Let's restore a constitutional respect for community. It is futile to expect a healthy nation in the absence of a health sense of community. Community instills within us the sense that we live for something larger and more meaningful than just ourselves...Communities are built around shared purposes and values, one of which is surely a respect and appreciation for individual rights. But there must likewise be the sense that individuals contribute to, as well as take from, this larger whole of which we as single persons are but parts...
It must still be asked whether the notion of free-floating, i.e. non-textual, constitutional rights of personal autonomy has not helped to deprive us of a sense of connectedness that is indispensable to the formation of a collective identity. There is a limit to which individual intimacies should be at the sufferance of majorities, but there are likewise limits to the extent that democratic majorities in a state or nation can be deprived of the communal right to promote cherished values. To enshrine a sanctity of self in our founding charter without textual or historical warrant may be just as pernicious as the attempt to enshrine discrimination against those whose personal choices may for good and legitimate reason fail to conform to the majority's own...
When we next drive through the countryside or take a moment's pause, we might reflect on what we get from living in society. We did not build our own home; make our own car or clothes; or invent the computers, phones, lights, or appliances we not take so much for granted. Left alone, we could not enjoy a concert, educate our children, put out a fire, raise capital, or take a trip. We would, in short, be miserable and helpless. [Green Bag Almanac and Reader, 2008, at 303-304]
Wilkinson makes some good points and ultimately claims the middle ground. Continuing on the topic of good writing, he demonstrates the most effective writing style--moving your audience to a reasonable middle ground. However, I still disagree with the idea that communal rights should trump individual rights. The foundation of freedom is built upon two principles: 1) limitation of government power against its own citizens/residents; and 2) respect for the minority. Establishing a community sounds fine in theory, but when push comes to shove, the minority view is usually drowned out, and the government may run roughshod over their rights. Yet, that's precisely when the law and the courts should enter--at the inconvenient time when the majority, already backed by their elected representatives, are attempting to limit the individual's or the minority's freedom.
The law is designed for inconvenient times. When it's heart-wrenching and difficult, that's when the court's pen should be unsheathed to calm the masses and to protect the individual. When the Jehovah's Witnesses are being persecuted and beaten in the schools for not taking the oath of allegiance, that's when the Court should intervene. When a political party is castigating a minority group for a nation's troubles, that's when a strong judge must use the law and remind citizens to let others alone. When the government and the majority see outside threats and want to use torture, that's when the courts should immediately remember why they exist--to use the consistent, steadying rule of law to prevent individual oppression. (By the way, federal judge Jay Bybee and UC Berkeley Professor John Woo encouraged the Bush II administration to define torture as "equivalent in intensity to the pain accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death." [p. 545] I'll take my individual rights now, please--I don't want any part of that community.)
Viewing his ideas in this light, Wilkinson sounds more like he's arguing for fascism than freedom when he talks about courts respecting the community. In times of prosperity, I would agree with him; however, it's when stress and conflict enter the picture that the rights of the individual are too often ignored in the interests of community and safety. Sadly, in almost every major conflict between community and the individual, courts have initially sided with the majority at the expense of the individual. See segregation (Plessy v. Ferguson); refusing to take the pledge of allegiance (Minersville School District v. Gobitis); Guantanamo Bay (it took seven(!) years for a court to finally reject this executive order); Chinese Exclusion Act (1882); and free speech rights (Dennis v. United States). In tough times, I wouldn't put my faith in the community--not with that historical record.
Speaking of the middle ground, Judge Henry Friendly apparently embodied it. He was said to have the "gift of moderation," the "silken string running through the pearl-chain of all virtues." [Id. at 379, Michael Boudin, "Judge Henry Friendly and the Mirror of Constitutional Law."] As an attorney, Judge Friendly seems like my kind of judge--someone who personifies moderation. We have a local judge who embodies this moderation principle, too. I have never seen him lose his temper. Even when he has gotten irritated with my inexperience, his irritation has been swift and has not prevented him from briefly explaining what I am doing wrong. I don't like to name names when it comes to judges, but Santa Clara County is lucky to have a judge like him.
Monday, March 2, 2009
[I]t will take until 2012 or 2013 before the economy bottoms out and our economy again begins to grow. In the meantime, the stock market will drop dramatically, unemployment will be over 15%, and the dollar will lose its position as lead currency. Our country will be humbled as it is forced to adapt to a far lower and simpler standard of living. [page xii, hardcover, Wiley, 2009]
The problem with Brussee, however, is that his unpolished writing style mutes his persuasive power. For example, he uses far too many exclamation points, which is especially inappropriate when his message is that a financial apocalypse is near. In fact, I almost stopped reading after seeing yet another unnecessary exclamation point. While I'm glad I continued reading, Brussee needs to improve his writing style. In any case, below are his major points.
1. Brussee neatly summarizes the problems of having a large trade deficit:
If these [U.S.-debt-buying] countries get tired of the current decline in the dollar, which makes their investments net losers, they will will instead use the deficit funds to buy investment instruments elsewhere, for example in Europe. However, the United States needs these countries to buy our bonds because that is how we fund our deficit spending. So, if the foreign investors start to hesitate to buy our treasury bonds, the interest on the bonds will have to be raised high enough that the foreign investors won't go elsewhere. [page 28]
From what I've read elsewhere, if the current state of affairs continues, at least 2 to 3% of America's budget will go to paying interest to foreign investors. That's not a politically stable situation.
2. Listen up, market bears and Nouriel Roubini fans: Brussee thinks the S&P 500 will hit 423. As of February 27, 2009, the S&P 500 was 735.09, so Brussee believes the stock market--which is at 12 year lows--is 42% overvalued (See page 66).
It gets worse--according to Brussee, "[b]y 2013, people in the United States will have given up...the stock market will be akin to poison for most people...We will withdraw from many trade relationships with other countries, having set up trade barriers in response to our country's huge financial and unemployment problems." [page 83] These predictions may come true, but Brussee takes his pessimism to a level of hysterics, which ruins his credibility:
Retirement age will be changed in 2011 to age 70...A law will be passed that companies cannot lay off any more people due to reduced sales...The birth rate will go to zero...No one will want to bring a child into the very tenuous economy that will be gripping the United States. [Page 82]
Let's examine these claims. First, Brussee is vague when he refers to "retirement age," but he is probably concerned with Social Security. However, Social Security is not America's worst problem--Medicare is the much larger elephant in the room. Social Security's problems can be temporarily alleviated by raising payroll taxes and limits. Both these solutions will probably occur before Congress raises the retirement age to 70 for Social Security benefits. As for extending Medicare's eligibility age, it is very difficult to deny senior citizens necessary health care. In addition, senior citizens are a powerful voting bloc and will use their political power to prevent any major changes to Medicare. (See The Simpsons' "Wild Barts Can't Be Broken," Season 10, Episode 11, for a hilarious reminder of senior citizens' voting power.)
Second, the day Congress--with its influential corporate lobbyists--passes a law preventing layoffs is when a socialist party gains majorities in Congress. (Before you make jokes about the Democrats, remember which president increased our deficit by trillions of dollars in just eight years.) What will most likely happen first is that Congress will make it more expensive for companies to lay off workers, increasing corporate unemployment insurance contributions, or lengthening the time period employees can accept unemployment insurance. At most, Congress may require companies to pay some severance pay to laid-off employees.
Third, the idea that America's "birth rate will go to zero" requires an almost impossible set of events to occur: one, all illegal and legal immigration must stop; two, the Catholic Church must cease having influence over its adherents; and three, unplanned pregnancies must cease, or abortions must become as ubiquitous as Starbucks. Yet, none of these things will happen in our lifetimes. Whoops, there goes your credibility, Mr. Brussee. That's a shame, too, because Brussee makes some very good points. See below.
3. Brussee is against Obama's shovel-ready recovery plan, but for clean and renewable energy:
Where possible, government money given to industry should be accompanied by matching funds from the receiving company. In this way, the involved company has a vested interest in success... It will be very tempting to invest money on rebuilding our infrastructure, like roads, bridges, dikes, and so on. This was done in the thirties depression, and we are still enjoying the benefits of this work in our parks and in our infrastructure. But, as desirable as this is, funds invested in infrastructure will not lead to self-sustaining additional jobs...We must stay focused on meaningful job creation...Eventually the goal must be to develop completely electric vehicles. [pages 111-112]
Brussee is saying that shovel-ready stimulus is only a short-term fix. If the government spends money on building bridges, at some point, the bridge will be built, and the job will go away, and it's back to square one. Prior to reading the above paragraph, I had not thought about this now-obvious point.
4. Some random facts:
a. The wealthiest 1 percent of people currently own 40 to 50 percent of the country's [America's] wealth. [page 68]
b. Inflation is running at a 6 percent annual rate. [page 37]
c. In Smithers and Wright's Valuing Wall Street, the authors state that, when using a buy-and-hold strategy, investors never lost money when they were invested in stocks for 20 years. [page 145]
5. What makes Brussee more interesting than the average world-is-coming-to-an-end "economist" is that he's not a gold bug--he's a TIPS (Treasury Inflation Protected Securities) bug:
[G]old actually went down in price from 1933 (when the United States went off the gold standard) to 1968. It also generally lost money after its peak in 1978. So, it appears that for most periods between 1933 and 2007, the real value of gold did not keep up with inflation...Although gold may be a good crisis hedge...gold has generally not been a good inflation hedge. [page 123]
Investors interested in Brussee's investing tips may want to explore iShares Barclays TIPS Bond (TIP) and/or Vanguard Inflation-Protected Securities (VIPSX).
6. Here is Brussee's investment strategy:
[B]uying the most recent stocks added to the Dow, when the S&P 500 price/dividend is 17.2 or below; [and buying] stocks anytime the price/dividend ratio on the S&P is at or below 17.2. We will not only putting investment money into buying these stocks, but we will also sell all the TIPS we have accumulated and use those funds to buy stocks. When the price/dividend again goes above 17.2, we will stop buying stocks with new investment money and start buying TIPS. If the price/dividend goes above 28, we will sell all the stocks we have accumulated and use the funds from the sale to buy TIPS. [pages 116, 261]
Got that? What's the price/dividend ratio right now? Good question--that kind of current data is harder to find for average investors. Googling "price/dividend ratio" got me nothing current or useful.
7. Brussee is obviously a number junkie, and I loved his inflation stats at the end of his book [See page 296 et al]. Brussee lists the inflation rate in each year, from 1900 to 2007, along with some other numbers. You can get more economic numbers by going to Robert Shiller's website, located here.
Overall, Brussee has some compelling ideas. It's unfortunate he intersperses unlikely scenarios in between his rational ideas, which reduces his credibility. Readers deserved more respect and less sensationalism, especially with all the other good ideas in The Great Depression of Debt.
Disclosure: I own shares of TIP.
Sunday, March 1, 2009
Cash is King: As the year progressed, a series of life-threatening problems within many of the world’s great was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
Government will get bigger without a firm hand: Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
The government's interference in credit markets is causing some disruptions: Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
On bond insurers: By yearend 2007, the half dozen or so companies that had been the major players in this business had all fallen into big trouble. The cause of their problems was captured long ago by Mae West: “I was Snow White, but I drifted.” [Mae West, of course, was the rebel Hollywood sex symbol known for her wit.]
are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.
For more on this important topic, see my previous posts, here, here, here, here, and here.
On buying ConocoPhillips (COP) and the future of oil prices: I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. [Looks like investors who want to get a better deal than Mr. Buffett may want to consider buying COP.]
Just darn good writing and advice: Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
On derivative contracts: Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
Questions at this year's annual meeting will be handled differently--various journalists will sort through the questions and pick which ones to ask: The journalists and their e-mail addresses are: Carol Loomis, of Fortune, who may be emailed at email@example.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of , at firstname.lastname@example.org. From the questions submitted, each journalist will choose the dozen or so he or she decides are the most interesting and important. (In your e-mail, let the journalist know if you would like your name mentioned if your question is selected.)
Disclosure: I am bullish on ConocoPhillips (COP).
In any case, I am sure most Californians are sick of politics as usual after the budget fiasco, so perhaps we'll get an exciting dark horse candidate. No matter whom Californians elect, the state's main problem is that voters keep approving expensive propositions. For the last time, we don't have any money. Smart Californians should vote "no" on every proposition until California has a budget surplus and can afford to do nice things.