Tuesday, June 30, 2009

To Madoff's Investors: Welcome to Main Street

[On July 1, 2009, seekingalpha.com chose this article as an "Editor's Pick." On July 2, 2009, it became the fourth most popular article on seekingalpha.com's website.]

The WSJ is issuing more Madoff victim propaganda. It is interesting to see the WSJ advocating free markets while slyly supporting special treatment for rich investors who failed to follow basic financial advice. Remember: Madoff's investors only lost their life savings if they chose to violate Investment 101's cardinal rule: diversify, diversify, diversify.

In a free market, the rich must suffer when they violate basic investing rules. Otherwise, you don' t have a free market. Instead, you end up with two separate systems--one where the rich get preferential rules and use Congress and the IRS as their own personal insurance policies, and another where everyone else has to suck it up when things fall apart.

As I wrote before here, people who invested with Madoff thought they were buying membership into an exclusive club shielded from the vagaries of the stock market. Middle-class investors like you and me could not get Madoff as our financial advisor. Most of us did not even hear about him until the scandal broke. We were barred from Madoff's circle because we weren't rich and we weren't connected with the elite. Meanwhile, Madoff's investors lobbied hard to gain entrance into Madoff's circle and did so because they believed returns were practically guaranteed. Well, it was an exclusive group, all right--a group of connected, rich suckers who thought they were getting a sweet deal unavailable to Main Street.

Perhaps you think me coldhearted. Don't be naive. If it wasn't for the stock market's monumental, once-in-a-lifetime bust, Madoff's investors would have continued making good, safe, and illegal returns year after year. Madoff's investors would have continued playing golf, donating millions of dollars to charities, and hanging out on their yachts while Madoff wormed his way higher in the NASD's upper ranks. In short, Madoff's investors would have been seen as pillars of their community because they knew Madoff. Meanwhile, the rest of us--not having access to hedge funds or Madoff's exclusive circle--would have had to make it on our own the old-fashioned way: by saving our pennies and diversifying our investments (otherwise known as Investing 101).

What's that? You say not all of Madoff's investors invested directly with Madoff? And not all of them were rich? Fine. Go after the mutual fund companies that failed to do due diligence and violated their fiduciary duties to their investors. Last time I checked, mutual fund advisors get paid millions of dollars in fees to do research on suitable investments, not to find secret investment clubs and then spend the week playing golf. Main Street investors rely on mutual fund managers to check investments and make sure everything's on the up and up. Many people--not just Harry Markopolos--knew something was wrong.

Remember: not everyone invested with Madoff. Many people questioned his too-consistent returns, noticed his small, little-known auditing firm, and went the other direction. By bailing out Madoff's investors, we're punishing smart, ethical people like Harry Markopolos and rewarding unethical rich people who begged to be a part of Madoff's club precisely because it used techniques unavailable to Main Street.

First, let's put all of this in perspective: according to the NY Times (6/29/09), $1.25 billion has already been recovered for Madoff's investors. The WSJ (6/30/2009, A1) cites a similar figure:

Mr. Madoff's attorney, Ira Sorkin, said that Mr. Madoff was a "deeply flawed individual" but maintained that most of the fraud money went to other investors. He added that the $13 billion figure cited by the government as the net losses suffered by account holders since 1995 was overstated, since at least $1 billion in recovered assets will be returned to investors, and perhaps a lot more.

In addition to the to $1 billion, the SIPC has already approved almost $200 million for Madoff's investors:

SIPC has mailed out about $142 million in checks to eligible claimants, out of a total of $188.4 million that already has been approved. [See WSJ (Jane Kim, 6/29/2009, C1)]

The above figures don't include the special tax breaks Congress pushed through for Madoff's investors. Oh, you didn't forget, did you? Congress changed the tax rules to benefit Madoff's investors. (Don't you wish we could do that?) If the test of fair capitalism is whether the rich have to suffer when they make mistakes, America is getting a "D" grade--and I'm being a generous grader.

On top of the tax breaks given to Madoff's investors because of their losses, millions of dollars of taxpayer money is being spent on what is essentially a civil fraud matter. Many middle class and poor Americans suffer fraud at the hands of scam artists. When was the last time you saw local D.A.s and the DOJ spending this much time and effort recovering money for middle-class and poor victims? Where are the tax breaks for small businesses going bankrupt because of the ripple effects from the big banks and hedge funds? I am disgusted by the attention given to investors who were either too lazy to follow basic investing rules or so sophisticated, they had access to special investment vehicles. I am also sorry the WSJ is ruining its credibility by portraying all of Madoff's investors as poor, impoverished souls who bear no responsibility for what has happened to them.

There are no shortcuts. Madoff's investors forgot about that. Now they want us to cover their hides because their exclusive club didn't pan out? Sorry, I don't do handouts to rich people or negligent investors--especially not investors who knowingly violate basic investing rules and look for shortcuts unavailable to Main Street. Non-rich people who invested with Madoff through mutual and feeder funds need to look to the banks and insurance companies for recourse, not the taxpayer. You have my sympathy, but don't push it. Get a job and start saving your pennies like the rest of us. And welcome to Main Street. It ain't so bad.

Essential Reading

Essential reading, from SmartMoney: "10 Things Your Congressperson Won't Say" (Brigid McMenamin, June 30, 2009)


Basically, it's an article about how our legislative branch really works. Cover your children's eyes before clicking on the link.

Letter to Iran

From PARVANEH VAHIDMANESH: a touching letter to Iran's establishment:


Ali Khamenei, if you pursue the path you have been following, our people's anger will take a different form. It will turn you and your family, as it did the shah's and his, into forlorn and helpless individuals with the word "exile" stamped across your foreheads.

The French and Sex

I read a while back that the French have the most sex compared to all other nationalities. (I think I saw it in Durex's annual sex survey.) Here might be why:


Seems like a realistic approach. Many marital couples stop enjoying sex frequently, and under the French system, they don't have to get divorced. They just move on and be discreet. But what about STDs?

Anyway, if you notice, in most socialist countries, women tend to be more sexually open. See Scandinavian countries, for example. If Karl Marx had gone with the sex angle, maybe we'd all be red commies today. It does seem that many people compensate for a lack of a good sex life with material possessions. Perhaps that's one reason why capitalism and Puritanism go well together.

Monday, June 29, 2009

Funny: Daily Show on Iran

Matt Miller on Heathcare

Matt Miller on healthcare, from The Commonwealth (June 2009, p. 16):

General Motors famously spends more on health care than it does on steel. And Starbucks spends more on health care than it does on coffee. [Nice margins on coffee, eh?] Workers are left in a situation where, because of the nature of employment and benefits being tied [together], we've got 50 million uninsured and maybe 30 million additional folks [underinsured] in tremendous anxiety. It doesn't work anymore.

According to the same speech, in 1960, healthcare cost 5% of GDP. Now it costs 20%. Did we get completely out of shape in just 49 years? If so, the short time frame indicates no permanent difference, meaning we may be able to change our habits and return to a healthier society. I suspect, however, that the real problem is the way healthcare companies, including hospitals, get paid by insurance companies.

When I was in college, I remember going into the ER for some stomach and head pain--I had slept for about 21 hours in a row and was feeling terrible and nauseous. I'd never slept that long before, and I was afraid something had happened (and no, I did not drink the night before--I have never really liked alcohol because I like sweet drinks, and I hadn't discovered Drambuie yet). An ER doctor checked me out for five minutes and saw nothing wrong. Since I was already there, I asked him to check out a small growth on my calf. The doctor looked at it for five seconds and declared there was nothing serious.

As a student, I was still covered under my dad's health insurance policy, but it refused to pay the bill--the insurance company said my nausea and weariness were not true emergencies, and therefore I should not have gone to the ER. The insurance company said I should have waited until Monday to see my regular doctor, but I didn't have a regular doctor in my college town--I was a freshman, and I rarely went to a primary care physician anyway.

I got the bill from the hospital and was able to see the full charges. In addition to the normal ER fee (which is normally quite high), the doctor had charged me around 200 dollars for the five seconds it took him to check my leg. That's right--the doctor had classified my simple question as a completely new healthcare issue. Even lawyers have to account for their time, so they can't charge outrageous amounts for five seconds of work. I don't want doctors to account for every six minutes of their time, but the current system is too easily manipulated. When I received that separate charge for around 200 dollars--a princely sum for a college student back in the mid-90's--I knew there was something morbidly wrong with the American healthcare system.

There is a happy ending, if my memory serves me correctly. My mom called my dad's insurance company day after day, and I believe it finally paid the bill. I wonder what people do if they don't have a determined person who can call and argue a bill over and over. As a full-time college student, there was no way I could have paid that bill. And what's the point of having health insurance if you can't go to the doctor when you're feeling absolutely horrible and terrified about about a brand-new, sudden problem?

In any case, if you believe healthcare companies won't be forced to change their inefficient ways under an Obama administration, you may want to consider Vanguard Health Care Fund ((VGHCX) and the Vanguard Healthcare ETF (VHT).

Disclosure: as of June 29, 2009, I have no positions in any funds mentioned above.

Sunday, June 28, 2009

Persian Wedding Table

For more information, click here.

The cool frame at the bottom contains "espand," to ward off the "evil eye." The word Espand refers to a class of Zoroastrian Archangels.

Eggs and nuts (fertility symbols); rose water (purify the air); rock candy and pastries (to make the marriage rock solid and to bring sweetness); wheat (a sign of fruitfulness); Koran (God's blessing for the couple); cup of honey (to sweeten life).

Rocky Fans, Rejoice

Ever wonder what a cool USB drive looks like? Here you go:


Hat tip to Bill C. for the link.

Saturday, June 27, 2009

Stuff We Can't Afford: Credit Card and Public Pension Debt

Nice graphic re: credit card debt:


Now I need to go figure out if any of my credit cards have an "inactivity fee."

Also, here's an excellent article (8/20/2007.) on public sector pensions and how to fix them:


The argument of generations past, that government must offer greater benefits than the private sector to offset smaller salaries, clearly no longer applies. Today, government employees receive significantly higher benefits and salaries than their private-sector counterparts. According to a 2005 study by the Employee Benefit Research Institute, public-sector employees earn 40 percent higher salaries and 60 percent greater benefits than private-sector employees.

Thanks to Adam Summers for catching this issue back in 2007. Too bad almost no one listened.

Literal Remix of Meatloaf Video

Thursday, June 25, 2009

Defense Wins Games

From today's WSJ (6/25/09), "American Kids Flunk Basketball 101," Michael Beasley laments his lack of defensive prowess:

[A]s concerns build about his...rough transition to the NBA, last year’s No. 2 overall pick, Michael Beasley of the Miami Heat, finally conceded a fundamental flaw: No one, at any level in his basketball career, had asked him to play defense. And especially not in AAU. “If you’re playing defense in AAU, you don’t need to be playing,” he says. “I’ve honestly never seen anyone play defense in AAU.”

AAU stands for Amateur Athletic Union, a national youth basketball circuit. When I coach youth basketball at the local community center, I emphasize defense. Whoever plays harder defense gets more minutes if I have a vacancy. I also reward kids who play defense by praising them every chance I get. Defensive drills are fairly simple. I call them "rebounding and hounding" drills.

No one teaches kids defense anymore, even though you can't win games without it. Michael Jordan was voted defensive player of the year in 1988, and also racked up nine NBA All-Defensive First Team honors. The San Antonio Spurs recently won several titles with their hard-nosed defense. The Boston Celtics didn't win any titles, not even division titles, until after 1957--exactly when defensive stud Bill Russell started suiting up for the team. Defense is key to winning in basketball. The Phoenix Suns have found this out the hard way--although they would score 120 points on a regular basis, they haven't been able to win a title in recent history.

Beasley is talented, but his doesn't seem to have the killer instinct necessary to play defense. He's more of what I call a "pretty boy" player--content to shoot easy baskets and not sacrifice his body for the sake of a play. The opposite of the "pretty boy" mentality? Dennis Rodman and Chris "Birdman" Anderson.

NBA News

NBA News: San Antonio picks up R. Jefferson, practically guaranteeing a Conference Finals appearance, while Cleveland adds an aging free throw bricker who couldn't get it done with Nash, Amare, Hill, Barbosa, and J-Rich.

How does San Antonio manage to consistently improve its team at a reasonable cost, while other teams throw a Hail Mary?

Richard Jefferson is going to be a wonderful addition to San Antonio. He's a proven scorer and a stand-up guy. San Antonio's major issue will be keeping players healthy all year. They also need a consistent three point shooter. Bonner is a good shooter, but he's been inconsistent in the playoffs.

Finally! Public Pensions Exposed

Thank you, Craig Karmin, for your June 24, 2009 WSJ article, "Group Shines Light on Hefty Government Pensions."


Pension funds provide guaranteed payouts, so even though public funds lost a collective $1 trillion last year, their retirees' monthly checks are unchanged. And the funds' solvency is ultimately backed by taxpayers.

By the way, apparently, the California School Employees Association, a union, represents 230,000 public employees. And that's just one union. No wonder public sector unions have so much power in Sacramento.

Wednesday, June 24, 2009

Gov. Sanford Confesses to Affair

I used to really like Gov. Sanford. I wrote about him previously here. He admitted today that he cheated on his wife with a woman in Argentina. Ironically, one excerpt from an earlier speech he made mentions judging others based on their actions:

[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.

Two Republicans have been outed as morally deficient in less than a week (than other man is Nevada's John Ensign). Maybe this is God's way of forcing the Republican Party to stop catering to the religious right and to convince them to return to old-time republican principles: small government, low inflation, personal humility, and anti-unnecessary wars. Or, maybe it's just karma for spending millions of taxpayer dollars going after Bill Clinton.

I hate to smile at anyone's misfortune, but I did manage a chuckle at one of the names given to this scandal: "Don't Cry for Me, Argentina." By the way, Jenny Sanford has issued her own statement. Click here to read her heartfelt words. I predict she'll hold public office someday in South Carolina.

Random Thoughts

1. Whatever happened to Gorillaz, the innovative band that did the catchy "Feel Good Inc."? I loved their single, and I haven't heard anything quite like it since.

2. I went food shopping today. I always try to find the discounted items, but the grocery stores are getting tricky. I saw one discount of 9 cents--hardly a reason to favor a particular brand over another. Many of the discounts I saw were less than thirty cents. If this keeps up, I am going to have to save lots of coupons and go shopping only when I have lots of coupons.

One item that stores seem to consistently discount is ice cream. If you go in the middle of the week, sometimes you will save 50%. For a big ice cream fan like myself, this is sweet indeed.

Jack and Suzy Welch and Grand Canyon Education, Inc. (LOPE)

A seekingalpha.com reader, Catcuffs01, corrected an egregious mistake in this article. Someone also left me a message about my mistake. Thank you. Mr. Welch's new online MBA program is run by Grand Canyon Education, Inc. (LOPE), not the Apollo Group, Inc. (APOL). Here is my response to the astute reader:

Catcuffs01: you are absolutely right. Welch is lending his name to Chancellor University System LLC, not the Apollo Group. He was, however, impressed by the Apollo Group. The WSJ article said that "Mr. Welch says he was initially skeptical of online education, but has been impressed by the Apollo Group Inc.'s University of Phoenix."

Mr. Welch actually lent his name to Grand Canyon Education, Inc. (LOPE). I'd never heard of LOPE before, so my brain jumped to the only online company I know about, which is the University of Phoenix. Thank you for correcting me.

Revised article below:

I've been waiting for an excuse to put up these pictures. The WSJ just had an article on Welch and his new online MBA program. Here is one excerpt:

When he first approached Mr. Welch at the party, Mr. Clifford says the two men argued about the merits of online education. "We were yelling at each other," Mr. Clifford says. Mr. Welch confirms the incident. Mr. Welch invited Mr. Clifford to see him the next day, and Mr. Clifford says he has "hounded" the former CEO ever since.

Seems like an interesting meeting, no? While Welch is going with Grand Canyon Education (LOPE), the largest online education provider is the Apollo Group. The Apollo Group (APOL), which runs the University of Phoenix and other campuses, has a volatile stock. In the past six years, it has gone as low as $33/share to as high as $95/share.

APOL's main issue is credibility. College degrees, at the end of the day, are just pieces of paper. No one will pay tens of thousands of dollars for a piece of paper unless it will lead to a good job and/or higher lifetime earnings. Thus, the real value of most college degrees lies in their ability to connect students to a loyal alumni network. The longer an institution has been around, the higher the value of its degree, because the school will usually have more alumni. Size doesn't necessary matter--little-known, selective Carleton College probably has a stronger network than the much larger UC Riverside.

In contrast to many top tier colleges, the University of Phoenix and other Apollo campuses have not yet established a vast, loyal alumni network. (Readers, please correct me if I am wrong--I'd love to hear about companies that focus on hiring University of Phoenix or Grand Canyon Education grads.) Many Apollo graduates attend night school or may not be particularly loyal to any of Apollo's various universities. Getting an online degree may be faster and more convenient, but numerous factors, including no nationally-recognized sports teams, may impede a strong Apollo alumni network.

The addition of Jack Welch improves online education's credibility, but it is still unclear how Apollo's and Grand Canyon Education's various educational institutions plan to create lasting loyalty. I can think of plenty of famous Harvard, Stanford, Santa Clara (Steve Nash, Gavin Newsom, etc.), and UC Davis graduates (Urijah Faber, Jackie Speier, etc.), but no famous University of Phoenix or Grand Canyon Education grads. (Note: I did a quick online search. Apparently, Shaq and Lisa Leslie have received degrees from the University of Phoenix. It's interesting that Apollo hasn't successfully used their celebrity status as a marketing device.)

I wish Apollo and Grand Canyon Education much success in the future. Our established universities need competition; otherwise, they will keep increasing tuition above the rate of inflation. Apollo and LOPE are like new charter schools trying to gain credibility in a world of established private and public schools. If they succeed, everyone but the establishment benefits. As an investor, however, it may be wise to wait until the companies establish larger and stronger alumni networks before jumping in.

Disclosure: I have no shares in APOL or LOPE.

Tuesday, June 23, 2009

Kaveh Alipour

Another government-inflicted murder happens in Iran:


Apparently, Kaveh Alipour was non-political and was just waiting at an intersection:

He had been alone. Neighbors and relatives think that he got trapped in the crossfire. He wasn't politically active and hadn't taken part in the turmoil that has rocked Iran for over a week, they said.

This might be the work of the Basij, a volunteer paramilitary force that's similar to Germany's former SS. A significant percentage of Basij are allowed to have firearms, and I think the Iranian government has supplied more of them with weapons since the uprising.

I remember being in Iran many years ago. I was a teenager, and it was a hot day. I lifted my shirt and exposed my chest to the slight breeze. My friend worriedly told me not to do that. Under Islamic law, both men and women must dress modestly when outside the home. I realized later my friend might have been concerned about the Basij bothering us.

Financial Morass

And the hits keep on coming. From The Atlantic (July/August 2009):

Operation Iraqi Freedom now ranks second only to World War II as the most expensive conflict in U.S. history. Transforming Iraq has cost roughly $1 trillion, with the meter still running and the job unfinished. Transforming Afghanistan, by any measure an even more daunting task, is likely to cost as much or more. That’s money we don’t have.

I agree with Colin Powell--we broke Iraq, and we have to fix it--but that doesn't mean I like the idea and expense of American troops in Iraq. I can't tell you how many times I wish Americans had demanded clear evidence of an actual threat before invading Iraq. Did we really allow only 19 men/terrorists to pollute our view of the world's 1.3 billion Muslims? Otherwise, how else did we get to the point where so many Americans irrationally viewed Muslims and Arabs as threats and therefore deserving of war and undeserving of sovereignty?

On a more somber note, estimated 100,000 Iraqis have died from violence since the 2003 invasion. Since 2003, over 4,000 Americans have died in Iraq.

Monday, June 22, 2009

From Iran (June 2009)

Conversation between someone from Iran and myself on June 2009, during mass protests against Ahmadinejad's re-election:

Me: what do you think is going to happen?

Iranian resident: not sure, but maybe Khmene'ei will [be] replaced with some one else

we're so scared. we don't [feel] safe in street

Me: Have you heard of Neda?

Iranian resident: yes,

I saw the film about her

she is one of 20 persons that [were] killed

The George Bush of Iran

Ahmadinejad is the "George Bush of Iran": both tortured people, hate government transparency, answer to a shadowy figure (Cheney vs. Khamenei), jailed people without giving them a public trial, stole an election, think God is on their side, and ran the economy into the ground! What more do you need, except the smirk?

If this were a Tom Toles cartoon, the lower right hand portion of the drawing would read, "One person isn't responsible for unnecessarily killing 100,000 Iraqis and 4,200 Americans. Almost a perfect match."

Neda jan

Neda Agha Soltan is Iran's undisputed hero. The most inspirational heroes are almost always the unintentional ones. For more on her story, see this excellent Time magazine (Robin Wright, June 21, 2009) link:


It is over for the current Iranian regime. The only reason more Iranians aren't revolting right this second is because not all towns have internet access, so not all Iranians can see the government-sponsored violence and killings. America had a similar moment with Kent State. This is Iran's Kent State. It took several years after Kent State before America withdrew from Vietnam, but the moment the government shot American students, it lost credibility. It might take a few more years, but the current Iranian government has lost legitimacy. May the current Iranian regime burn in hell for the violence it has inflicted on innocent, courageous protesters.

Update on June 24, 2009: CNN has a wonderful article on Neda:


CDOs and Credit Default Swaps Explained

From Santa Clara Magazine (Summer 2009), here is Prof. Alexander J. Field's take on the economic crisis. He explains CDOs and credit default swaps particularly well:

CDOs emerged when financial institutions took a pool of mortgages and issued securities derived from them. Originally, mortgage-backed securities simply sold a right to a share of interest and principal payments from the underlying pool. Securitization reduced variance of the bond’s return, but the expected payout couldn’t really be different from that of the underlying mortgages. [Presumably, because the bond's payments were linked to actual mortgage payments.] CDO engineers, however, figured out how to perform the financial alchemy of turning junk into gold: Starting with a pool of risky mortgages, they created different grades, or tranches, of derivative securities...

Even then, some major investors and banks had to have known that the CDOs being issued weren't entirely halal/kosher. They demanded insurance:

Enter credit default swaps. For a small “premium,” institutions could insure themselves against the risk that the bonds might default. Since swaps were not technically insurance, they were beyond the reach of state regulators. American International Group (AIG) and other issuers did not maintain adequate reserves to meet collateral calls when mortgage defaults rose. In a sense, they simply pocketed the premiums without providing the insurance.

Oh, the mendacity.

Sunday, June 21, 2009

Classic SNL

Classic SNL:


Quote of the Day

From the sublime Woody Allen film, Crimes and Misdemeanors:

Comedy is tragedy plus time.

If you like Law & Order, two of its major characters are in this 1989 film. One plays a hitman, and the other a rabbi. Everyone should see this great film, but if you are a Law & Order fan, you really need to see this film.

Saturday, June 20, 2009

Random Thoughts (June 20, 2009)

1. Just read Zakaria's most recent Newsweek article--it was okay, but I loved this quote:

Elihu Root: "About half the practice of a decent lawyer consists in telling would-be clients that they are damned fools and should stop."

2. Iran's government seems confusing at first glance, but it's actually similar to the way American corporations operate. At the top, you have your Board of Directors (Supreme Leaders), who direct the executive officers (Guardian Council). The shareholders speak through their representatives (the President and Parliament), but the real power lies with the Board and the executive officers.

This analogy isn't exact, but the two processes are very similar. The result is similar also: ordinary shareholders--the common citizens--don't have much sway over major corporations--the country--unless they band together and vote as a bloc, which is logistically difficult to do.

3. I wanted to compliment our local courts' filing clerks. I usually deliver documents myself to the courthouse for filing. Except for two people over the last five years, everyone I've dealt with at the filing clerk level has been very professional. That's a great track record, especially because many of the clerks get rotated/transferred every year.

U.K. Crime

Britain's top cops have been caught red-handed:


Oh, the wickedness.

Friday, June 19, 2009

Note to Rupert Murdoch and the Newspaper Barons

Newspapers must have idiots running their business department. Newspapers price their product in ways that no other retailer would even consider. The current system penalizes long-term subscribers and rewards new ones. For example, the WSJ offers a $119 annual rate to new subscribers and then tries to charge existing customers a $398 renewal rate. That's like Macy's charging its best customers more money for a dress while offering a new, unproven customer a discount. Either give everyone the same price, or offer a discount to the proven subscribers.

If I ran the show, I'd charge a higher initial subscription, say, $200 to $400 a year. Then, each year, the rate would become progressively lower until reaching a minimum of say, $50 a year. However, to get the discounted rate, subscribers would have to agree to disclose some basic personal information useful to advertisers, like gender, age, education, and marital status (not political affiliation or financial information) and to return one advertising survey a year (either online or regular mail). My system would benefit everyone: advertisers, who usually look to target a particular audience, would have better information; newspapers, which are begging for ad dollars, would be able to effectively market to specific advertisers; and subscribers would pay less money for the same product.

Also, newspapers wouldn't have to hire those annoying marketers who call at 9:01AM trying to forcefeed their product to someone who's already received six renewal offers by mail and two by email. Entire telemarketing teams would disappear, as well as the waste that occurs from multiple renewal offers. Newspapers would only have to send one renewal notice with the following message: either subscribe and pay within three weeks, or lose the discounted rate.

Isn't it shocking no one has tried this yet? What am I missing?

Bill Maher Calls Out Pres Obama

Bill Maher on Obama (June 12, 2009, Real Time):


And, this is why I don't want my president to be a TV star. Because TV stars are too worried about being popular, and too concerned with getting renewed...speaking of the Republicans, if you can't shove some real reform down their throats now, then when? Folks, Barack Obama needs to start putting it on the line in fights against the banks, the energy companies and the health care industry.

I'm glad Obama is president, but the "audacity of hope" part is over. Right now, I'm hoping for a little more audacity.

Interesting perspective. Obama has already done quite a bit, but it doesn't seem enough for many people. For those people upset with the current pace of reform, remember: slow and steady can win the race.

Thursday, June 18, 2009

The Soloist

I just finished Steve Lopez's nonfiction book, The Soloist. It was a good read, even though the ending was much too abrupt. If you're looking for quick, easy summertime reading, this is a good choice. (San Jose residents take note--Mr. Lopez attended San Jose State and worked for the SJ Mercury.)

The Soloist is about a gifted but mentally unstable musician, Nathaniel Ayers, and a journalist who attempts to get Mr. Ayers to reach his full potential. The interactions between Ayers and Lopez are well-described, offering readers a glimpse into how the homeless and mentally ill survive. Mr. Lopez successfully highlights the plight of the homeless, especially L.A.'s lawless "Skid Row," without being overly judgmental or sentimental. He also casts aspersions on Tom Cruise and others who denigrate drug treatment for the mentally ill. (One gets the feeling that anyone who spends enough time on Skid Row will probably believe that drugs are an important part of treating the mentally ill.)

The Soloist
peels back the curtain of comfortable civilization, revealing a broken system. The key question is, "How do we help people who are prone to violent outbursts and who refuse help because of deep-seated fear and mistrust?" Mr. Lopez answers this question through his book: patience, trust, and friendship.

Mr. Lopez also touches on racial issues, but doesn't develop that storyline much. Even so, I felt Mr. Lopez identified with Mr. Ayers and stuck with him for so long was because they shared a racial similarity: neither had the "right" color for the business they were in. Here is one interesting passage, from/about the author himself (p. 110, Berkley paperback):

The issue of race is inescapable for me. I often joke that the main difference between the East Coast and the West is that when I wrote columns for the Philadelphia Inquirer, the mail said Go Back to Puerto Rico, and in Los Angeles it says Go Back to Mexico. It's a strange phenomenon for someone with grandparents from Italy and Spain, and it makes me more attuned to the hatred aimed at people of color even in a place like Los Angeles, which is defined by its multiculturalism.

My take on the source of Mr. Ayers' mental illness is that it resulted from a combination of stressors--poor racial relations, the hyper-competitiveness of Julliard, and the burden of being a minority in a place where few minorities existed. Mr. Lopez seems to agree with my opinion--he quotes Hal Slapin, who says that "Julliard in the 1970s 'was not a place where students...were encouraged to bond...racial tensions were high.'" (p. 247-248). Mr. Lopez also mentions that Mr. Ayers was drawn to another musician, Eugene Moye, who was half-black (p. 246).

Mr. Ayers' story has a happy ending, but that's only because Mr. Lopez became involved and used the power of the press to change Mr. Ayers' life, and, by extension, his own. Mr. Lopez probably wrote his book to shed some light on the plight of the homeless. At one point, he practically pleads for government intervention, asking, "What's more human, after all? To respect someone's civil liberties to the point of allowing them to wither away on the street, or to intercede in the interest of their own welfare?" (page 101) Later, he implies that L.A.'s annual budget for housing and services is not enough, saying that New York City's is "three times that of Los Angeles" (p. 132). Yet, he also mentions that, at least around 2006, California's state commission had "more than $1 billion a year...[to spend] on expanded mental services" (page 133).

The cynic in me doesn't think we're going to see any systemic change--no matter how much money is spent on the problems of the homeless, it must feel like a Sisyphean task to anyone involved. The real problem is that the public doesn't see much return on their taxpayer dollars when it comes to any kind of social services. As a result of the lack of visibility, social and welfare services will be the first to get cut in our modern era of massive state deficits. Indeed, unless homeless men kill someone or get killed, they tend to be invisible. Mr. Lopez has clearly added something valuable in his descriptions of "Skid Row," which exists, apparently unabated, to keep the problems of the homeless segregated from the public. The question is whether the public will listen after reading/seeing The Soloist, and what their response will be.

Personally, I was moved, but not so much that I would feel the need to increase taxes to fund more housing/welfare programs. Mr. Ayers is a sympathetic character, but it is difficult to justify spending taxpayer dollars when there is no corresponding tangible benefit to society. I am sure I will be accused of being heartless, but let's think through this issue. If Mr. Ayers had never met Mr. Lopez, what would have changed? Mr. Ayers would have probably continued to play his music, but to a small, local audience. Post-Mr. Lopez, the only difference to society is that Mr. Ayers now has a wider audience for his story and his music.

At first, I saw some parallels between Ayers and James "Radio" Robert Kennedy, popularized in the Cuba Gooding Jr. movie, Radio. In both of these instances, two members of the middle-class try to help socially-challenged African-Americans. After some reflection, however, I realized that the stories were not substantively similar at all. In Radio's case, the football coach bucked an entire town's prejudices, which almost cost him his job. Here, in contrast, Mr. Lopez has taken up an easier cause--the plight of the homeless, which actually helped him maintain his job and his salary. That's one reason I wasn't quite sucked into the story--there is some personal benefit to Mr. Lopez here, no matter how hard he tries to show his reader the sacrifices he and his family have made. (At one point, the author talks about moving to a cheaper house and city.) Overall, I enjoyed reading The Soloist. I don't know if I will see the film, but it is receiving good reviews.

Of course, I realize Mr. Lopez has done a wonderful thing. Without his intervention, Mr. Ayers might not be alive today. In 2007, San Jose saw its most famous homeless man, Cornelius Van Der Vies, die after a street altercation. Two weeks before his death, I looked into Cornelius's eyes and saw an abject fear behind his clean, dignified appearance. It was then that I realized that many homeless persons survive through an alertness provided by constant fear.

There is no question that current resources are inadequate to solve homelessness. While Mr. Lopez has provided us with a success story, it's hard to contemplate enough willing people who want to become deeply involved in strangers' lives. That probably means that despite Mr. Lopez's efforts, the problems of the homeless will continue, out of sight, and out of mind.

Wednesday, June 17, 2009

Pepsi Natural

I just tried Pepsi Natural (All Natural Cola). It tastes like apple-flavored Coke. I didn't like it, but you might. I will stick with Mexican-bottled Coke (made with sugar, not corn syrup) and San Pellegrino.

Quote of the Day

Quote of the day is from Abraham Lincoln:

As I would not be a slave, so I would not be a master. (1858)

Law: Edwin Stegman

As an attorney, I enjoy Edwin Stegman's articles. He has a diverse legal background, so his ideas tend to be both realistic and individual-oriented. Here is an excerpt from a June 2009 article on how to reform the legal system:

Motions for summary judgment (MFSJ) were originally a summary procedure to deal with the practice of debtors filing unmeritorious answers to delay collection of their debts. CCP §437c, enacted in 1931, required 10 days’ notice for a motion for summary judgment. The motion is no longer “summary.”

Instead of 10, the motion now requires 80 days notice, if by mail. The court may grant a continuance to conduct discovery; then the judge has 90 days to rule, the loser has 15 days to file a motion for new trial and the court has 60 days to rule. Therefore, it can take more than a year for a creditor to obtain a judgment to collect a debt. As a result, collections specialists say the MFSJ has become so slow, cumbersome and expensive ($200 filing fee) that they rarely use it.

So we’re back to pre-1931 and debtors can again file unmeritorious answers to delay collection of their debts.

Oh, the irony.

Tuesday, June 16, 2009

Kiplinger's Interview with Robert Shiller

Interview with Robert Shiller (June 2009):


People think that because we have only so much land, and it is getting scarcer, housing prices must rise. But offsetting that is the decline in construction costs, so it balances out...

The figures show that the market is relatively low-priced now. Based on history, we should get something like 10% real [after-inflation] annual returns from stocks for years to come...

The French philosopher Montesquieu said that history is littered with wars and that it would be great if we could create some peaceful methods of diverting humans from their aggressive tendencies. Business is one peaceful alternative.

Shiller always seems to make a lot of sense. I'm not sure I agree that stocks are a sure thing right now. The article doesn't indicate where the S&P was at the time of the interview.

Monday, June 15, 2009

What if Iran Had a Revolution and Not Enough People Cared?

Andrew Sullivan is doing a great job blogging about the mini-revolution in Iran. Here is one email, from Iran:

WE NEED HELP. WE NEED SUPPORT. Time is not on our side, waiting and making sure means more casualties, more disappointment, more brutality.

The most essential need of young Iranians is to be recognized by US government. They need them not to accept the results and do not talk to A.N government as an official, approved one. They need help by sending true information. All the medias are under arrest or close control. Help them have the information.

They only try to show the fraud to the world. Help them please. You can not imagine the level of brutality we saw these two awful days.

Steve Jobs' Stanford Commencement Speech

Saturday, June 13, 2009

Netflix Finally Addresses Online Captioning Issues

In mid-May 2009, I reported that CEO Reed Hastings had confirmed that Netflix would not take an active approach to captioning its online content. The online community reacted immediately to CEO Hasting's comments. As of today, the Facebook group, "Netflix Watch-Instantly Needs Closed Captions!" had 983 members--most of whom joined after my review of Netflix's annual meeting was published. According to some reports, Netflix recently received thousands of inquiries regarding captioning online content.

Netflix finally issued a statement regarding captions yesterday. Click here to see it. The gist of the statement was that captioning would be supported on a specific Microsoft media player in about one year:

Captioning is in our development plans but is about a year away...I would expect to deliver subtitles or captions to Silverlight clients sometime in 2010.

One reader, Chris, wasn't buying Netflix's explanation:

I am not personally affected by Netflix's lack of subtitles but from reading multiple deaf consumer's complaints about Netflix's lack of support of Closed Captions I can sympathize with their point of view. from a technological standpoint I would say that Netflix has totally failed. I've been able to view DivX movies with subtitles for at least 7+ years. And it in no way required bringing the text into the the video. In fact all it required was a simple time-stamped .txt file that took up maybe 10-20 KB (that is 0.001% the size of a normal Netflix movie). There should be ZERO reason why Netflui/Silverlight can't support the use of .SRT. files and be able to EASILY support CC in multiple languages. Quite frankly I think Netflix has really disappointed a non-significant size of its customer base and is hiding behind non-existent "technological difficulties" as an excuse.

Personally, I view Netflix's response with cautious optimism. After receiving thousands of inquiries about online captioning, Netflix now understands that its cavalier approach to the issue was unacceptable. Also, by publicly declaring that online captioning will be available in some format in "about a year," Netflix has committed itself to a particular date. If it fails to provide online captioning by July 2010, its reputation and perhaps share price will suffer.

To be continued...

Update on June 15, 2009: I forgot to add that celebrity Marlee Matlin gave her support to online captioning via Twitter:

[from her friend] I called Netflix and talked 2 one of corporate offices Over 8000 letters & phone calls about #caption this month! YES!!

Update on July 10, 2009: I recently tried to enjoy Gran Torino, but it didn't have TV captions or DVD subtitles. I called customer service, and she sent me another DVD after assuring me the DVD had captions. (NFLX lists Gran Torino as a closed captioned film.) The second DVD also didn't have captions.

I noticed the DVD cover was gray. It turns out that gray-colored DVDs are made specifically for Netflix and may be different from other publicly-sold DVDs. In this case, it appears the studio, Warner Brothers, didn't provide Netflix with a captioned DVD. No one had apparently figured this out. Netflix and its contract lawyers should ensure that all of its specially-issued DVDs have captions. Why would any studio want to prevent hearing impaired people from enjoying their product?

Update on April 18, 2010: Netflix has finally captioned some online videos, but only 100 so far. More here. Looking at hulu.com's options, which have included captioning and now transcripts, I am still disappointed with NFLX.

Daily Show on Socialism

I don't watch much TV, but I love the Daily Show clips online. Here is one on socialism:


I couldn't hear much of it, and it doesn't have captions, but I still cracked up. As media shifts from the television and radio to the internet, the pace of captioning isn't keeping up at all. The lack of captioning bars most online media from hearing-impaired persons and many senior citizens as well.

Friday, June 12, 2009

Iran's Elections

Today, Iranian voters are having a very American moment--they have an opportunity to vote for change. Iranians may choose between a reformer (Hossein Mousavi) and a sitting president (Mahmoud Ahmadinejad) who got elected by promising reform. (It seems like every election, the candidate promising the most reform wins.) The time is ripe for another change.

First, Mahmoud Ahmadinejad has grossly mismanaged Iran's economy. When oil prices were high, he had an opportunity to increase currency reserves and did not do so; in fact, Iran has suffered double-digit inflation and continues to import oil because of high domestic use (a fact conveniently left out by all who accuse Iran of developing nuclear power solely to develop a weapon).

Second, President Ahmadinejad has already had his chance to fix the economy and to bring Iranians more prosperity. But the way the country has increased selective prosperity is by printing money and engaging in banking maneuvers that would boggle even Zimbabwe's central bankers. Yes, teachers make more money now. Yes, the abject poor are suffering less now. But anyone can take over a state and print money and give it away to the poor (note to Paul "More Stimulus" Krugman: hope you're reading this). The test of one's competency is whether s/he can combat the tide of inflation and lift all boats.

Third, this election is a very easy choice for Iranian voters--do they want to reaffirm the man who is a living affront to so many groups, or do they want to choose a candidate with less baggage? Even if Hossein Mousavi doesn't turn out to be perfect, right now, there's no question that he's better for the country's image than Ahmadinejad. Most analysts, including Western analysts, believe that Mousavi is the better choice. If it turns out that the Iranian voters were wrong about Mousavi--just as they were wrong about Ahmadinejad--then at least they were in good company.

Interview with Mousavi: http://www.time.com/time/world/article/0,8599,1904343,00.html

General stories on the election: http://news.yahoo.com/s/ap/20090612/ap_on_re_mi_ea/ml_iran_election



Pension Q&A

From the WSJ, what happens to your pension if your company declares bankruptcy?


Thursday, June 11, 2009

Peet's Annual Shareholder Meeting (2009)

Peet's Coffee & Tea Inc. (PEET) held its annual shareholder meeting at an Emeryville hotel on May 20, 2009. The small hotel conference room was filled to capacity. Peet’s offered shareholders Peet's drip coffee, juices, fruit, pastries, and yogurt. Shareholders also received a reuseable Peet’s bag containing coffee beans and a box of tea.

Peet’s shareholder meetings are fun to attend for several reasons. First, although Peet’s is a publicly-traded company, it doesn’t act like most major corporations. Its meetings are less formal, and Peet’s executives seem more receptive to questions and comments than other companies. Second, Peet’s talks about what it is doing to find and develop coffee beans, which usually results in interesting stories involving international travel. Third, it is hard to walk out of a meeting unhappy when Peet’s provides good food, great coffee, and several complimentary items.

CEO and President Patrick J. O’Dea started the meeting with a brief slideshow presentation. He explained that recent economic events have caused American consumers to experience a 30% evaporation of wealth. He mentioned several retailers that had filed for bankruptcy (Circuit City, Levitz, Sharper Image, Linens ’n Things, and Mervyn’s) and indicated these retailers may have expanded too quickly. He talked about an “embarrassment of riches” and how consumers were avoiding conspicuous consumption. Despite these troubling events, however, Peet’s managed to grow sales by 14%.

Peet’s continues to use ERP (enterprise resource planning) to attack inefficiencies and cut costs. CEO O’Dea mentioned that executives had agreed to a management salary freeze for 2009, while increasing salaries for hourly workers. Peet’s commitment to its rank-and-file employees may explain why almost every Peet’s employee I’ve met has provided great customer service. (My local store, run by Store Manager Ian Batra, is particularly good at going the extra mile to make customers happy.)

Peet’s continues to expand by using targeted advertising, such as direct mail and email. Peet’s most recent advertising efforts involve a partnership with San Francisco’s de Young Museum. Peet's also has a promotion that provides a free medium iced drink after you buy five iced drinks. (Make sure you get the card--the promotion ends on August 31, 2009.)

CEO O'Dea explained that Peet’s has multiple channels to sell its products, including retail stores; home delivery; food services; office; and grocery stores. Peet’s coffee is currently sold in over 3,500 grocery stores. While Starbucks relied heavily on expanding its own stores to grow sales, Peet’s grew at a more measured pace and has focused more on grocery store alliances to sell its coffee beans. Peet’s strategy has paid off. Opening fewer stores and selling coffee beans through already-established grocery stores has allowed Peet’s to shift overhead onto third parties and lower its operating costs.

CEO O’Dea then turned the meeting over to coffee buyer Doug Welsh. I am a big fan of Mr. Welsh. Mr. Welsh naturally exudes sincerity and diligence, which is particularly helpful when dealing with international operations and finding reliable business partners. Mr. Welsh talked about how Peet’s finds its coffee beans and what it is doing to maintain quality and sustainability. He showed some pictures (unfortunately, only a few) of himself and buyer Shirin Moayyad in Africa tasting coffee. He explained how he judges coffee beans, using a five point scale:

5 is Peet’s Quality.
4 is Other high grade speciality.
3 is Good quality.
2 is Problematic but saleable.
1 is Defective.

He also explained how Peet’s helps communities create better living conditions. For example, in his never-ending quest for the best coffee beans, Mr. Welsh visited some places where “backyard growers” were smashing coffee beans on rocks, a highly inefficient process. (Mr. Welsh said these people were literally “between a rock and a hard place.”) After Peet’s became involved, it showed the residents how to buy and use various micro-mills to improve coffee production and quality. After residents establish a cooperative and pool money to purchase a micro-mill, production and profits increase. With increased profits, small villages are then able to provide basic health care to their residents and improve their quality of life. (Say what you want about globalization, but I love it for precisely this reason–when it’s done right, everyone benefits.)

Mr. Welsh made some other comments before turning the meeting back to CEO O’Dea. Mr. Welsh indicated he was looking forward to the “New Africa” blend. He said that for logistical reasons, Latin America exports more coffee beans than Eastern Africa. He said that Peet’s tends to pay more than the Fair Trade Certified guaranteed minimum living wage. (Lest you think Peet’s executives are purely altruistic, Mr. Welsh reminded everyone that the ultimate goal was to get the best coffee beans: “Any dime we spend to make the world a better place is your dime. We’re very conscious of that.”)

Mr. O’Dea then opened the meeting to questions. Before I go into the Q&A, I want to make one comment. Peet’s didn’t have a portable microphone. As a result, many questions were difficult to hear. Peet’s might want to bring a portable microphone to its annual meetings to make questions easier to understand. While the CEO repeated most of the questions, it would be better to hear questions directly from the person asking them.

The first question was about free Wi-Fi. CEO O’Dea said that Peet’s offered free Wi-Fi in most of its stores to attract customers.

A shareholder asked about options, referring specifically to page 11 of the proxy statement. The shareholder complained that Peet’s had shortened the vesting time period for certain options from seven years to four years. This change appeared to diminish the link between long term share performance and executive compensation, he said. CEO O’Dea disagreed and later mentioned that 75% of his individual net worth was linked to Peet’s stock.

A shareholder asked whether Peet’s would expand operations in airports and other outlet-type facilities (e.g., BART stations). CEO O’Dea said that Peet’s is always searching for good locations. Later, in response to a related question, CEO O’Dea said that Peet’s had no plans to enter the franchising business but had 70 licensed stores. (A “licensed” store is a store that Peet’s does not own but allows the operator to use the Peet’s brand name and products. Persons serving coffee in those non-Peet’s-owned outlets participate in a Peet’s training program.)

A shareholder asked about what Peet’s was doing to improve brand recognition and sales growth on the East Coast. CEO O’Dea talked about targeted advertising.

Someone asked how many stores Peet’s planned on opening in 2009. (I apologize, but my notes are not definitive on the response, so I cannot provide an answer. In case you are interested, my notes indicate, “10 stores (reduced #) – open in ‘09. 58 –> 200 stores.”)

Someone asked about a Consumer Reports taste test that rated "Eight O’Clock" coffee as the best-tasting coffee. Mr. Welsh said that the survey was flawed for several reasons, which drew some laughter. Mr. Welsh opined that the persons who participated in the taste test probably grew up tasting less strong coffee.

Someone asked whether Peet’s would enter the chocolate business. CEO O’Dea said no, but a partnership might be possible.

Someone asked about diversity, pointing out that the Board wasn’t diverse. CEO O’Dea said that diversity was a continuing process and an important factor. He said that Peet’s had done well in a UC Davis leadership survey when compared to other corporations. He also said that half of the executive team reporting to him were female.

Someone asked what Peet’s did to choose the best tea. A Peet’s employee said that he had inherited many good relationships with tea suppliers. CEO O’Dea said that Peet’s was now selling cold tea in select grocery stores. (I’ve tried these teas–my favorite is the Snow Leopard Tea with Honey.)

A shareholder mentioned that Peet’s was very helpful when it came to composting and that Peet's gave away expired beans for composting.

Someone asked how Peet’s finds high quality coffee. Mr. Welsh said that too-rapid growth leads to reduced standards (a little dig at a certain Seattle-based competitor), and Peet’s slower growth allowed it to focus more on finding high-quality coffee beans.

A shareholder asked if any Peet’s stores had not done as well as expected. CEO O’Dea mentioned that Peet’s had closed the Westminster store due to its poor location/visibility.

I asked Peet’s to publish more information, perhaps on Facebook, about Doug Welsh’s and Shirin Moayyad’s travels. I said I really enjoyed seeing the pictures from the coffee buyers’ international trips, and I regretted that Peet’s only showed a few of them at its meeting. I said Peet’s ought to consider publishing a “coffee table” book with pictures from different countries and, with permission, the people its buyers meet and work with.

I also asked a question about food sales in Peet’s retail stores. It turns out that Peet’s makes 60% of its retail store profits from drinks and 40% from food sales. If I heard the CEO right, the margins Peet’s gets on its food items must be incredible. (Try the vegan chocolate chip cookie–it’s delicious.)

A few tips for Peet’s customers:

1. If you are staying inside the store, order a large drink in a “for here” cup. The “for here” glass cup seems larger than the “to-go” cup. You get more coffee and you also help the environment.

2. It costs Peet’s about 7 cents for a hot coffee “to-go” cup, but about 15 cents for a cold coffee “to-go” cup. As a shareholder, you should buy a Peet’s tumbler, because you get a discount each time you use it, and Peet’s also saves money. Of course, you also help the environment by reducing waste.

3. When ordering a frozen drink (e.g., a frappe), order it “extra bold.” If you don’t order it “extra bold,” your drink won’t have espresso–just regular coffee. [Update: it's actually double-strength coffee, but as I said, no espresso.]

I look forward to attending next year’s meeting and hearing more about Mr. Welsh’s travels. In the meantime, I will be buying lots of Peet's coffee. Although the economy isn't doing very well, and I will earn much less money this year, I cannot bear to give up my one luxury--a Peet's cappuccino.

Note: the pictures above are of myself, Doug Welsh, and Shirin Moayyad, and the food trays after the meeting was over.

Note: a review of Peet's 2008 meeting is here.

Disclosure: I own an insignificant number of Peet’s (PEET) shares.

Wednesday, June 10, 2009

Star Wars

I've never seen a Star Wars film, but here's an interesting post:


One day, I'll get around to watching the films.

Hayward Police Settles Harassment Case for $5 million

Hayward Police Department settles harassment case for 5 million dollars:


The lawsuit was settled through the city's insurance companies, which are responsible for paying it. City officials said the settlement will have no effect on the city's general fund or income from Measure A, a utility users tax approved in May.

City Attorney Michael Lawson estimated that the city spent about $500,000 on the case since it was brought forward in November 2007.

Casper said the amount of the settlement indicated the insurance companies "recognized the problems the city has historically had with women being treated fairly at the police department. Close to $5 million is not an amount paid unless someone has recognized years of wrongdoing."

Surprisingly, the amount was paid through an insurance company. Many cities are self-insured, but perhaps Hayward was small enough to get an outside insurance policy. Even though the city paid the settlement monies through an insurance company, taxpayers will still suffer (beyond the half a million dollars spent on legal fees). After all, the insurance company will raise the city's insurance rates, and the higher premiums will be paid by taxpayers.

Intersil Litigation Update

I recently thought about buying a few shares of Intersil (ISIL), which is embroiled in litigation against a Texas company called Texas Advanced Optoelectronic Solutions, Inc. ("TAOS"). I reviewed the online docket, and there's not much going on. The parties have entered into a standard protective order to protect confidential information and have chosen to mediate. Former Magistrate Judge Robert Faulkner is the mediator:


The most recent docket activity was the assignment to mediation. Short interest increased in ISIL shares recently. ISIL should be an interesting stock to follow, especially because it supplies some iPhone parts, and the litigation relates to ISIL's iPhone business.

Disclosure: I own one ISIL share.

Tuesday, June 9, 2009

California's Budget Crisis Continues

An interesting perspective from Assembly-member Jim Beall, Jr. in Campbell Times (June 2009, page 19):

The state's biggest cost driver is prisons. The prison budget has doubled in the past decade to $10 billion. The state has 173,000 inmates, which is roughly equivalent to locking up everyone in the city of Ontario [California]. We spend roughly $45,000 on each prisoner, which is just about what it costs to send a student to Yale. Yet, California has a 70 percent recidivism rate...what we are doing now isn't working...

The state's 2009-2010 revenue is chiefly derived from personal income taxes accounting for almost half--49 percent; sales and use taxes make up 34.6 percent; corporation taxes represent 10.7 percent; the rest come from a myriad number of sources.

Two thoughts:

1. The war on drugs is bankrupting the state. The state spends huge sums jailing thousands of drug addicts.

2. The pro-law-enforcement mentality post-9-11 may have caused D.A.s to prosecute more non-violent offenders, knowing juries would be more fearful of anyone suspected of a crime.

To be or not to be a libertarian--more Californians should be asking themselves this question.

More on California's problems here.

Morgan Spurlock

Morgan Spurlock just keeps outdoing himself:


His episode about living on an Indian reservation was deeply moving. If the link above doesn't work, go to hulu.com and search for the show "30 Days." (Note to Netflix: the online video has captions.)

Monday, June 8, 2009

Kobe Bryant

From ESPN's Bill Simmons, or what I call, "Why Kobe Will Never, Ever Be Like Mike":


Important note: Kobe's reputation as a "killer" at the end of games remains overblown. The site www.82games.com just posted a study of game-winning shots from the last five-plus seasons (regular seasons and playoffs since the 2003-04 season) that revealed Kobe was shooting 14-for-56 (25 percent) with one assist and five turnovers, and made 12 of 15 free throws. So let's say that was 70 possessions total, including Sunday night. ... He only had one assist in nearly six years??? That's why Orlando quadruple-teamed him in that spot. Kobe is a phenomenal streak shooter, and he has a real talent for catching fire with a lead and closing games out ... but you can stop him in one-shot situations simply because he's his own worst enemy. He wants to be a hero, he's shooting it, and that's that.

0:00.6: Funniest moment of the game: Kobe storms back to the bench, whacks the chair in disgust and sits down as Phil Jackson (already sitting) looks at him with a bemused, "Should I point out to him that MJ absolutely would have passed there?" smile on his face. Classic.

Mr. Simmons is absolutely right. Is it just me who thinks Kobe's newfound super-intensity is contrived? He mailed it in against Houston in the last series, and in Game 2, he didn't do much until the second half. Then, he gets the benefit of a Jack Nicholson tantrum, which causes the referees to call multiple touch/non-existent fouls against Orlando thereafter. (A significant development when the game later goes into OT.)

Kobe's decision to go four-on-one while Odom was wide open and practically begging for the ball establishes that Kobe is not a clutch player. I'm sorry, but even Mike passed to Steve Kerr (1997 NBA Finals) and enabled John Paxson to take the last shot (1993 NBA Finals).

Even though the following interview took place in 2004, Ray Allen's comments about Kobe are still spot-on:


He's going to be very selfish...I think the point production is not going to be so much what people are going to look at because (Tracy) McGrady did it in Orlando, Allen (Iverson) did it in Philly. Can you win a championship? I think that's the question. Carrying guys on your back and making everybody better." ... But is his attitude going to allow him to take a back seat and let Lamar Odom shine and let Caron Butler have his nights and bring those big guys along with him?"

Some final comments: Kobe now has Pau Gasol, who's an All-Star center--a white version of Shaq, if you will. Gasol was an All-Star and FIBA champ before he played with Kobe. Kobe couldn't win with just Bynum. He couldn't win with Kwame Brown. He couldn't win with Radmanovic. He couldn't win with Divac. Bottom line, if Kobe wins the championship, good for him--but don't sully Jordan's reputation and your own basketball IQ by ever comparing Jordan--who won championships with non-All-Stars Luc Longley and Bill Wennington--with Kobe.

Notes for Stan Van Gundy: play Howard and Battie/Gortat together as much as you can. Put Pietrus on Kobe till Pietrus fouls out. Play Alston and tell him before the game that he's the starting PG. Let Alston control his own minutes and sub Nelson at Alston's own reasonable discretion.

Update on June 9, 2009: Tonight was Game 3 of the Orlando-L.A. NBA Finals. From this day forward, whenever anyone compares Kobe to Jordan, all you need to end the discussion are the following five words: "Game 3, 2009 NBA Finals." Kobe not only missed a crucial free throw in the final two minutes, but he turned the ball over and misfired on a three-pointer. Kobe's last play of the game? He fouled an Orlando player with 0.2 seconds left on the clock with Orlando up by 2 points. (The player made both free throws.)

Sunday, June 7, 2009

Actel's Annual Shareholder Meeting (2009)

Actel Corporation (ACTL) held its annual shareholder meeting on June 5, 2009 at a Santa Clara hotel. Although around eighteen people attended the meeting, I was the only non-employee there. The hotel served cinnamon rolls, fruit, pastries, water, and coffee.

CEO and President John East gave a slideshow presentation. It appeared that the presentation had been shown to everyone else in the room the day before. Mr. East is a tall man, more Texas than California in his demeanor--friendly, direct, and unreserved. (In case you're interested, here is a 2008 interview with him.)

The meeting began with Attorney David Foster introducing various Actel employees. As part of the formal portion of the meeting, several directors were nominated, and shareholders increased the number of shares reserved for issuance by two million shares. CEO East then began his presentation.

Before I summarize Mr. East's presentation, I will provide some technical background. Actel makes FPGAs. FPGA stands for "Field Programmable Gate Array." A digital gate is a combination of many transistors to make a function such as an inverter or flip flop. Hundreds, thousands or even more digital (or recently analog) cells make an FPGA. FPGAs are useful because companies can configure their desired circuits to make a system application by pick-and-choose or by cut-and-paste.

RAM stands for Random Access Memory (vs. ROM which is Read Only Memory). There is Static RAM, Dynamic RAM, etc. which are digital (logic) circuits. These are used in the computers and other electronic systems. (Mr. East mentioned several times that Actel was focused on the "static" end of the market, and I assume he was referring to Static RAM.)

Two ways of measuring an FPGA are by reviewing its clock speed and data rate. Actel's FPGA "clock" speeds of 200MHz (its low power design) and 350MHz are very good. However, in many data communication applications, "data" speed (or data rate) of several gigahertz (1000 megahertz) are common now. To get a more complete picture of Actel's FPGAs, I should have also asked questions about data speed, which I did not do; however, in pure digital systems, clock and data speeds tend to be very close.

In contrast, in mixed (digital + analog) systems, such as data communication applications, the data rate is usually many times the clock rate (speed). Actel indicated clock speeds of 40 to 60 MHz in its mixed-signal product.

Getting back to the presentation, Mr. East talked for about forty minutes while explaining the various slides. I will do my best to replicate the main points of the presentation.

No debt: Actel has no debt and 140 million dollars in cash and investments.

Broad customer base: Actel has 3500+ customers. 60% of Actel's revenues come from around 1000 customers. [Note: 10K, page 26: Lockheed is a major customer. "Lockheed Martin accounted for 4% of our net revenues during 2004 compared with 11% during 2003."]

Niche markets: Actel is not "going after what the big guys [Altera (ALTR) and Xilinx (XLNX)] are going after."

Static v. Dynamic: Actel is better when it comes to static power.

Survey says: "Which vendor best addresses power consumption" problems in FPGAs?

Xilinx: 27%; Lattice Semi: 6%; Altera, 22%; Actel, 22%.

Flash: Flash is growing, but at a slower rate than anti-fuse.

Slow but steady?: Actel is "gaining share, but not at a rapid pace."

Long-term customers: Actel has many long-term customers in the military, industrial, and medical markets. At the same time, some of these customers have external complications, such as necessary FDA approval, that prevent immediate sales. As a result, although Actel is actively trying to gain more long-term customers, the time it takes to gain such customers may cancel out any immediate revenue effect.

Vision: CEO East talked about how the "whole world is moving" in the direction of "portable" products, i.e., handheld and battery-powered devices. (The cellphone is an obvious example of this movement.) Mr. East mentioned that he had just seen a portable medical device the size of his thumb. (Quite a change from the days of large, immovable medical equipment.) He mentioned that some restaurants no longer using pen and paper but are taking orders on portable devices. He provided many examples of Actel's ability to grow in the future as more devices become smaller and handheld.

Acquisitions: Mr. East talked about Actel's acquisition of Pigeon Point Systems and the possibility that the TCA (Telecommunications Computing Architecture) standard would become industry standard.

I asked several questions. I mentioned that around 40% of Actel's revenues came from the military and aerospace industries. (See 10K, page 25, "[S]ales of our products to customers in the military and aerospace industries...accounted for 38% of our net revenues in 2008.") I asked how the cancellation of various projects would impact Actel. I mentioned specific projects, like the F-22, which had been scaled back or canceled.

This is where it got a little confusing. All CEOs, including the honest ones, are part-salemen. No CEO wants to admit that problems might arise as a result of government spending cuts. As a taxpayer, I am quite happy President Obama is scaling back some defense programs. (See here for more on this issue.) Actel shareholders, however, probably understand that certain military/aerospace cuts may impact Actel's ability to grow. Mr. East did not mention any particular defense program cut that would impact Actel's revenues. Mr. East seemed to say that Actel's product line was diverse enough so that the "cumulative" effect of defense spending cuts would not be significant. Even so, if I was a mutual fund that owned millions of shares, I'd ask Actel to break down exactly how much money it was expecting from each of its defense projects. That breakdown would give a fund manager a better idea of what to expect from Actel moving forward.

Mr. East did mention that "95%" of American-launched satellites used some Actel product. That's an incredible achievement. Mr. East mentioned that there were many civilian satellites, such as weather satellites, and scientific satellites, such as Pluto explorations. His point was that even if the military cuts back on its defense spending, civilian projects would probably continue to give Actel revenue.

I asked about Actel's efforts to diversify its upper ranks. There were only two females in the entire room, and one of them appeared to be a non-executive employee. If I saw a company with 18 women and 1 male in upper management, I'd be concerned, so I asked Mr. East what he was doing to improve diversity. Mr. East seemed a little uncomfortable with this question and first joked that if I was discriminating against older white men, he was going to call his lawyer to come after me. He then pointed out that Actel had some Egyptian and Lebanese employees in the room, and the overall racial composition of Actel's employees was very, very diverse.

When I pressed him further on why there weren't more women in the room, Mr. East became more serious and indicated that there was a "dearth of American-born female engineers." In probably one of the best comments made by a CEO I've heard, he said he didn't have a company car, he stayed in cheap hotels, and he didn't have an executive jet, but he "liked his engineers." His point was that he hired good engineers, no matter what the ethnicity or gender. As he became increasingly more uncomfortable, the sole female manager piped in. She made some excellent comments about how the company wanted to add diversity naturally, not "artificially." She said that in the nine years she had been with the company, Actel had "never" had a hearing before the OFCCP (the OFFCP ensures that federal contractors do not discriminate). Her response was excellent, and having a female employee save the CEO from his discomfort showed that Mr. East was respected within Actel's upper ranks.

Although I enjoyed the CEO's presentation, I will not be buying more Actel shares. When it comes to technology, you want to go with the leaders, and Xilinx and Altera appear to be the leaders in Actel's field. That doesn't mean Actel won't survive or even thrive, but it appears to have made a conscious decision to move away from competing with Xilinx and Altera. That means Actel will probably focus more on lower-growth areas, where the larger players have exited. To give you an idea of the size difference between Actel, Xilinx and Altera, Actel's market cap is around 300 million dollars; Altera's is around 5 billion dollars; and Xilinx's is around 6 billion dollars. Maybe Actel will eventually decide to play the part of David and slay the Goliaths. Anything's possible in our this topsy-turvy world of ours. Right now, however, Actel does not appear to be able to grow at a high enough rate to justify a massive upside in its stock price.

Miscellany: Actel invested in Lehman Brothers' bonds and only recently wrote off the investment. See 10K, page 49: "The total impairment charge of $0.9 million is included in interest income and other, net on our consolidated statement of operations for the year ended January 4, 2009."

Disclosure: I own an insignificant number of Actel and Xilinx shares.

Saturday, June 6, 2009

Awesome video

RIP: Alexis Joy Briski

I recently attended Alexis Joy Briski's service at Calvary Church. You may read Alexis's obituary here:


The service was beautiful. The large church was filled to capacity. The materials included a bookmark with a picture of Alexis pitching for her softball team and the "The Lord is my shepherd" prayer inscribed at the bottom; a blank page for the kids to draw on; a written transcript of some of the speeches to be given by Alexis's friends; and an outline of how the service would proceed.

Whenever we think we are having a bad day or life is not going the way we want, we should also remember the children who died before they could reach their full potential. Some people weren't given a chance to have all the options many of us have today. Sometimes, our options may be limited, but at least we have options. It is important to remember that.

Friday, June 5, 2009

Sad and Happy Stories

A sad story:


Andrew King was arrested for molesting girls on Santa Clara's nationally-renowned San Jose Aquatics swim club. I realize all persons are entitled to a presumption of innocence, but it's hard to believe so many women would come forward now to make false allegations. As a youth basketball coach, I despise people like Andrew King. The whole point of coaching kids is to give them a set of skills that will help them become mature adults. When a youth coach violates the trust his community has placed in him, he fundamentally alters a child's maturation process.

And a happy one:


Kevin Laue, a scholarship athlete...with one full arm.

President Obama in Cairo, Egypt

From LA Times: transcript of President Obama's speech in Cairo, Egypt:


Scroll down the page for the transcript.

The Economists' Roundtable

Just a wonderful, wonderful exchange between prominent economists:


Nouriel Roubini:

[F]iscal policy cannot resolve problems of credit, and it is not without cost. Over the next few years it's going to add about $9 trillion to the US public debt. Niall Ferguson said it's the end of the age of leverage. It's not really. There is not deleveraging. We have all the liabilities of the household sector, of the banks and financial institutions, of the corporate sectors; and now we've decided to socialize these bad debts and to put them on the balance sheet of the government. That's why the public debt is rising. Instead, when you have an excessive debt problem, you have to convert such debt into equity. That's what you do with corporate restructuring—it converts unsecured debt into equity. That's what you should do with the banks: induce the unsecured creditors to convert their claims into equity. You could do the same thing with the housing market. But we're not doing the debt-into-equity conversion. What we're doing is piling public debt on top of private debt to socialize the losses; and at some point the back of some governments' balance sheet is going to break, and if that happens, it's going to be a disaster.

He makes so much sense, it's almost painful to listen.