Pericom Annual Shareholder Meeting

I attended Pericom's (PSEM) annual shareholder meeting on December 11, 2008. There was no presentation. Water and soda were available to attendees. It appeared I was the only non-employee who attended.

Pericom's main business is enabling high-speed serial connectivity. Pericom makes chips that connect high-speed components inside TVs, phones, computers, and servers. You can read more about the company here: http://www.pericom.com/about

Because I was the only non-employee attendee, CEO and President Alex Hui sat down with me after the formal meeting to engage in a Q&A session. I asked him several questions, which he was kind enough to answer.

He said that Pericom had a history of spotting the trends in the market. As a result, they were early to market when it came to inventing technological solutions. Mr. Hui said his company's focus was on "total connectivity" and "timing solutions."

I asked him to identify the areas of growth within the technology market. He said that in 2008, notebooks and servers had led the way; in 2009, digital TV and GPS would be major drivers; and in 2010, he predicted that telecom and networking solutions would experience growth.

Mr. Hui also said that his chips were not "system on a chip," or SoC. He explained that Pericom's chips were analog-based.

I asked him to talk about Pericom's major products. It is difficult for a semiconductor company to explain their specific products to a layperson because their business involves enabling other products, like TVs. Semiconductor companies function like linebackers in a football game--you only notice them if they fail. Yet, if they fail, the entire product or team fails. Mr. Hui said his products related to timing; signal integrity; and switching/routing. He saw competition from Texas Instruments (TXN).

I asked Mr. Hui's thoughts on the recession and how it would affect his company. Like a true entrepreneur, Mr. Hui said he and his company "had to work better and harder." As for the credit crunch and possible solutions, he said the current environment was something "none of us had seen in our lifetimes." He praised the government for "reacting very quickly," but indicated there was "no overnight fix." He expects a turnaround in late 2009 or early 2010.

I asked him who his heroes were. This question surprised Mr. Hui, who appears to be a very humble person. (Few CEOs would have spent time with a small shareholder at the annual meeting.) Mr. Hui, after some thought, said he found inspiration in the Bible.

When asked whether his company would pursue other areas while the economy recovered, Mr. Hui remained steadfast--he said Pericom's "focus will not change," and his company would continue to "enable high-speed connectivity."

It's always fun to see a smaller company take on the competition and not only survive, but flourish. Most--88%--of Pericom's net revenues come from Asia (see page 22 of 10K). If you believe Asia will lead the way out of the current recession, then Pericom may be worth a look. Its stock price is very volatile, which is typical for smaller companies priced in the single digits. Sometimes, however, that volatility can work in your favor. Today, December 16, 2008, Pericom stock increased around 20%.

Disclosure: I own only a few shares in this company.

Greg Mankiw Supports Charles Wheelan

Greg Mankiw supports Charles Wheelan for Congress:

http://gregmankiw.blogspot.com/2008/12/wheelan-for-congress.html

Here's an article from Charles Wheelan, summarizing his views:

http://finance.yahoo.com/expert/article/economist/26418

You'll notice that he lists Mankiw as his favorite economics blogger.

I wrote about Wheelan before on this blog.

Wheelan has an excellent book, Naked Economics. Great title, isn't it? There's no nudity, but it's a fun read, especially if you liked Freakonomics.

Maxim Annual Shareholder Meeting (2008)

Maxim Integrated Products, Inc. (MXIM) had its annual shareholder meeting today in Sunnyvale, CA. A spread of donuts, pastries, water, coffee, tea, and bottled orange juice was offered. (The donuts were an interesting option--most shareholder meetings don't offer donuts.) The meeting started at around 10:05AM and lasted until around 11:00AM. Around 35 people attended.

CEO Tunc Doluca, who replaced Jack Gifford, started the meeting by introducing the Board of Directors. Once the formal part of the presentation was over, the rest of the meeting consisted primarily of questions from shareholders. There was no video presentation.

Before I move to the Q&A session, readers may appreciate some background on Maxim. Due to financial irregularities caused by previous officers, Maxim's shares were temporarily pink-listed; however, Maxim is currently off the pink sheets and back on the NASDAQ. In fact, Maxim was just incorporated into the NASDAQ 100 index. This turnaround--from the pink list to the Nasdaq 100--is stunning, because most companies that are pink-listed never return to stock prices above the single digits or soon declare bankruptcy. Thus, Maxim appears to have put most of their regulatory woes--SEC investigations, stock option backdating, and lawsuits--behind.

Maxim's 10K, starting on page 20, summarizes the status of Maxim's litigation. It appears that if the Delaware Court of Chancery--known for being company-friendly--approves a stipulated settlement agreement, the derivative state and federal lawsuits against Maxim will also be dismissed. In addition, Page 7 of the 10K shows that the federal government's involvement in Maxim's option practices is over:

The informal SEC investigation has subsequently been settled without any admission of wrongdoing on the part of the Company and without any assessment of penalties and the U.S. Attorney subsequently informed us that its office does not intend to pursue any further investigation or action against the Company concerning our stock option grant practices.

I went online to review some of the filings in Maxim's federal litigation. Here are the open case numbers:

06-cv-03344-JW Derivative Litigation (Maxim Integrated Products)

06-cv-03754-JW City of Pontiac Policemen's and Firemen's Retirement System v. Gifford et al, filed 06/14/06

06-cv-03755-JW Corey v. Gifford et al, filed 06/14/06

06-cv-03395-JW Horkay v. Beck et al

08-cv-00832-JW In re Maxim Integrated Products, Inc., Securities Litigation, filed 02/06/08

The latest event in the 2008-filed case is Maxim’s substitution of attorney from Quinn Emanuel to Weil, Gotshal and Manges. I didn't see any filings that appeared out of the ordinary, but one of the plaintiffs' briefs caught my eye. It included charts of when Maxim's former directors granted stock options. These charts appeared to show that certain options were granted at the lowest possible price during the relevant time period. In any case, these directors are no longer with the company.

All the above circumstances have caused Maxim's stock price to reach prices last seen in 1998--over ten years ago. Yet, from a value investor's standpoint, Maxim's balance sheet is pristine--it has no debt, and around a billion dollars in cash.

I asked the first few questions at the shareholder meeting. I inquired about the status of the current lawsuits. A person who appeared to be Maxim's in-house counsel provided a basic overview of the litigation, but after realizing I was looking for more substantive details, he provided more information and a short chronology of legal events. I was pleased with his responsiveness and ability to clearly explain the litigation.

I then asked about the company's experience being pink-listed (I erroneously said, "de-listed"--for the record, Maxim has never been de-listed). CEO Doluca said that being pink-listed did not reduce the company's workload at all, because the company still had to comply with various regulations and internal controls. In fact, he said being pink-listed was a hindrance mainly because Maxim couldn't tell the public how well the company was doing. (During the period of time when Maxim had to restate its financial results, it was barred from publicly reporting various numbers.) CEO Doluca said that it was "frustrating, frankly," not to be able to tell the public more details.

Another person asked about buybacks. The CEO said the company was "buying cautiously."

Another person said that the cost of the backdating of options had cost the company 30 cents a share in earnings, and asked what the company was doing to prevent this [stock option irregularity] from happening again. CEO Doluca said that none of the directors involved in the backdating of options were still with the company. He also said that the company had revamped its stock option plan to grant options only on the first Tuesday of the month after an employee is hired.

Another person asked why the company was buying back shares "cautiously" (instead of more aggressively). The CEO said that the company wanted to maintain its strong balance sheet and in hindsight, not buying shares had been a good decision because Maxim stock had declined (along with the overall market).

This same person asked about Maxim's inventory and what the company was doing to clear inventory (making way for new products and new sales). The CEO indicated that Maxim's customers had become very cautious in their own outlook and were keeping less inventory on hand, making it more difficult for Maxim to predict future sales with clarity. In addition, because of the X-Mas season, a lot of finished products were on the market, making it difficult to ascertain when inventories would be reduced and when customer demand would pick up.

I didn't hear the next question clearly. The CEO responded that Maxim had scored various design wins and was looking forward to growth in handsets (3G), medical products, and management products.

Someone asked about additional product lines. The CEO responded that the auto market represented a growth market for Maxim. He said that even though demand was down, "for us, it's a growth market." He also indicated that security video and storage/networking sectors would experience growth.

The CEO indicated that Maxim had acquired a security video company and that various acquisitions had already broken even or would be at the break-even point by next year.

Another person asked an interesting question. I am paraphrasing, but I believe he asked how Maxim was evaluating future demand when the credit markets were so volatile and currently inefficient. The CEO talked about using a cash burn rate and other metrics. (It's refreshing to hear a CEO who can convey both financial and technological concepts effectively. Not once during the presentation did the CEO deflect a question to the CFO.)

After the praising the CEO for being responsive during the meeting, I asked him to tell me whether Maxim had a "wide moat." Warren Buffett uses the term "wide moat" to see whether a stock is worth buying. Basically, a wide moat is how secure a company's product is from competition/attack. Imagine being in a castle and having no moat. You will be invaded and possibly vanquished. But with a wide moat, attackers need to spend more time, energy, and resources to attack you and might avoid your territory. Coke's brand name and the goodwill attached to it represent one form of a wide moat. Adobe's PDF DRM support, which allows only Adobe's software to be capable of reading and creating every PDF feature with 100% accuracy, represents another example of a wide moat. What, I wondered, was Maxim's wide moat?

CEO Doluca responded that Maxim's "wide moat" was its well-diversified product lines, the numerous features of its products, and its highly innovative staff. He said Maxim's products were part of a broad IP portfolio that was highly integrated and "very differentiated" from other companies' products. Also, because Maxim's chips were "feature-rich" and multi-functional, their high level of specialization eliminated most competitors and start-ups from Maxim's target markets.

CEO Doluca also talked about how, relatively speaking, Maxim enjoyed high margins. (In general, analog products have longer lives, which allows companies involved in analog-based products to enjoy higher margins. The downside is that the longer life of analog products comes with lower growth because products don't have to be replaced as often.)

So many CEOs have a hard time with the "wide moat" question, but CEO Doluca answered it very well. I would also add that many of Maxim's employees have specialized knowledge in analog design and products. Engineers who specialize in analog design are less available on the market and tend to have Ph.Ds, making them harder to find and hire. While Microsoft won't have a hard time finding software engineers, analog technology companies have to work harder to find competent employees who can handle the high level of specialization in their products. As a result, Maxim's engineers represent a unique strength. I believe this is what CEO Doluca was saying when he mentioned his innovative employees as part of Maxim's "wide moat."

The CEO agreed with another shareholder who said that Maxim had previously been in a position where it "couldn't tell our story very well."

I was very pleased with CEO Doluca's grasp of his company's products and his ability to answer questions. I view him as an honest, knowledgeable CEO who will give Maxim more credibility on Wall Street.

Most semiconductor companies have seen their shares decline in value, and Maxim is no exception. But the semiconductor industry is cyclical, and right now, most major semiconductor companies have strong balance sheets. When the economy improves, companies like Maxim, Texas Instruments, and Intel--all of which have solid balance sheets--will be well-positioned to benefit from the economic recovery. I see a bright future for Maxim.

Disclosure: I own over 200 shares of Maxim, most of which I bought after attending the shareholder meeting; members of my family own shares of Maxim and/or have access to shares; and a relative works at Maxim. I may buy more shares of Maxim in the future. I also own shares of Texas Instruments (TXN) and Intel (INTC).

Note: The law firm of Weil, Gotshal and Manges was mentioned in this article. I was in an intern in Weil, Gotshal and Manges' Singapore office for a brief period of time. At the time, non-Singaporean law firms had to set up joint ventures with Singaporean law firms to do business in Singapore, and the law firm I worked at happened to be connected with Weil, Gotshal and Manges. As far as I know, I do not currently have any financial interests with or in Weil, Gotshal and Manges.

Correction: Maxim was in fact de-listed from the NASDAQ exchange, but Maxim shares never stopped being publicly traded.

Cities and the Recession

ABC has a story on how the recession is affecting various cities:

http://abcnews.go.com/Business/Economy/story?id=6259063&page=1

Instituting hiring freezes and eliminating after-school programs doesn't sound like financial Armageddon to me. It appears the government is cutting non-essential services until tax revenues increase. This isn't news to most people who have to live on a budget. I try not to spend more than I make. Why shouldn't the government have to do the same thing, too?

Bernard Madoff

With respect to the Bernard Madoff scandal, we've seen this before, though on a smaller scale. Bernie, meet Samuel Israel III:

http://www.sec.gov/news/press/2005-139.htm/

Basically, if you can't understand how your broker makes money, be afraid. Be very afraid.

Thomas Jefferson Center

Thomas Jefferson is one of my favorite presidents because of his predilection for small government. An organization called the Thomas Jefferson Center caught my eye:

http://www.tjcenter.org/

They advocate for free speech. President Jefferson would be proud.

Charles Barkley on Politicians

I once said Ted Turner was the only famous person left who spoke his mind. I forgot about Charles Barkley:

I think politicians, they only have three jobs. Make sure we got a great public school system, make sure we have economic opportunity and make sure we're safe. That's all I want from any politician.

Makes sense to me. Full interview after the jump:

Ball Don't Lie

Stephen Fry on America

Stephen Fry on America:

If I were to run out of petrol in the middle of the night I would feel more confident about knocking on the door of an American home than one in any other country I know - including my own. The friendly welcome, the generosity, the helpfulness of Americans - especially, I ought to say, in the South and Midwest - is as good a reason to visit as the scenery. Yes, Americans are terrible drivers (endlessly weaving between lanes while on the phone, bullying their way through if they drive a big vehicle, no waves of thanks or acknowledgement, no letting other cars into traffic), yes they have no idea what cheese or bread can be and yes, strip malls, TV commercials and talk radio are gratingly dreadful. But weighing the good, the kind, the original, the enchanting, the breathtaking, the hilarious and the lovable against the bad, the cruel, the banal, the ugly, the crass, the silly and the monstrous, I see the scales coming down towards the good every time.

There is one phrase I probably heard more than any other on my travels: Only in America! If you were to hear a Briton say ‘Tch! only in Britain, eh?’ it would probably refer to something that was either predictable, miserable, oppressive, dull, bureaucratic, queuey, damp, spoil-sporty or incompetent - or a mixture of all of those. ‘Only in America!’ on the other hand, always refers to something shocking, amazing, eccentric, wild, weird or unpredictable. Americans are constantly being surprised by their own country. Britons are constantly having their worst fears confirmed about theirs. This seems to be one of the major differences between us.

I made a similar comment a while back about Americans being friendlier than most people, but it's all relative. I just had opposing counsel tell me this morning she moved from Long Island to California because New Yorkers were rough and rude (something Escape From Brooklyn mentions in her blog frequently as a reason to move to Minnesota). Personally, I liked most of the New Yorkers I met when I was in NYC. In any case, Mr. Fry is correct--as an older white male with a British accent, most Americans will fall over themselves to help him (Americans are suckers for British accents--how else can you explain Hugh Grant's popularity here?).
I think a more accurate statement is that American culture is generally less guarded than other cultures. The question is whether Americans sacrifice modesty and humility for their greater optimism and tolerance. "Whatevah," an American might say. Seems an oddly appropriate response, no?

By the way, Mr. Fry has a delightful blog:

http://www.stephenfry.com/blog/

NPR on Japan and Cars

Someone from NPR called me this morning. She asked my opinion about why the Japanese stock market had dipped when the auto bailout did not happen. Intuition would indicate that the Japanese car companies would be better off because of less competition.

I told her there were two major reasons for the Japanese stock market's dip.

1. The Japanese yen's strength. Yesterday, the American dollar dipped about 2.5% against almost all other major currencies (FXC, FXF, FXE). Basically, America's citizens lost about 2% of their international purchasing power overnight. This is major news, but you wouldn't know it from the lack of media attention. (Quite frankly, pictures of Weimar-Republic-branded wheelbarrows carrying the American dollar should be on the front page of every major newspaper.)

The Japanese yen is strong in part because Japan has a high savings rate and is the world's second largest economy; however, in a perverse result, Japan's high savings rate works against them because they export so many products to the United States, where our currency is becoming weaker. Basically, Japanese products are going to be too expensive for Americans, so Americans will either buy fewer Japanese cars, CDs, and Nintendos, or the Japanese will have to reduce their prices. Either action will cause lower profits for Japanese companies, which is one reason the Nikkei declined by over 5%.

2. A chain reaction disrupting the global auto market. Car companies are more connected than you might think. A GM bankruptcy impacts a wide array of other companies, like steel manufacturers, chipmakers, etc. Companies that had the Big Three as primary customers would have to lay off workers and stop hiring, which puts less money in the hands of potential car buyers worldwide.

Also, in addition to joint ventures, such as NUMMI, car companies buy materials from the same suppliers. If one supplier, let's say Delphi, loses a major customer like GM, their cash flow is reduced, and they may need to lay off workers, delaying projects, new orders, and even existing orders, further disrupting the auto market.

Globalization means more and more companies, especially large ones, are interconnected. This has advantages and disadvantages. One major disadvantage is that if one large company is reckless, it creates problems for numerous smaller companies. Delphi still exists, but has been in Ch 11 bankruptcy since October 2005. Delphi's bankruptcy filing was probably the writing on the wall for the Big Three.

3. I also said any value left in GM, Chrysler, and Ford was in their finance arms. In plain sight, American car companies became subprime banks. They were practically giving away their products in exchange for a stream of steady cash payments, with interest. All those 0% financing commercials? That's the equivalent of a "no money down," ARM home mortgage, but on a smaller scale. Car loan interest is where the Big Three receive a large chunk of their income, because margins on non-SUV autos have been consistently declining. Like the banks, GM and Ford took on too many subprime borrowers and overestimated expected income streams. The result is now all too predictable.

Washington Lawyer on Free Trade

I am currently licensed as an attorney in both California and Washington, D.C. It's not as impressive as it sounds--there are procedures for mutual cooperation between the two bar associations, so you can waive into D.C. if you meet certain criteria. The D.C. bar publishes a magazine called Washington Lawyer. This month's cover feature a story on free trade, by Sarah Kellogg:

http://www.dcbar.org/for_lawyers/resources/publications/washington_lawyer/december_2008/free_trade.cfm

While the majority of Americans favor trade, that majority has been shrinking. Fifty-three percent of Americans had a positive view of free trade in 2008, according to the Pew Global Attitudes Project, a public opinion survey of the Pew Research Center. That’s down from 59 percent last year and 78 percent in 2002. What’s shocking in the numbers is that the United States ranked last among developed nations in terms of public support for free trade. The next closest nation was Egypt at 57 percent.

Trade’s financial benefits and costs are constantly being debated, but there’s no denying exports play an important role in the U.S. economy. In 2007 exported goods and services accounted for 12 percent of the Gross Domestic Product. One of three U.S. acres is planted for export, and manufacturing exports have increased by 128 percent since the last multilateral- trade round more than a decade ago, according to the Office of the United States Trade Representative.

Wall Street to Reid: Cool Down

Senate Majority Leader Harry Reid was featured on every news channel last night, talking about how Wall Street would collapse this morning because the Senate rejected the auto bailout.

Well, the stock market was steady early this morning, and the Nasdaq was actually up around 8:00AM.

The White House just said it might step in to assist the car-makers, causing the market to move higher:

http://news.yahoo.com/s/ap/20081212/ap_on_go_co/meltdown_autos

Goshdarn it, if there's one thing Americans should know by know, it's that whenever George W. Bush gets involved, efficiency, financial stability, and prosperity follow. Right? Right?

Michael Malone in the Santa Clara Magazine

My alma mater's publication, the Santa Clara Magazine, continues to impress. This month's issue had a great essay by Michael Malone, who believes America's future depends on its continued willingness to encourage entrepreneurs:

http://www.scu.edu/scm/winter2008/entrepreneurs.cfm

Half of all new college graduates now believe that self-employment is more secure than a full-time job. Eighty percent of the colleges and universities in the United States now offer courses on entrepreneurship. Sixty percent of Gen Y business owners consider themselves to be serial entrepreneurs. And, most tellingly, 18- to 24-year-olds are now starting companies at a faster rate than 35- to 44-year-olds.

Don’t think that the rest of Generation Y is still dreaming of a gold watch: 70 percent of today’s high schoolers intend to start their own companies.

It looks like the new college grads aren't buying into the seniority paradigm. That's what I like about Santa Clara County--with all the new people here from so many different places, corporate seniority is less respected. Results, not tenure, are what count, which is the way a meritocracy ought to work.

Of course, I had to pick the one profession, law, where seniority does count. Sigh.

Where does America get its oil?

If you think America gets most of its oil from Saudi Arabia or the Middle East, you are wrong. ExxonMobil ran an ad in yesterday's WSJ (12/10/08, A10-11) showing the sources of America's oil imports:

55% = North American (includes Canada, Mexico)
16% = Africa
14% = Middle East
12% = South America (includes Venezuela)

The remaining 3% comes from Russia/Caspian, Europe, and Asia-Pacific (includes Indonesia).

Last time I checked, the top three suppliers of American oil were Canada, Mexico, and Venezuela.

Scott Burns on Social Security

Scott Burns on Social Security--skip the first question and go to the second one:

http://assetbuilder.com/blogs/scott_burns/archive/2008/12/10/what-others-are-doing-with-their-401-k-money.aspx

I didn't know how the Social Security system really worked until I read Mr. Burn's response to the second question.

The Poor, Poor American Dollar

I have a treat for my readers--The Atlantic's (December 2008, p. 62) interview with Gao Xiqing, who oversees and invests $200 billion of China's $2 trillion U.S. dollar holdings. This interview is one of the best ones I've ever read because of the government official's openness:

http://www.theatlantic.com/doc/200812/fallows-chinese-banker

Below are my favorite two parts from the interview, one about the American dollar, and the other about derivatives:

Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was when we spoke.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors. But after a short while, the dollar may be going down again. I’d like to bet on that!

I have been converting my dollars into Canadian dollars recently. I already have euros (FXE) and some Swiss francs (FXF). We'll see in a year whether my decision was the right one. I felt compelled to diversify my U.S. dollar holdings, because they were earning around 1% in interest, while competing currencies had much higher interest rates and the possibility of greater upside.

As for derivatives, here is what Mr. Gao had to say:

If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullsh*t. They are crap. They serve to cheat people.

Mr. Gao explains derivatives by comparing them to multiple mirror reflections of one actual product. It's such a perfect analogy, I'm surprised no mainstream American publication has mentioned it until now.

Kudos to The Atlantic and Mr. Fallows for publishing this interview.

Investment Outlook

My personal sentiments regarding the stock market are similar to Jim Rogers'. Basically, I am overweight commodities and just bought a Commodities ETF (DBC). I also added to my Canadian dollar position (FXC), as an indirect play on commodities.

I disagree with Mr. Roger's assessment of American stocks being too expensive--many "blue chip" technology stocks appear cheap because of their high net cash holdings and market share. T. Rowe Price holds my 401(k), and around 17% of my 401(k) is in its Science and Technology fund (PRSCX). This particular fund has a relatively high percentage of its holdings in semiconductor companies.

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

The Auto Bailout, from a Gender Perspective

Amy Siskind has this to say about the auto bailout:

Pew Research recently reported that in 43% of all U.S. homes, women make more of the decisions on household finances (men make more in 26%, and in 31% of homes it is equal). Why then is it that our automotive committee is composed of 21 senators, 20 of which are male. So while 43% of women make the decisions at home, 5% of our Senate Banking Committee is composed of women?

She makes a darn good point.

"Terrorists Are Criminals"

The SJ Merc has a great letter in today's paper (December 9, 2009, 9A): 

All Muslim organizations that I am associated with, including the local mosque, have condemned the Mumbai murders, and all Muslims I know are outraged by this incident in which innocent Hindus, Muslims, Christians and Jews were killed. Yet, people still demand something from Muslims. Terrorists are criminals who represent no one but themselves, and if they happen to embrace the same religion as you or I, then so be it. Religion is intended to teach us about God and how to worship and help others, so people of all faiths must join against the ignorance of terrorism and false accusations. 

Jim Zanghi 

I expressed similar sentiments in an earlier blog post (Anti-Terrorist Sentiment Does Not Require Overt Public Acts): 

When an unarmed black man (Amadou Diallo) in New York is shot 19 times by Christian police officers, does the failure of Christians across the United States condemning the NYPD mean they condone senseless killings? Of course not. Such examples can be made ad infinitum, and it should be fairly obvious that an absence of mass protests or vocal opposition has no relevance as an indicator of general support or non-support. The reasons for silence among most "ordinary Pakistanis" are simple. Muslims in Pakistan don't know the killers in India and don't feel any connection to them. To the 99.9% Pakistanis who live their lives peacefully, there is no connection to the killers in India and therefore no reason to say anything publicly about their heinous acts. 

Countries act against their own interests when they force ordinary citizens to choose between their religion and supporting law enforcement in the battle against terrorism. Governments need to condemn associating terrorism with any single trait, whether religion or race, so as to ensure the broadest possible cooperation among their citizens.

Guanabee

Here is a little-known website that is apparently targeting a Latina audience--I am giving it props, just because:

http://guanabee.com/

It's written in an informal style, and some material is NSFW, but it's a fun website if you like gossip and pop culture. Here's the page that led me to the overall website:

http://guanabee.com/2008/12/guanabee-presents-5-most-epic-quinces-fails.php

An Auto Bailout is Unjust

Here's an audacious question: How is an auto bailout not preferential corporate welfare?

There is no contention that America suffers from an automobile shortage. Honda and Toyota are perfectly capable of increasing production to fill in any gap caused by a GM and Chrysler bankruptcy (I don't mention Ford, because it appears to be the healthiest of the Big Three). Meanwhile, Japanese car companies have created thousands of jobs in the South and are schooling Americans in how to run an efficient, profitable auto manufacturing operation.

To its credit, the UAW has responded to charges that it is asking American taxpayers to subsidize the Big Three's inefficiency. Unfortunately, its arguments are misleading. For example, the UAW has mentioned state incentives given to Japanese car companies as support for a federal bailout (See Autonews Article).

First, states like Alabama provided incentives to Japanese companies because the UAW was opposed to relocating to the deep South. (Southern states generally favor "right-to-work" laws, which are code for anti-union laws.) The UAW's refusal to support American production in the deep South allowed the Japanese to enter those states without competition. The UAW and the Big Three could have requested Southern state incentives, but they failed to do so on reasonable terms. As a result, any tax incentive given to other companies was due to the UAW's own unwillingness to be flexible. It's akin to losing a war because you refused to go to the most advantageous territory to fight--and then calling the other side dirty for going where you wouldn't.

Second, speaking of the Japanese, we criticized them for years because they bailed out their banks after their speculative bubble. Indeed, almost every American economics study found that bailing out inefficient companies exacerbated the Japanese recession. Just google "Japan's lost decade" for more. (Here's one particularly relevant link from a google search result: http://www.guardian.co.uk/business/2008/sep/30/japan.japan)

Third, the Japanese car companies received only $3 billion since 1992--far below the UAW's request for $25 billion (see penultimate paragraph of Autonews article). The disparate amounts of incentives requested indicate that subsidies aren't the reason for the Big Three's woes. In addition, while it's easy to forget now, the Japanese took a major risk in coming to the South to do business. Just fifteen years ago, no major entity was considering investing billions of dollars in the deep South because of its less-than-cosmopolitan reputation. This reputation required the Japanese to take major risks, such as opening manufacturing plants in places where some residents had never met a Japanese person and where pro-white groups still exist.

There's a happy ending to the Japanese and their risk-taking. Although various Americans continue to refer to Southerners as uneducated and backwards, it is now apparent that these so-called "backward" Southerners have outworked the Midwestern UAW. (It will be interesting to see if Southerners will return the favor and call non-Southern workers lazy and handout-prone). In short, the Japanese should be lauded for taking a risk when the Big Three and UAW refused to consider the South as a viable business destination. Moreover, $3 billion is not what the UAW is demanding, making their reference to the South irrelevant.

The UAW's remaining argument is based on emotion. It talks about the loss of thousands of jobs, implying that without taxpayer monies, the Big Three's employees will be in breadlines and bankruptcy courts. By resorting to this argument, the UAW has taken a page out of Naomi Klein's Shock Doctrine. The UAW fails to mention any other option except demanding billions of dollars in taxpayer monies. For example, it fails to advocate increasing the length of time and amount of payments given to unemployed workers nationwide. Yet, the $15 to $25 billion requested could be used to extend unemployment benefits for all Americans, and at higher amounts. Using this method, no industry receives preference, and taxpayer money benefits Americans nationwide. After all, it's not just the auto workers being affected by this recession, but engineers, accountants, and food service workers. Don't these workers have families to support, too? By demanding money only for auto employees so they can continue in an inefficient business, the UAW is essentially admitting it wants preferential treatment over every single American worker who has been laid off and those who will be laid off. Its attitude is unacceptable if you believe that government should consider the welfare of all its people, not just one particular group.

The UAW's selfishness exposes another issue with an auto company bailout--the slippery slope. What will Congress do when other industries come knocking? Will taxpayers be forced to support all affected industries that happen to have highly paid lobbyists? Once Americans understand that Congress probably wouldn't take seriously a bailout request from restaurants waiters and waitresses, they have to ask why their government is focusing on the Big Three to the exclusion of other industries.

The only reason to provide an automobile bailout is because of the Big Three's legacy costs, which may be shifted onto taxpayers anyway through the PBGC. Unfortunately for taxpayers, it seems that all roads lead to pillaging of their wallets.

Update on December 21, 2008: a 12/20/08 WSJ letter pointed out that the Southern states didn't get loans--they received tax deductions, which are useless, unless the companies actually invest in a particular state and expect to make a profit. In other words, without the tax breaks, a state like Kentucky would get 0 dollars for its residents. But with the tax deductions, a company might come to Kentucky and bring jobs and other positive benefits--none of which would have happened without the tax incentives. So Kentucky and its residents received a net gain because of the tax incentives. GM and Chrysler, on the other hand, are asking for loans directly from taxpayers, which force Americans to own a stake in American car companies and which do not create new jobs. The loans are high-risk and it remains to be seen whether American taxpayers will come out ahead.

Update on 12/23/08: Madoff's investors are already asking for a taxpayer bailout:

"There's no doubt that hearings will be held on this, and some government aid is a very logical request," said Robert Schachter, an attorney with New York-based Zwerling, Schachter & Zwerling, which is representing several Madoff victims. "If we're bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too."

Can you say, "slippery slope"?

Basketball: Don Nelson

The San Francisco Magazine interviewed Golden State Warriors coach Don Nelson (October 2008 edition). They emphasized his humble beginnings:

By 1976, when he retired as a player, Nelson had won five championship rings and paid off his house, yet he was anything but rich. In most years, he made around $30,000, and he still drove [Coach] Red Auerbach's hand-me-down Buick. His marriage was also on the rocks...His accountant said Nelson couldn't send his four kids to college. "He was always worried about money, trying to stay ahead," says Donnie [Nelson], who remembers moonlighting with his dad at YMCAs and Rotary Clubs where Nelson would give brief speeches, tossing out the same three jokes for $100 a pop. "Failure simply wasn't an option."

Sometimes, life's second acts are much more profitable. Mr. Nelson has not won an NBA championship as a coach.

On the player side, Corey Maggette is problematic for the Warriors. He plays like Kobe Bryant--if Kobe had mediocre shooting and defensive abilities. Essentially, the Warriors are left with a shooter without a conscience, but one who can't shoot consistently. Something tells me this won't end well, especially with the more experienced Stephen Jackson and Jamal Crawford needing to take at least 12 shots a game for the Warriors to be competitive. On the bright side, Al Harrington seems like he's doing better in New York.

The Baron-Davis-led Warriors were something special, and they will be missed. Right now, the Warriors need a consistent PG--like Chris Duhon, Jose Calderon, or Deron Williams--to keep their gonzo playing style from becoming self-destructive. Baron, shaky knee and all, provided stability to his team, and now, the Warriors have no one to provide steady passing and ball control. The Warriors should offer the Toronto Raptors a mutually beneficial deal: Maggette for Calderon, straight-up. Two other PGs to consider: Antonio Daniels (his quickness will fit perfectly with the Warriors) and local Stanford grad Brevin Knight. Even when Monta Ellis returns, the Warriors will need an experienced backup PG. Just my two cents.

Santa Clara County's Diversity

I've always thought the best way of learning was to listen to people. Living in Santa Clara County provides many opportunities for cross-cultural education. In my law practice, for example, I've had the opportunity to interact with people from all over the world.

The number of people in Santa Clara County who were born outside of the United States is around 40%. Most cities near ports or oceans tend to attract ambitious travelers, and San Francisco has attracted what appears to be some of the most ambitious Asians, who have brought their cultural values of education and family to California:

SJ Merc on Diversity

California may suffer from inept government--the budget crisis is still ongoing, for example--but the people who live here tend to be open-minded, which allows California government to make mistakes that would not be tolerated elsewhere. It remains to be seen whether California's signature open-mindedness and tolerant attitude will continue its status as a magnet for ambitious immigrants, or whether its high spending will cause a decline in competitiveness.

Love in the Time of Famine

For all those who think love should be analyzed in terms of economics, here is your article:

http://www.cambridgeblog.org/2008/09/james-flynn-in-the-new-scientist

The crucial thing is whether men operate in a seller’s or a buyer’s market. As usual, market analysis oversimplifies, but it isolates an important “exchange”: women provide sex and men “pay,” ideally by helping to support children. When viable men are scarce, they can get sex without paying a high price. On the other hand, women who want children must provide sex and hope for a husband, rather than being able to expect one.

Can you feel the romance just oozing from the page? What palpable romance you bring, sir.

Hat tip to E.S. Fortune for the link.

Santa Clara Magazine and Hyperinflation

I graduated from Santa Clara Law School and get their alumni magazine, The Santa Clara Magazine. The managing editor, Steven Saum, in the most recent edition (Vol. 50, No. 3), talks about hyperinflation:

A few years after the Soviet empire collapsed, I lived in Ukraine, in a town where Russian officers were once sent into exile, and I counted among my friends those whose life savings were devoured overnight by hyperinflation: when money set aside--bit by bit, payday by payday--for two decades in anticipation of a daughter's wedding in the end only covered the cost for half a watermelon at the reception.

He writes such an eloquent defense of fiscal responsibility, I had to share it. The fact remains that when the government prints money, it causes inflation--perhaps not immediately, but eventually, the chickens come home to roost. It is worth repeating the fact that inflation is the #1 enemy of the average citizen, who, like Mr. Saum says, works hard to save a little money, bit by bit, only to see external forces mock his patience.

Jaromir Jagr a Libertarian?

In The Atlantic's December 2008 edition, Jaromir Jagr, a former All-Star U.S. hockey player, sounds positively libertarian: 

"I came to Omsk [Siberia] because I wanted to. Here in Russia, you have real freedom, which is not like U.S. freedom. Back there you have so many rules." He smiled. 

See how fast the world moves? Mr. Jagr's jersey number is 68, to commemorate his Czech heritage and the 1968 "Prague Spring," when Czechoslovakia enacted a series of economic and political reforms. The Soviets opposed the reforms, which called for a decentralized government, and invaded Czechoslovakia in response, occupying it until 1990. 

A decentralized government, of course, is a hallmark of American-style governance. Mr. Jagr, an avowed anti-communist and supporter of the 1968 Prague Spring, now lives in Russia. The world has seemingly flipped overnight. America is being called the land of Soviet-style laws, while Russia has the designation as the land of "real freedom." 

From my perspective, much credit needs to be given to the Department of Homeland Security for taking us away from the America our founders envisioned. 

Oh, the shame.

Barry's Picks

Barry Ritholtz, who manages around 100 million dollars, talks about investing:

We are now running about 70% cash, which is inordinately high, but some of the names we’re watching, and have owned in the past, are NuVasive [NUVA], a medical-device company, Stanley Works [SWK], a great infrastructure story, LG Display [LPL] and Luminex [LMNX]. Industries we like are infrastructure, defense, biotech and medical devices.

It's good to see a Wall Street insider mentioning specific company names as opportunities for investment. As for me, I do believe the market will go up, but the question is whether Obama's swearing-in in late January 2009 will represent a firm baseline, or a temporary peak for the stock market.

Graph of U.S. Bear Markets

From "dshort" at Calculated Risk blog:

http://calculatedrisk.blogspot.com/