Brocade Communications Shareholder Meeting (2009)

Brocade Communications Systems, Inc. (BRCD) had its 2009 annual meeting on April 15, 2009. The day after the meeting, Brocade announced closer ties to IBM. There was no informal presentation. 

Although the meeting itself was bare bones, Brocade's Shareholder Relations team did a fantastic job. I don't think I've ever praised a company's investor relations team before, but Brocade's team deserves special recognition. 

First, they used a portable miniature microphone. A company representative went around the room offering the microphone to whomever had the floor. You would be surprised at the number of companies which use no microphones at all, forcing shareholders to speak very loudly or requiring executives to repeat questions. Most large shareholder meetings have one or two standing microphones where people can stand to ask questions. This works well for larger meetings. For smaller meetings held in a conference room, a portable microphone works best. 

Second, the food was fantastic without being ostentatious. In these hard times, companies need to balance saving shareholder money with projecting a strong, healthy image. No food or coffee at the annual meeting indicates a company that either doesn't care about its shareholders or is trying to cut costs to the bone. Brocade had coffee and mineral water--the basics--but it also had some of the best chocolate chip cookies I've ever had. These cookies were so thick, they looked like scones. If my mother hadn't taught me basic manners, I would have stuffed about 20 of them in my pockets. I asked someone who made the cookies. She told me it was Gunther's Catering. 

I called Gunther's and confirmed they made the cookies. He said it was his mother's recipe, and they baked them fresh every day. The company has been around for 39 years and specializes in wedding receptions. If you like chocolate chip cookies, get thee to Gunther's. 

Lest you think it was just the cookies that won my heart, I assure you that's not the case. Shareholder relations personnel handled themselves professionally. They did not treat me or other shareholders like unwanted guests crashing an internal company party. You'd be surprised at how poorly many shareholder relations treat ordinary shareholders--read my Visa post, for example, where a shareholder relations person tried to stop me from taking a picture with the CEO, who was actually happy to have his picture taken, and then demanded my contact information. 

Lacking a presentation, the meeting would have been over had shareholders not asked questions. CalSTRS and CalPERS representatives appeared at the meeting to check on their shareholder proposals. Prior to voting, the company did not allow any comments to be made on their proposals. A shareholder attempted to make some comments, but Brocade's executives refused to allow him a microphone. Their refusal seemed unprofessional, because disallowing comments on specific proposals stifles the flow of potentially unbiased information to shareholders. Although most companies will tell you to make your comments at the end of the formal meeting, polls are closed by that time. Strike one against Brocade's management team. 

After the formal portion of the meeting concluded, the California representatives asked for a preliminary tally of the votes. Brocade didn't have one. I've never seen this happen before at any major company. Strike two against Brocade's management team. 

I asked a few questions. I asked how the company was managing the integration of Foundry Networks (FDRY). CEO Michael Klayko said the acquisition was going well. I asked what specific gap in Brocade's (BRCD) products the acquisition fulfilled. Many times, companies will acquire another company to boost revenue but will lack a real need for an acquisition. CEO Klayko said that Brocade found it cheaper to buy the company than to create the technology in-house. Foundry, he said, had "more connectivity products." Also, Foundry had just released a new chipset/product the prior Tuesday, showing that the acquisition was going smoothly. 

I asked what problems, if any, Brocade had discovered in the course of integrating Foundry. CEO Klayko said that Foundry Networks' distribution channels needed work, and its "marketing was suspect." Brocade's marketing, however, was very good, and that's why the two companies would work well together. 

I asked how Brocade expected to compete with Cisco (CSCO) and Nortel (NT). Here's where CEO Klayko shined. He said that Nortel might not be the best example to raise, because of its bankruptcy. As far as Cisco--Brocade's main competition--was concerned, CEO Klayko said that Brocade offers "cost advantages." In other words, Brocade offered similar products but at a lower cost. CEO Klayko also said the marketplace wants an alternative. Only near-sighted customers want to encourage a monopoly, because maintaining the status quo would allow Cisco to keep its high margins and relatively higher prices. Another shareholder, who worked for an investment firm, asked about analyst reports relating to IBM. 

CEO Klayko said there were lots of rumors out there and deflected the question. (The very next day, IBM and Brocade announced they would be working together on various products.) 

Another shareholder asked about Brocade's real estate strategy (buying vs. leasing property) and received a vague answer. 

Another shareholder was unhappy about the lack of a presentation. He also criticized the in-person absence of 50% of the directors. In what was the most memorable line of the day, he told Brocade's management, "Make us feel like you give a damn about us [small shareholders]." 

CEO Klayko responded that all the directors were present, but some were present by teleconference. He told this shareholder that he'd seen him present at various meetings throughout the year, so the company did communicate with its shareholders. I may have misheard the next response, but the shareholder responded that the only reason he was able to get access to those meetings was as a client of a brokerage firm. In my mind, if any company is restricting or selectively disclosing material information only to analysts or major shareholders, it would be violating Regulation FD. Please note: I do not have any information about whether any violation of Regulation FD is occurring, and I am not making any allegation of securities law violations. I would be very upset, however, if any company communicated relevant information only to major shareholders post-Regulation FD. 

I asked the CEO about complacency. I asked what the CEO was afraid of or concerned about. The CEO gave me a five item list: 

1. Access to capital. 

2. New technology (which makes current technology obsolete). 

3. Acquisitions that change the competitive landscape. 

4. Innovative quality (how to maintain quality). 

5. Cost (keeping costs low to attract customers). 

CEO Klayko also talked about the "entitlement mentality." He seemed to be channeling one of my favorite CEOs, Cypress Semi's (CY) T.J. Rodgers. 

I asked about various memorabilia in the room, which included a jersey from The City that Shall Not be Named (at least according to ESPN's Bill Simmons) and a signed Hootie and the Blowfish guitar. The CEO didn't know about the stories behind any of the memorabilia. 

Here's where things got a little interesting. I pointed out that Brocade had presented itself as an all-white, all-male company. All four persons at the front of the room representing Brocade appeared to be older Caucasian men. There's nothing inherently wrong with that, and diversity does not guarantee success. At the same time, almost all successful global companies present themselves as non-monolithic. (Pepsi (PEP) and Coke (KO) are way ahead of the game in this aspect.) I also said the executive team's lack of diversity was strange because the company was based in Santa Clara County, where 40% of the population is born outside the U.S. 

One of America's greatest attributes is its ability to project an open, tolerant image, which has attracted many ambitious, diverse people. As a result, we have the Blackberry (Canadian); Yahoo (Taiwanese); Google (Russian); eBay (French Iranian); and so on. Companies and countries that fail to project an open, tolerant image will be disadvantaged as world economies become more globalized, allowing talent and money to move elsewhere. In a nutshell, Brocade appeared to be violating Rafat's Law of Diversity. 

When I mentioned Brocade's appearance of having a 100% native-born Caucasian male executive team, the one and only female on the Board of Directors, Judy Bruner, raised her hand with a smile. Ms. Bruner is probably a great person. She received her MBA from Santa Clara University, my alma mater, and Santa Clara University strives to produce ethical, well-rounded graduates. However, when the only female on a company's Board happily raises her hand to demonstrate diversity, it's hard not to think that the corporate culture is irretrievably monolithic. From my perspective, having only one female on an entire Board is not cause for happiness or active disclosure. Even North Dakota's MDU Resources, Inc. (MDU) has more females on its board (25% of its directors are female) than Brocade. Thus, to me, Ms. Bruner's reaction--immediately identifying herself as the one and only non-male Director, instead of letting the CEO acknowledge the company's lack of diversity--felt strange. By the way, with the exception of perhaps three or four people in the entire room, everyone else present appeared to be native-born Caucasian also, which isn't an inherent problem, but still unusual in a diverse city like San Jose, California. 

CEO Klayko did not acknowledge his management team's lack of diversity. Instead, he said that we needed to create better educational opportunities here in the United States, and we were falling behind in science and math. He said Brocade was participating in the Tech Challenge, which encouraged children to pursue careers in math and science. In other words, Brocade was actively working at the local level to attract diversity. CEO Klayko joked that he was recruiting [minorities] at the 5th grade level. In response to my comment that we lived in a county that where 40% of the residents were immigrants, he said Brocade was a global company, not a local one. 

Unfortunately, his response confirmed my belief that Brocade's management culture is monolithic. Most studies show that Caucasians are only 20% of the world population. Assuming a 50/50 split in females and males, only 10% of the world contains Caucasian men--which indicates the CEO's response wasn't statistically sound. Again, there's nothing wrong with having 90% or 100% of any race on a management team. In fact, after the meeting, Investor Relations pointed out that of the 8 directors, one was a female and one was Indian--not a bad percentage. It's culture I am concerned with, not race. From what I saw at the meeting, Brocade's management team seems to lack cultural diversity. Strike three against Brocade's management team. After the IBM news was released publicly, I sold all but one of my shares. If Brocade works well with IBM, its shares may go higher in value; however, Brocade's relatively high debt load may inhibit its shares' forward progression. 

I really enjoyed listening to the CEO. He appeared energetic, strong-willed, charismatic, opinionated without being crass, diligent, goal-oriented, and knowledgeable--in other words, someone born to be a leader. I could immediately see why he ascended the corporate ranks. At the same time, passionate CEOs generally need a Board and executive team willing to speak up and provide a voice of caution. I'm not sure that's going to happen. Strong-willed leaders tend to unintentionally crowd out dissent, especially when their companies lack a substantial number of women in the upper ranks. With only one female and one Indian-American on the Board, I don't see Brocade's current management team as being sufficiently diverse. Perhaps I am wrong. On my way out, I passed by a room with many busy workers. Everyone in that room appeared to be of Indian descent. 

Note: Brocade has a blog. CEO Klayko's most recent post is here. The first line of his post is this: 

We are a nation and an industry curled up in the fetal position. 

It's hard not to like someone so direct, passionate, and intelligent.

Vampire Pensions

As if we didn't have enough to worry about, the FT's Charles Millard warns us about "vampire pensions":

http://www.ft.com/cms/s/0/5d8b4d42-2ac8-11de-8415-00144feabdc0.html

While economists worry about “zombie” banks holding back lending, vampire pension plans may soon be stalking a company near you. The underfunding of America’s corporate defined benefit pensions poses a daunting challenge, threatening not only their 40m beneficiaries but the entire US economy.

Oh, the many unfunded obligations.

Cash is King

Just keeping my readers posted. I sold most of my stocks and mutual funds today. Tomorrow, April 23, 2009, the government will release two sets of important numbers: one, unemployment claims; and two, Existing Home Sales. It is possible these numbers will be quite good. I doubt it.

On April 1, 2009, I told my readers that government action would make the market rise. As I predicted, it did. The S&P 500 rose from 811.08 to 843.55, a gain of 4% in just three weeks.

I still believe the S&P 500 will, sometime this year, hit my original target of between 920 and 950; however, I don't see much point in being in this market right this second. My personal risk analysis can't countenance holding mostly equities for a potential 10% gain over the next six months. I believe I will have another opportunity to jump back into the market.

If the numbers released tomorrow are good, the market will continue to rise, and I will have missed out on potentially major gains. That is a risk I am willing to take. Staying mostly in equities right now, without knowing the home sales numbers, seems too dangerous.

My short-term trading strategy has limited my losses. My retirement funds have declined approximately 14% from December 7, 2007 to April 22, 2009. (I don't know the exact percentage. Throughout the year, I deposit additional monies in my retirement accounts, which distorts the ultimate percentage even after accounting for the new deposits.) The S&P 500 has declined around 44% during this same time period. Perhaps buy-and-hold investors will laugh last, but for active traders, cash seems like a safer place to be right now than equities.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Ayn Rand's The Fountainhead

I recently watched Ayn Rand's film, The Fountainhead. Overall, the film was excellent. To get a view of Ms. Rand's philosophy, you can read Howard Roark's closing argument to the jury here.

I liked the film, but disliked Ms. Rand's character, Dominique Francon. Ms. Francon seems sexually and emotionally repressed, mostly because her existence seems geared towards achieving an absence of emotional attachment or passion. For example, she destroys a statute she enjoys, and she marries a man she does not love. Gary Cooper, on the other hand, does a fantastic job playing Rand's ideal man, Howard Roark. Part of this may be individualism's bias towards men. Men, more so than women, do well under an individualist philosophy. After all, most women, because of biology, have to think of children. Unsurprisingly, Rand never had children:

It was a responsibility that she was not interested in assuming. When she was writing Atlas [Shrugged], she would sometimes say that she was "with book." The only children she wanted were her books.

And therein we see the problem with too much individualism. Child-rearing is fundamentally a self-less act. It is true that many parents wish to live second lives through their children or have them for other selfish reasons, but at least for the first six years, there is a tremendous amount of sacrifice inherent in being a parent. Thus, when you factor child-bearing and child-rearing, Rand's philosophy doesn't translate well to a growing population or to one where mothers are given additional support.

Yet, it is true that most inventions and advancements have come from a few people. Without Galileo, Marie Curie, Einstein, and other famous scientists, it is unclear how advanced humankind would be at this point. Due to its rigor, science--like writing and other productive enterprises--requires a level of introversion that overwhelms a desire subjugate one's selfish enterprise to others' desires. We can look to the term, "mad scientist," to understand that scientists are generally misunderstood, because most people prefer to spend time with people, not abstract concepts. Indeed, almost every film about scientists depicts them as crazy or eccentric. So Ayn's basic point is true--scientists need to shut out the world and be intellectually independent to achieve results. Societies that protect the scientist and/or the independent intellectual's work create better opportunities for overall advancement (for example, attitudes towards stem cell research may be used as a test study of a society's willingness to allow scientific progress). It is unclear, however, whether selfishness and intellectual independence and progress are necessarily intertwined.

Regardless of the answer to whether selfishness is the sine qua non of progress, there is a balance that must be achieved, and Rand does not seem to know how to achieve it. In fact, there is no greater argument against pure individualism than Dominique Francon, who is made up to look like Rand herself in the film. To see Francon's internal writhing on her own forced island, torn between complete independence and submission to her desires, is to understand that Rand's philosophy is a recipe for unhappiness.

It is possible to have a society that protects mothers, that views child-rearing and child-bearing as honorable acts, and one that also respects the intellectual solitude/selfishness of the scientist or entrepreneur. It is also possible to argue that altruism has an important place in society and is not superfluous. Intelligent libertarians, for example, do not argue that no laws are necessary to protect selfish or independent behavior--just that the least number of laws necessary to achieve stability is desirable. In other words, society needs to establish a balance between selfishness and societal obligation by the least coercive mechanisms possible.

Rand's philosophy of pure selfishness doesn't do much for balancing generally desirable traits, such as altruism, with other desirable goals, such as freedom. As a result, Rand makes it difficult for reasonable people to support her absolutist views.

TurboTax Blog

TurboTax has a blog:

http://turbotaxblog.typepad.com/turbotax_blog/

Definitely worth a look-see.

On Pakistan: Guest Writer Javed Ellahie

While the American media focus on Iran and sometimes on North Korea, Pakistan is looking more and more like the next danger zone. The Pakistani government recently appeased the Taliban by allowing them to enforce "Islamic" law in various parts of the country. Realizing the danger of allowing the Taliban to take over an entire state, various countries pledged billions of dollars to Pakistan to bolster faith in the state's existing government. Will it work? My guest writer, Javed Ellahie, a local Pakistani-American attorney, does not believe so.

I asked Mr. Ellahie for his input on the situation after watching a chilling Frontline episode, "Children of the Taliban," which can be found here. Mr. Ellahie's response to me was not something I've seen in the mainstream media, so I asked his permission to share it. He agreed. His response is below.

U.S. Aid to Pakistan - Billions of Dollars in Paper Cannot Undo Billions of Dollars in Bombs

Pakistan is going through a very trying time. It is a country that lives in a part of the world where China, Russia and India were the neighborhood bullies. With the rise of Al Qaeda and the tit-for-tat response of “take no prisoners” by the U.S., the whole neighborhood has gone bully-whack.

Pakistan’s frontier province has always been a no-man’s land. Pakistan’s control consisted on having the tribal chiefs on her side. This could continue as long as Pakistan was the toughest kid on the block. Now, the tribal chiefs have taken on the Americans and no longer need to bow to Pakistan or anyone else. They believe that they control their own destiny and Pakistan is nothing but a pet of the U.S.

While the U.S. has announced billions in aid, it will go to waste. U.S. Aid is channeled through consultants and corrupt politicians. By the time it gets to the target, it is worth no more than a piece of shrapnel that started as a million dollar cruise missile and now lies in between the blown out limbs of the unsuspecting as they slept in their two dollar mud house.

Pakistan's civil movement holds promise, but it must not be directed at fighting a battle which, by its continuation, will destroy the country. Its energy must be channeled into efforts towards building a civil and just society in Pakistan. The best the U.S. can do is not to send billions into Pakistan but to leave and let Pakistanis and the frontier men run their own lives.

The U.S. and Pakistan's bombing of the tribal areas destroys the village where these fearless frontier men have dwelled for hundreds of years. Having lost their homes, these proud, angry mountain men, whose pride demands that every death be avenged, are descending to the valleys and cities of Pakistan and exacting revenge. How can you convince them that it is wrong to brazenly kill innocent civilians when they themselves have witnessed the wholesale deaths of their innocent family members by unseen (cowardly) drones?

The people of Afghanistan did not consider the U.S. its enemy--Al Qaeda did. By attacking an entire swath of Afghanistan, the U.S. now has made an entire population its enemy and turned ordinary Afghans (and now frontier Pakistanis) into Taliban.

by Javed Ellahie, Esq.

One may call my colleague a cynic. Yet, his plea for the world to let Pakistan alone must appeal to anyone who believes in a nation's right to control its own destiny. In addition, outside interference may encourage more support for the Taliban. It is hard to see how anyone can join such a backwards, violent group. I only understood it after watching the Frontline episode I mentioned above, "Children of the Taliban." I strongly encourage my readers to watch the episode, which can be found on PBS's website.

The Banality of Evil: It Could Happen in America

I recently had lunch in a restaurant and started chatting with three women near my table. I ordered too much food and offered them some of mine, and they invited me to sit with them. After they found out I was a lawyer, they asked me some questions about a fire in their apartment, and I tried to help them out. (They did not have renters' insurance.) At some point, the conversation moved into religion after they asked about my ethnicity.

I know lots of Mormons, lots of Catholics, and lots of people of other faiths who take their religion seriously. I may not agree with everything my friends say, but I respect their beliefs. I am very thankful to live in a country where reasonable people can agree to disagree, and where I can ignore ignorant bombasts. I've never had substantive discussions with fundamentalist Christians before, and after some time, it became apparent all three women were very conservative and very religious Republicans.

These women looked like your average Californians. One was 22 years old, half-white, half-Mexican, and had some streaks of red dyed into her hair. The other was a 26 years old light-skinned African-American. Her father was a pastor. The last woman was a 30 years old Jamaican-American married to a Laotian with a 8 years old daughter. As far as Americans go, this was a pretty diverse group of people.

We talked about George W. Bush, and all three of them liked him. They said you could not blame all of America's problems on one man. I agreed, saying that it was the entire Bush administration that created major problems, including unnecessarily invading Iraq. (I should have mentioned the compliant Democrats, too.) They said they supported President Obama, and even though they did not vote for him, he was now their president and they would try to support him, too. I thought their attitude was very honorable.

On Iraq, I said it was tragic that 100,000 innocent civilians and 3000+ Americans had died. The women responded that Iraq was not a mistake. I confirmed that they understood Iraq had nothing to do with 9/11. Trying to come to a middle ground, I said that perhaps at the time of the invasion, some evidence justified going into the country, but now, it's clear Iraq was never a threat to us. Assuming the only justified war is a defensive war based on defending your people and your country, the Iraq war was unjustified. I asked them again if they agreed invading Iraq was a mistake, based on current information. They still said Iraq was not a mistake.

I then said the war created more enemies. When an errant missile blows up your village, are you going to be pro-American or anti-American? In response to this, one of the women told me, "Why are you hating America? You're here now." I was stunned. I knew some people equated patriotism with total acceptance of everything about one's country, good or bad, but I didn't realize how ingrained this blind allegiance could be. I also didn't realize how many Americans felt that any dissent was somehow unAmerican. It is useful to remind ourselves that America's founding document, the Declaration of Independence, was an act of dissent against America's occupiers, the British.

Thomas Jefferson, for example, said the following:

What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance?

Most codes extend their definitions of treason to acts not really against one’s country. They do not distinguish between acts against the government, and acts against the oppressions of the government. The latter are virtues, yet have furnished more victims to the executioner than the former, because real treasons are rare; oppressions frequent. The unsuccessful strugglers against tyranny have been the chief martyrs of treason laws in all countries.

John Adams, if alive today, might have said the following about President G.W. Bush:

There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.

Alexander Hamilton, on fighting against one's own government (Hamilton is arguing for federalism, but he implicitly accepts the notion that Americans can use self-defense against their own government when it betrays them):

If the representatives of the people betray their constituents, there is then no recourse left but in the exertion of that original right of self-defense which is paramount to all positive forms of government, and which against the usurpations of the national rulers may be exerted with infinitely better prospect of success than against those of the rulers of an individual State. In a single State, if the persons entrusted with supreme power become usurpers, the different parcels, subdivisions, or districts of which it consists, having no distinct government in each, can take no regular measures for defense. The citizens must rush tumultuously to arms, without concert, without system, without resource; except in their courage and despair.

In short, dissent is American--blind patriotism is not.

On invading Iraq, the women said that we went there to help them. "They [Iraqis] asked for our help." Again, I was stunned. I thought we invaded Iraq to protect Americans from being attacked on American soil and to force the terrorists to fight "over there." In other words, assuming a finite number of terrorists, if we concentrated the war against them in the Middle East, they would have to expend resources fighting there and would be diverted from spending time plotting against Americans on American soil. No one said anything in response. I had in front of me three normally functioning people who believed that causing the deaths of 100,000+ civilians was our way of helping the Iraqis, and also, that they had asked for it.

The only time I got their attention was when I mentioned the 3000+ Americans who died. I told them why they would want to put Americans' lives at risk when it was clear now Iraq was never a threat to Americans. 100,000+ human beings didn't seem human to them because they lived in a different place, spoke a different language, and believed in a different religion--but mentioning 3000+ Americans made the death toll seem more real to them.

I tried a different approach: I asked them if they had to do it all over again, knowing what they know now, would they still have invaded Iraq? I was essentially asking them whether they'd save the lives of 3000+ Americans and 100,000+ Iraqis. After all, we know now that neither Iraqis nor Saddam Hussein posed an imminent threat to America. We know now that the war cost trillions of unnecessary dollars, which has reduced our ability to fight the current recession. The women said they would go to war again if given the chance.

That's when it hit me: normal people will believe and do terrible things, as long as they don't see the direct consequences of their beliefs. Like Germans in 1941 who silently accepted their government's gassing of millions of Jews, my American Christian companions believed that their government was doing the right thing to protect them. Most Germans never saw someone getting gassed and then having their teeth pulled. Most Americans have never seen a bomb land on a village, causing a child's family to be wiped out, severed limbs falling everywhere. It's almost like death has become so routine, our brains digest images as if they were from a Hollywood film (with a happy ending, of course). Even thinking about severed children's limbs, I think of an American film, and then of a PBS documentary showing dead children. Even in my own mind, an imaginary death takes precedence over real ones. So when I mentioned a child dying to my lunch companion, she immediately had to block the image by changing the subject into whether I loved America. The real image interfered with her idea of being involved in a just war. It was her own self-defense mechanism.

Blind patriotism makes no room for mistakes--these women were convinced that our country could do no wrong. After the WMD argument was destroyed and the connection to 9/11 absent--what else could they think of to justify their support of the war, but to assign an altruistic motive to the deaths of 3000+ Americans and over 100,000 Iraqi civilians? Their limited viewpoint--the one where 100,000 people were too far away to be real, and yet real enough to ask for "help"--could not handle any unfavorable information. Their mental paradigm required them to believe that their government, as an extension of themselves, was unable to do anything wrong. I've concluded that the most dangerous people are blind patriots. Whenever you refuse to call the unnecessary deaths of 103,000+ human beings a mistake, there is evil there somewhere. And it's utterly, tragically banal.

After my conversation with these women was finished and they had left, another woman told me she had overheard our conversation. Years ago, she had been in a U.N. refugee camp on the border of Cambodia and Thailand. In the camp she was in, Thai troops would come and shoot anyone who didn't have an ID. With only three or four U.N. personnel there to supervise the camp, these executions occurred on a more than rare basis.

She said that some Americans don't get it. The U.S. military, during Nixon's time, bombed Cambodia, which led to the Khmer Rouge, the opposition political party, becoming popular and gaining power (A similar course of events happened with the Nazi Party in Germany). See "Operation Menu," Nixon's 1969-1973 bombing campaign. As we now know, Pol Pot's Khmer Rouge wiped out Cambodia, which, up to that point, had been a peaceful nation for centuries. Like the Iraqis, the U.S. government saw the people of Cambodia as nothing more than faceless pawns in a grander scheme. I am sure the American government wanted to help Cambodians, too.

Few people will kill another human being without some kind of greater ideal at work; however, it is the duty of responsible, educated people to remember the ravages of war and to demand that an actual threat exists before advocating war. Americans used to be responsible. When we found out about Nixon's bombing campaign, which killed 100,000+ Cambodians, protests broke out all over America's college campuses. College students died at Kent State. Even Congress acted, passing the Cooper-Church Amendment, which was supposed to limit Nixon's activities. (It did not. Like Bush II, Nixon did what he wanted to do, critics and other government branches be damned.)

Today, Americans have either forgotten history or are willfully ignoring it. My three companions, like the young students in the 1960's, should have been protesting the war once they realized Iraq posed little threat to the United States. Yet, even with the benefit of hindsight, they are willing to allow the deaths of 100,000+ civilians and 3000+ American soldiers. These are normal, sane Americans. They go to church, believe in God, and have families. They will not commit any crimes. They are some of the most dangerous people in America today.

We are so fortunate to live in a country with two vast oceans to protect us against invasion and with two allies as neighbors. We should not spoil our good fortune by allowing average or bloodthirsty Americans to dictate foreign policy. The reality of war--with its torn limbs, dead dreams, and dead bodies--will never fully register as long as most Americans continue to view executions on a big screen instead of next door. Our fortunate distance between death and reality should cause us to be more, not less, wary whenever our leaders argue that 100 or 100,000+ people need to die so that we can be safe.

Furthermore, it is every non-native American's duty to try to interact more with native-born Americans in a respectful manner. Most Americans have not traveled outside of North America. Therefore, the only avenue most Americans have to interact with other cultures is through non-native American residents. It is our duty to try to humanize other cultures for native-born Americans. It is our duty to reach out. It is our duty not to be banal.

Civilizations die from suicide, not by murder. -- Arnold J. Toynbee

Bonus: more here. 

John C. Goodman on Health Care

John Goodman (Imprimis, 3/09) delivers a common sense speech about America's financial obligations:

http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2009&month=03

He starts off with a bang:

The first of the Baby Boomers started signing up for early retirement under Social Security last year. Two years from now they will start signing up for Medicare. All told, 78 million people are going to stop working, stop paying taxes, stop paying into retirement programs, and start drawing benefits. The problem is, neither Social Security nor Medicare is ready for them. The federal government has made explicit and implicit promises to millions of people, but has put no money aside in order to keep those promises. Some of you may wonder where Bernie Madoff got the idea for his Ponzi scheme. Clearly he was studying federal entitlement policy.

It gets better--well, actually it gets worse:

The Trustees of Social Security estimate a current unfunded liability in excess of $100 trillion in 2009 dollars. This means that the federal government has promised more than $100 trillion over and above any taxes or premiums it expects to receive. In other words, for Social Security to be financially sound, the federal government should have $100 trillion—a sum of money six-and-a-half times the size of our entire economy—in the bank and earning interest right now. But it doesn’t. And while many believe that Social Security represents our greatest entitlement problem, Medicare is six times larger in terms of unfunded obligations.

How much do we owe? Mr. Goodman answers that, too:

[I]f the federal government suddenly closed down Social Security and Medicare, how much would be owed in terms of benefits already earned? The answer is $52 trillion, an amount several times the size of the U.S. economy.

52 trillion dollars. Look at that number again. Fifty two trillion dollars, with a "t."

What makes Mr. Goodman different from most writers is that he actually offers solutions. That's the second part. You can click on the link below for his full speech:

http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2009&month=03

One of the Best Films Ever Made

I've just seen a wonderful Swedish film, Pelle the Conqueror. In 1988, it won an Academy Award for best foreign language film. The following year, it won a Golden Globe.

Pelle tells the story of two Swedish immigrants, an old father and his young son, who immigrate to Denmark around 1900. Like many immigrants, they dream of a better life, but are met with obstacle after obstacle. The world will not allow the father even the smallest of victories--whether it's a second job offer, a home to sleep in with coffee on Sundays, or the power to protect his son from bullies. Yet, somehow, the film manages to avoid being overly sentimental. If you're looking for a classic tale of a father and his son, you should not miss this film.

Esther Ting

I didn't know Esther Ting. I don't usually read the obits, but this one caught my eye, and by the time I was done reading it, I was tearing up. Here is the obit:

http://www.legacy.com/obituaries/mercurynews/obituary.aspx?page=lifestory&pid=126321830

A friend's posts on Esther:

http://salcha.tumblr.com/post/96331972/in-loving-memory-of-esther-ting

http://salcha.tumblr.com/post/97737651/esther-ting

According to the above link (posted by Esther's friend on April 17, 2009), Esther died from a drug-related heart attack:

Now many of you are all wondering, how did Esther pass? What happened? Where, when, who..and so on...Wednesday April 8th, Esther overdosed on drugs which led to a heart attack. From what I heard from the nurse, she told me that they were able to resuscitate her, but her heart failed again and that’s when she passed.

Why would the world take a woman a few weeks before her 19th birthday? This makes no sense. It just makes no sense. May God help her family and those who were fortunate enough to know her.

NYT Immigration: "Remade in America"

The entire NYT series on immigration--called "Remade in America"--is fascinating. The link is below:

http://projects.nytimes.com/immigration/

Here's a so-so link linking countries and occupations:

http://www.nytimes.com/interactive/2009/04/07/us/20090407-immigration-occupation.html

Some interesting points: Iran is under Asia rather than Middle East; and sales-related professions seem to be the most popular occupation.

NYT Immigration Chart

I am having way too much fun with this NYT immigration chart:

http://www.nytimes.com/interactive/2009/03/10/us/20090310-immigration-explorer.html

You can get stats based on year (as far back as the 1800's!) and country.

Thanks to the NYT's Matthew Bloch and Robert Gebeloff.

Amica and Renter's Insurance

So it's 2AM on Saturday morning, I've just finished watching a terrible movie (Love, Honour and Obey, a BBC flick that came out in 2000), and I remember that a friend of mine told me to get renter's insurance.

Not being a materialistic type of person, I don't own that much expensive stuff, so I never bothered with renter's insurance. Well, as it turns out, renter's insurance is helpful because it also contains other components, like liability insurance. As my friend said, if you are walking and you accidentally bump an old lady into the street, causing her to die, your personal assets are at risk. That's where renter's insurance apparently comes in, to protect your personal assets. (Note: I do not own a home; otherwise, homeowner's insurance may have covered me.) It all seems counter-intuitive, but I guess it makes sense in the crazy world of insurance.

My friend recommended buying renter's insurance from my auto insurer to get a discount, but I decided to go with a different company. My auto insurer is Progressive, and they're not known for anything other than auto insurance. He also recommended buying an umbrella policy, but I forgot about that.

Anyway, I go online to find a good insurance company, and I stumble upon this website:

http://insurancenewsandviews.blogspot.com/

http://insurancenewsandviews.blogspot.com/2009/02/best-home-insurance-companies-usaa.html

I find that Chubb and Amica have good rankings (I'm not eligible for USAA, and Erie reminds me too much of a Civ Pro case), and I go with Amica. I log onto their website and use Amica's "live chat" feature. I get this great customer service rep who guides me through the process. Throughout the whole exchange, I am thinking, "This is great. It's almost 3:00AM right now, and this guy is alert and on the ball." Because of the time difference, I thought maybe the customer service rep was in India. At the end of the whole thing, I ask where he's from. Turns out he's from Spokane, WA.

Here's the exchange:

Matt: Given the time diff, I assume you're in India. What part of India are you in?

Matt: Gu[j]arat?

Joseph N.: Spokane, WA.

Matt: Oh, wow.

Matt: Very cool.

Joseph N.: We do it the hard way, graveyard, old fashioned right?

Matt: No wonder your English was perfect :-)

Matt: Damn good customer service, buddy.

Joseph N.: Thank you! We have people for you 24/7, so if you ever want to look at switching your auto let us know ;)

Joseph N.: I appreciate it!

Matt: Don't stay up too late. Have a good night.

Matt: Bye.

Joseph N.: You as well, goodbye.

I've always wondered if outsourcing customer service results in less overall quality. Of course, it depends on the individual, but perhaps there's something to be said for encouraging live, domestic customer service. I ended up buying the policy. I pay by credit card on Monday.

Oh, I learned a new word, too: "binding." A verbal confirmation of insurance coverage is called "binding"--as in, "I can bind the policy effective today." Who knew?

I am off to bed.

Update: the NYT just had an interesting article on insurance:

http://www.nytimes.com/2009/04/18/your-money/life-and-disability-insurance/18wealth.html

Blog Referral

I'm still recovering from tax day, so not much writing for me today. But here's a blog I just found:

http://undomesticmama.typepad.com/the_undomestic_mama/

It's mainly about econ, of course.

Susan Boyle

Susan Boyle's excellent rendition of a Les Miserables song has made her popular beyond her wildest imagination. It strikes me as odd why no one is mentioning the sad lyrics to her song. I've included the lyrics below. If one reason for Ms. Boyle's excellent performance is that the lyrics hold some truth for her, then I would feel quite sad. Having said that, I hope Ms. Boyle wins.

Lyrics to "I Dreamed a Dream"

I dreamed a dream in time gone by
When hope was high
And life worth living
I dreamed that love would never die
I dreamed that God would be forgiving.

Then I was young and unafraid
And dreams were made and used
And wasted
There was no ransom to be paid
No song unsung
No wine untasted.

But the tigers come at night
With their voices soft as thunder
As they tear your hope apart
As they turn your dream to shame.

And still
I dream he'll come to me
That we will live the years together
But there are dreams that cannot be
And there are storms
We cannot weather...

I had a dream my life would be
So different form this hell I'm living
so different now from what it seemed
Now life has killed
The dream I dreamed.

___________

Another singer of the same song is here:

http://www.youtube.com/watch?v=Yt-IBJpEMzA

Shareholder Communications: Kudos to Dominion

Writing shareholder communications is a thankless task. Most shareholders throw away the reports, and even the ones who keep them won't read the fine print. This apathy results because most companies do a terrible job communicating with their small shareholders. With the exception of Berkshire Hathaway (aka Warren Buffett), no company seems to invest much time in producing creative or thoughtful shareholder communications. I know this because I read all my annual reports. I don't claim to understand everything I read, but I love reading them. Here are some highlights so far:

1. GE's 2008 annual report was excellent. Mr. Immelt continues to do a great job re-building his own and his company's reputation. When Mr. Immelt states, "I assure you that we will work hard to restore your trust, and we will continue to work hard to build GE for the long term," I believe him. Here are some other notable sections from the letter:

On government's expanding role: The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

On Wall Street: The financial industry will radically restructure. There will be less leverage, fewer competitors, and a fundamental repricing of risk. It will remain an important industry, just different.

On America's future: I run a global company, but I am a citizen of the U.S. I believe that a popular, thirty-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. In the end, our businesses, our government, and many local leaders lost sight of what makes a nation great: a passion for innovation.

You can read the full letter here.

2. Other companies also took their duty to communicate to shareholders seriously. Kudos to Dominion Resources, Inc. (D) for its transparent, detailed 2009 proxy statement. I've always believed companies should be as transparent as possible when it comes to compensation and other issues, and Dominion did a fantastic job this year. It even managed to do a decent job defending the indefensible--supplemental executive pension plans. You would think after being paid millions of dollars, executives could manage their retirements without further shareholder assistance, but most companies pay executives millions of dollars after their executives leave.

Dominion stated that much of its executive compensation is based on long-term goals, so it needed an extra carrot to attract top performers. In addition, it argued its supplemental pensions are tied to restrictive covenants such as non-competes, dissuading retired executives from working for competitors. (Some states, such as California, won't enforce non-competes, but Dominion isn't a California corporation.) Elsewhere in the report, Dominion supported its arguments with charts showing that most of its executives' compensation was tied to long-term goals rather than base salaries. I'm not saying I was convinced, but at least I can clearly understand Dominion's point of view.

So far, only Dominion and Walmart have caught my eye when it comes to outstanding shareholder reports. They deserve recognition for their outstanding work.

Dominion isn't perfect. Page five of its "2008 Summary Annual Report" has a picture of a television screen showing what appears to be a generic basketball game. No one but a huge basketball fan would notice anything unusual about the picture, and even then, you'd need a magnifying glass to notice anything non-generic. Now, I happen to be a huge basketball fan, and I recognized Grant Hill and Joe Dumars from their Detroit Pistons days. What's the problem? Grant Hill hasn't played for Detroit since 2000. Joe Dumars hasn't played for Detroit since 1999. That means Dominion used a picture that is at least nine years old. Do'h!

Government in Action

I don't know how I missed this tragically funny story about American immigration agents spreading the love, Homeland Security-style:

http://www.startribune.com/local/11592171.html

Erkki Maattanen, a filmmaker for Finnish Public Television who accompanied the musicians on the September trip, said his questioners seemed to think the entourage was smuggling drugs or intending to work without a permit. "I kept trying to tell them why we were here, but they'd just yell, 'Shut up!"' he said.

Ladies and gentlemen, your taxpayer dollars are hard at work.

Hat tip to http://thisiswhyiloveminneapolis.com/

Guantanamo Redux?

Wait, didn't we vote for change?

http://politics.theatlantic.com/2009/04/obama_appeals_bagram_detainee_ruling.php

I'm not going to say, "Meet the new boss--same as the old boss"--at least not yet. There appears to be a fine legal distinction involved in the appeal, but my spidey-sense is tingling.

Check out the April 15, 2009 Tom Toles cartoon for more.

Boston Globe's Big Picture

This link contains many interesting pictures and is regularly updated:

http://www.boston.com/bigpicture/

If a picture says a thousand words, there's lots of reading there, bub.

Pete Murphy is Wrong about Immigration

Pete Murphy and I had are having another short discussion on immigration, this time on his blog. We've had this debate before, and I went back for Round 2. See below (comments section):

http://petemurphy.wordpress.com/the-case-against-immigration

Here are my responses to Mr. Murphy's anti-immigration views:

1. I agree that California is a fiscal disaster. That's because California spends most of its tax revenue on education. In addition, the salaries, medical costs, and pension obligations of public sector employees--officers, firefighters, teachers, etc.--create a significant impact on CA's budget. Illegal immigration is a convenient scapegoat for CA's refusal to cut spending across the board. See this PDF file for more information:

http://www.ebudget.ca.gov/pdf/BudgetSummary/SummaryCharts.pdf

It shows that education is the #1 spending item in CA, by far; then comes health and human services; then jails (CA jails too many nonviolent criminals). Some illegal immigrants may receive health and human services, but until we receive a breakdown of how much money or services is given to illegal immigrants, blaming them for CA's budget crisis is, at best, resorting to speculation, and at worst, scapegoating. Keep in mind also that immigrants pay sales taxes.

2. As for your dismissal of the idea that you might be deporting our next generation of ideas, you don't have any statistics supporting your view. My previous posting had a link showing that at least 1/2 of the companies in Santa Clara County were founded by immigrants or children of immigrants. If we accept your philosophy of slow growth, San Jose, S.F., L.A., and N.Y. all disappear as we know it.

Gone are also Google (Russian immigrant), eBay (Iranian French immigrant), Sun (Indian immigrant), Intel (Hungarian), and so on. Basically, if we followed your advice 20 years ago, we'd be decades behind in technological progress.

3. You want America to look like Indiana--a nice place, certainly, with good schools, low population growth, and ample land. But let's not confuse economic growth with other amorphous variables, such as happiness or quality of life. It is clear that more immigration leads to more jobs and more overall income. If that wasn't the case, immigrants and younger Americans would not be flocking to the larger cities. Your distinction that per capita income declines as more people gather in a particular place isn't significant in a globalized world where companies can ship jobs anywhere. There must be a reason companies and their employees stay in a particular city, even as per capita income declines. If declining per capita income was a problem, intelligent Americans would be flocking to smaller or low growth cities. They are not.

I am actually in agreement with you re: your main thesis. If you want a slower pace of life and a more close-knit community, lower growth policies and protectionism are conducive to those goals. Thank goodness we live in a country where you can freely move to Indiana, Montana, or another state where the majority population agrees with your slow growth philosophy. That's the beauty of America--there's somewhere pleasant for everyone.

However, advocating protectionism and closed borders would involve a serious reversal of American dominance and prestige. Other countries would start creating jobs and companies at our expense, immigrants would start going elsewhere (like to Canada and Australia), and America would fall decades behind in job growth. A reversal of overall growth, if accepted, may lead to future generations of Americans moving to Canada, Australia, India, China, and Singapore to find jobs or deciding not to work at all (e.g., Japan's "hikikomori"). We take for granted that much of the educated world speaks English, knows about the Simpsons, and drinks Coke. The minute we stop creating jobs and attracting foreign talent, we make it harder for future Americans to succeed in the global marketplace.

In short, be careful what you wish for. We owe much of America's progress--and almost all of its technological progress--to immigrants. Societies that fall behind the global race rarely catch up.

Pensions

If you're into pension reform, this book might be interesting:

http://www.amazon.com/US-Pension-Reform-Lessons-Countries/dp/0881324256

I haven't read it, so if you do, let me know if it's worth a look-see.

Intel's Founder on America's Future

Fantastic article from the NYT:

http://www.nytimes.com/2009/04/12/business/12immig.html

“We are watching the decline and fall of the United States as an economic power — not hypothetically, but as we speak,” said Craig R. Barrett, the chairman of Intel.

I've sued Intel before, so I don't agree with everything it says or does, but Mr. Barrett knows of what he speaks. The fact that politicians are not heeding intelligent entrepreneurs like Mr. Barrett means our political system is broken. Politicians seem to be incapable of educating their constituents about the benefits of immigration. Part of the problem is that media outlets, which used to have substantive political discussions, such as FDR's fireside chats, have moved away from being an educational tool. In addition, the media's shock-value brand of journalism has diluted America's capacity for intelligent analysis.

When the Internet came on the scene, it seems that traditional media outlets ditched intelligent commentary and analysis in favor of "Do whatever it takes to look at me" journalism. Prior to the Internet, for example, reality television--where a loudmouth or superficial person was vaulted to celebrity status--was a small portion of mainstream media. (MTV's "The Real World" was really the only major reality show for years.) In contrast, today's media items are designed to appeal to the lowest common denominator (e.g., Octo-mom) to attract readers. In an age of video games, the Internet, text messaging, and numerous other entertainment options, mainstream media resorted to bottom-feeding to get eyeballs. As a result of so much information--most of it devoid of any real analysis--the public gets little news that has any real substance. If you assume that mainstream media is an important pillar in keeping a country on the right path, the media's declining standards should frighten you.

Speaking of pillars, the New York Times has been a beacon of light throughout America's history. It was responsible for the seminal case of NYT vs. Sullivan, which affirmed a newspaper's right to publish controversial new reports without fear of litigation. Here is one of my favorite parts of the opinion:

Those who won our independence believed . . . that public discussion is a political duty; and that this should be a fundamental principle of the American government. They recognized the risks to which all human institutions are subject. But they knew that order cannot be secured merely through fear of punishment for its infraction; that it is hazardous to discourage thought, hope and imagination; that fear breeds repression; that repression breeds hate; that hate menaces stable government; that the path of safety lies in the opportunity to discuss freely supposed grievances and proposed remedies; and that the fitting remedy for evil counsels is good ones. Believing in the power of reason as applied through public discussion, they eschewed silence coerced by law - the argument of force in its worst form. Recognizing the occasional tyrannies of governing majorities, they amended the Constitution so that free speech and assembly should be guaranteed."

Thus we consider this case against the background of a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government and public officials.

Now ask yourself: are Octo-mom, Madonna's adoption efforts, and Lindsey Lohan's romantic exploits what America's founders contemplated when they talked about our duty to have "robust" political discussions? To wit: the top stories on Yahoo's main portal right now are about a ship captain's rescue; Obama's dog; Lohan's hair; and cable TV bills. Go back and re-read Mr. Barrett's comment above.

Oh, the decline of an empire.

Law Enforcement Deporting U.S. Citizens

American law enforcement appears to be intentionally deporting U.S. Citizens:

http://news.yahoo.com/s/ap/mistaken_for_illegal_i

I am too stunned right now to have any intelligent comments.

Michael Lewis on Iceland and its Financial Collapse

Why you never, ever want to tick off a great writer--especially not someone as good as Michael Lewis:

Maybe because there are so few Icelanders in the world, we know next to nothing about them. We assume they are more or less Scandinavian—a gentle people who just want everyone to have the same amount of everything. They are not. They have a feral streak in them, like a horse that’s just pretending to be broken.

Lewis castigates the entire Icelandic male race in explaining the country's financial collapse. You can read the full Vanity Fair article here.

NYT on Law Firms Coping with the Recession

The NYT (April 4, 2009, Adam Cohen) had an article on the legal profession and the recession:

http://www.nytimes.com/2009/04/02/opinion/02thu4.html?em

For years, law school tuition rose along with big-firm salaries. Between 1990 and 2003, the cost of private law schools rose at nearly three times the rate of consumer prices. The average graduate now leaves with more than $80,000 in debt...

More schools may follow the lead of Northwestern, the first top-tier law school to offer a two-year program.

Astute readers can see that the high debt load and the length of most legal study programs are related. The third year of law school is usually unnecessary, unless students participate mainly in clinics or other programs that provide practical experience. My third year, I worked part time in a law firm. By year three, most law students are finished with their core bar classes and are spending most of their time looking for jobs or working. How much are they paying for this privilege of looking for work, interning for free, or working part-time? About $40,000 for some private law schools.

I have always said big law firms were pyramid schemes. At some point, all pyramid schemes collapse under their own weight. You can only get so top-heavy before something gets crushed.

Reason #3745 to Be a Libertarian

This video makes my blood boil. Bruce Babbitt is an idiot. First, he talks about retaliating against an employee for creating more transparency into his department; then, he refuses to answer any questions about how his department is using taxpayer funds. Didn't we fight a war to get away from people who acted like high and holy kings?

Update: Babbitt has not been Secretary of Interior since 2001. It's an old video.

Molly Ivins on Camille Paglia

I have to confess, I like reading Camille Paglia. When it comes to sheer entertainment value, she can't be beat. Molly Ivins on Camille Paglia is hilarious:

http://www.its.caltech.edu/~erich/misc/ivins_on_paglia

One fashionable line of response to Paglia is to claim that even though she may be fundamentally off-base, she has ``flashes of brilliance.'' If so, I missed them in her oceans of swill.

Ouch. If newspapers want more readers, they need more writers like Mike Royko and Molly Ivins. May they rest in peace.

My Call on Wells Fargo Stock Was Accurate

On February 25, 2009, Wells Fargo (WFC) stock was selling for $13.44/share. I wrote an article where I praised WFC as undervalued:

http://willworkforjustice.blogspot.com/2009/02/treasury-on-wells-fargo.html

http://seekingalpha.com/article/122533-wells-fargo-should-emerge-from-this-crisis-stronger

At the time, President Obama had said that the government would continue to do whatever it took to support banks. Recently, the government allowed banks to use more flexible accounting to value certain assets.

Today, Wells Fargo stock reported better-than-expected earnings. WFC closed at $19.61/share, a 46% increase.

Personally, I bought Wells Fargo on margin all the way down to the single digits and sold at around $14/share. If I had Warren Buffett's money, I would have held on, but I couldn't handle having so much stock on margin. As it stands, I ended up losing some money on the WFC trades because I started buying shares at around $20/share.

It remains to be seen whether my most recent prediction--that the S&P will go to around 950--will come true. At this time, I continue to believe the S&P will rise to somewhere around 920 to 950.

Government Deficits Do Matters

Fun stuff from the Peterson Institute:

http://www.owenandpayne.com/why_you_owe.php

Each American now owes 184,000 dollars because of America's deficits.

SJ Merc on San Jose's Budget Issues

John Woolfolk talks about San Jose's budget problems:

http://www.mercurynews.com/ci_12058054?IADID=Search-www.mercurynews.com-www.mercurynews.com ["Top SJ management agrees to pay freezes and cuts."]

I am curious to see how cities expect to get more revenue. It doesn't seem like anyone has the stomach for layoffs and other spending cuts. Thus, Californians should expect higher taxes in some form unless they accept the fact that government has expanded too much over the last ten years. Cutting back on government unfortunately means laying off some government employees and/or reducing pension and COLA contributions. When times are flush again, we can afford to be generous. 

Silicon Valley Income Statistics

According to the WSJ (2/17/09, B4, article by Pui-Wing Tam), 42% of households in Silicon Valley earned more than $100,000/year. "Meanwhile, the percentage of households earning less than $35,000 a year reached 20%, up from 19% in 2002."

I hate these kinds of statistics--the term, "households," is so vague. It could be one person earning $101,000/year, or two adults earning $51,000/year. Still, it looks like the recession may not affect Silicon Valley as harshly as other locations. I don't see housing prices dropping severely (not any more than they already have, I mean). Despite the recent condo construction, Santa Clara County doesn't have an oversupply of housing.

Also, the new developers don't seem to have thought things through. Most of the new condos are in downtown San Jose, which won't attract families. If they were trying to cater mainly to singles and young adults, they made a mistake. Most singles won't be able to pay a high price for housing because of two reasons: one, young singles have only one income; and two, they are not in their peak earning years and probably have student loan debt.

Racial Divide?

Here's an interesting political map about Obama's and McCain's voters, when divided by race:

http://www.fivethirtyeight.com/2009/03/how-did-white-people-vote.html

I enjoyed reading the comments. One comment pointed out that the map lacks a control. Without comparing the Obama/McCain map with the Kerry/Bush election, one can't reasonable conclude anything significant. Chances are, the maps might be similar for both elections, meaning there was no racial pattern in the 2008 election.

Just for the Record: NBA Draft (2009)

UConn's Stanley Robinson will be the best player out of this year's NCAA class. My ideal draft order would be this:

1. UConn's Stanley Robinson (Update: he hasn't declared for this year's draft.)
2. Spain's Ricky Rubio (assuming he declares for the draft)
3. Carolina's Ty Lawson
4. Oklahoma's Blake Griffin

Ty Lawson is a wild card. He obviously carried Carolina to the championship, but it's hard to predict PG success based on college play. Just look at UConn's Khalid El-Amin and MSU's Mateen Cleaves. At the same time, he reminds me a little of Orlando's Jameer Nelson.

I am looking forward to seeing Blake Griffin's brother develop--he may become even better than his brother.

By the way, am I the only one who thinks DeJuan Blair might be the second coming of Robert “Tractor” Traylor?

Hamed Haddadi

Today's WSJ (April 7, 2009) has an excellent article on Iranians and Hamed Haddadi, the first Iranian NBA player:

http://online.wsj.com/article/SB123906169774395129.html

Kudos to Joel Millman for writing a great article. Here's one snippet:

Iranians, over a million strong in North America, began coming to the U.S. in significant numbers in the 1970s, before Iran's Islamic revolution and the break in diplomatic relations with Washington. Among the most educated of all immigrants, Iranians -- or "Persian-Americans" as many prefer to be called -- are one of America's wealthiest immigrant communities per capita, according to demographers who crunch U.S. census data.

Mr. Millman definitely did his homework. I'm going to write him an email thanking him for the article right now.

Update: I am going to order Mr. Millman's book, The Other Americans.

Net Worth Numbers

If you ever want to deal with a statistical nightmare, try attaining reliable average and median net worth figures. Below are a smattering of net worth numbers, all vastly different:

From Boston Globe (2009, Jenn Abelson, "The Loss Generation"):

35 and under group: $76,400 (average)

From All Financial Matters (2006):

35 and under group: $14,200 (median) $73,500 (average)

From WSJ (2004, Kelly Greene, "Golden Years"):

34 and under group: net worth of $7,240, including home equity.

So just for the 35 and under age group, we have net worth numbers ranging from $7,240 to $76,400. You'd think there would be a researcher in 2009 who would publish reliable net worth numbers and compare the different numbers published by others, but I haven't seen such a study. If anyone who knows of such a paper, please post a comment and link.

Asset Allocation based on Mohammad El-Erian

Here is an interesting article regarding an asset allocation model:

http://www.thestreet.com/story/10464086/1/an-el-erian-fund-for-the-masses-using-etfs.html

The author bases his ideas on Mohammad El-Erian's proposed investment model. Mohammad El-Erian was Harvard's former endowment fund manager. The following funds/ETFs are mentioned in the article:

LBNDX MUE NVG IJR IGOV DBA IGF

Personally, I am surprised DBC and TIP are not on this list. I currently hold some DBC and TIP and am looking to buy more. Whenever TIP dips below 100/share, I consider buying more.

Update on July 2, 2009: following El-Erian's belief that commodities will steadily increase in value over time, I bought UNG, WPZ, USL, GSG, COP, and SLV. I don't see human populations declining, which means that more resources will be needed.

Natural gas, on the other hand, is a unique commodity that may experience dramatic price fluctuations. Unlike oil and gold, there's plenty of readily accessible natural gas, but if Americans shift from oil to gas, natural gas prices should slowly increase.

Update on July 7, 2009: I added to the July 2 positions except for USL and SLV and opened a small WMB position. What a wild ride this week has been for commodities. I am holding all of these shares in a retirement account to minimize taxes on any dividends/distributions.

Update on July 22, 2009: yesterday, I sold most of the holdings mentioned above--some of them increased 20% in less than a month. I am not a greedy man, and I am concerned that the market may decline when unemployment benefits start running out and CIT experiences liquidity issues again.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Bruce Lindsey Knows his Priorities

I love hearing about a fellow cheapskate:

"'Frugal' is not the right word for Bruce," suggested business professor Ed Westbrook, who befriended Lindsay. "He was real miserly."

And yes, those are affectionate words. Bruce Lindsey left millions of dollars to a small college. More below:

http://news.yahoo.com/s/ap/20090308/ap_on_re_us/university_donor

Ted Anthony on a "Numbed Nation"

The AP's Ted Anthony has written a haunting, beautiful article:

http://news.yahoo.com/s/ap/20090404/ap_on_re_us/numbed_nation_analysis

Senseless violence: Two centuries from now, if we're not careful, it could be an epitaph for our era.

Bill Maher's Religuous

I just saw Bill Maher's film, Religuous. I really liked it, although some parts came across as cheap. Michael Moore's films are much more polished, and Moore at least attempts to includes pieces of the other side (even if he leaves out a lot of information). But I suppose Maher, as a comedian, gets a pass, because he's doing it for comedy's sake. His main point is that non-religious persons need to fight against a rising tide of ignorance before its ill-advised passion overwhelms and destroys all of us.

While I enjoyed the movie, one "deleted scene" disturbed me. Maher meets Howard Bloom, who goes on a rabid rant against Muslims. Maher doesn't contradict Bloom and seems to agree that Islam is a) focused on taking over the world; and b) an inherently violent religion. Sadly, it was like watching Maher's version of Protocols of the Elders of Mecca.

Bill Maher and Howard Bloom are wrong for many reasons. First, they are on the wrong side of the economic tide. Muslims represent around one billion people and are therefore an ample source of trade. Increasing globalization--if done properly--will temper any cultural or religious issues. As Robert Wright points out in The Atlantic (April 2009, page 50), "When economics draws people of different ethnicities and cultures into mutually beneficial relationships, inter-ethnic and intercultural tolerance often ensues. (How many ethnic slurs are heard in transatlantic business class?)"

Second, to call Islam inherently violent means to ignore history and Quranic text. See The Atlantic (April 2009, page 52), which confirms that "the Koran's description of Christians and Jews as 'People of the Book'--adherents of Abrahamic scripture, like Muslims--seem[s] to provide a basis for tolerance." The Prophet Mohammad also stated, "There is no compulsion in religion." It's impossible to reconcile that statement with violence unless one is deliberately trying to be obtuse.

What about "jihad" and other scary-sounding names? That's something that happened after the Prophet Mohammad died. The concept of "jihad," didn't exist until the mid-seventh century, "after the death of of [Prophet] Muhammad." (Id.)

As for the modern-day war of words between Iran/Persia and Israel? That's brand-new and unprecedented. "In the case of ancient Israel, the empire in question was the Persian Empire, which Israel became a part of in the sixth century B.C. Previously, Israel's brushes with empires had been largely unpleasant. [You have to love the author's gift of understatement.] The Israelites were tormented by the Assyrians and, more famously, by the Babylonians, who forced Israel's elites into exile in 586 B.C. And the Hebrew Bible has the belligerent, xenophobic scriptures to show for these experiences...But after the Persians conquered the Babylonians and allowed the exiles to return home, Israel was on the inside, not the outside, of an empire, and a pretty congenial one--an empire that respected its subject's religious autonomy." (Id.)

What appears likely is that Islam's so-called inherent violence is a modern-day invention used to justify various agendas. First, countries need enemies to keep themselves sharp and moving--utopia is bad for progress. Second, the government, which includes the military, has no incentive to stop the flow of taxpayer dollars to themselves; therefore, any enemy is useful to rally the troops and to justify increased revenue. In fact, an abstract enemy, like a "War on Terror," is better than a tangible enemy (i.e., Iraq), because people might actually protest if you haven't defeated a tangible enemy after several years. In addition, abstract enemies are perfect to keep the money spigot flowing, because in a perpetual war, spending has to continue infinitely. Anyone who says otherwise just isn't a patriot, right?

America's decision to allow excessive military spending, has real life consequences (aside from the foreign civilians dying in wars). If we believed we had no real enemy, would we really allow our representatives to spend trillions on defense instead of health care, parks, infrastructure, teacher salaries, and other domestic spending? Of course not. Our failure to protest our government's spending decisions is causing us to forgo substantial benefits at home.

By the way, Bill Maher has been absolutely wrong before. See this funny rant ("Ode to Government"), where Maher praises the Post Office, saying he'd love our country to be like the Post Office:

http://www.huffingtonpost.com/2009/03/07/bill-mahers-ode-to-govern_n_172724.html

And then read this article, which will give you some insight into why the Post Office chief has said, "We are facing losses of historic proportion. Our situation is critical." (The Post Office lost lost $2.8 billion last year.)

Ouch.

A Teacher Speaks Out

A local California schoolteacher has singled out excessive benefits as one reason for the her district's budget shortfall:

http://www.mercurynews.com/opinion/ci_11967689

Poor district leadership and an inadequate state budget are not the only reasons for East Side's problems. The sacred cow of the East Side Teachers Association is medical benefits that cost over $27.3 million a year. East Side is the only district of its size in Santa Clara County that pays 100 percent of employee benefits. Although admirable, this extracts an enormous financial toll. Add paid benefits for each member of the board of trustees and medical coverage for retirees under age 65, and the cost skyrockets.

Teachers' unions have set up a pyramid scheme where the older teachers reap the benefits of the system and leave scraps for incoming and younger teachers. It's time for a change, and unless more tenured union members are willing to cut their benefits or make sacrifices, children will continue to suffer.

About Me: Superstitious Version

The Mouth of Truth apparently has these things to say about me:

You sometimes can't enjoy close personal relationships.

You are extremely sensitive and have fine taste.

You are deeply mystical and intuitive by nature.

You are sometimes over idealistic and you should learn to be more cautious to avoid disappointment.

Your success will give rise to envy; keep a sharp look out for the traps set for you.

Be very careful: you could be caught off guard by misfortune.

Well, I'll be damned. That Zoltar-lookin' thing might have me spot-on. Also, I score highest in "Health"; lowest in "Luck."

Krauthammer on the Disabled

I just re-discovered this little gem from Charles Krauthammer (SJ Merc, 7C, July 11, 1999):

To be sure, patronizing the disabled is not as offensive as...in-your-face mockery...But its effect is similar: to distance oneself, to give expression to the reflexive mixture of fear and pity that misfortune in others invokes in all of us.

Disability--like exile, the human condition it most resembles--neither ennobles or degrades. It frames experience. It does not define it.

In 1972, Mr. Krauthammer was paralyzed in a serious diving accident.

Scott Herhold on Excessive Government Spending

The SJ Merc's Scott Herhold exposes some excessive government spending:

http://www.mercurynews.com/scottherhold/ci_12004635

The cost of all courtroom security in the county, which includes bailiffs, has grown from $17.2 million in 2000-01 to $30.8 million this year, an increase of 79 percent. Over those same eight years, inflation has been 21 percent.

Setting aside cost, the way courtroom security is handled makes no sense. When I walk into Santa Clara County's civil courthouses, I see four to five officers all within fifteen feet of each other. A violent person can use an automatic weapon to maim or kill all five officers, at which point he is in the courtroom ready to wreck more mayhem against defenseless lawyers and staff. Forget a gun--how about a homemade bomb? A violent person can waltz right into a courthouse with a homemade bomb and throw it within a vicinity of about forty people. I'm assuming the sheriffs and deputies aren't trained in dismantling bombs, so regardless of their salary, they're ineffective.

Basically, once a violent person is in a courthouse, it's too late. In order to justify having more than four officers at once, you need to set it up this way:

1. A security checkpoint must be maintained outside the courtroom, at least 100 feet away from the actual courthouse. Two officers would be in charge of this checkpoint, and both would be armed.

2. Two other officers--the second line of defense--would be inside the courthouse, ready to intervene if the first line of defense is dismantled. One officer would be at the entrance to the actual courthouse, while the other officer would be at the exit.

Doing it this way, the police can better justify paying officers lots of money to sit around and scan briefcases and small items. (So far, my most interesting experience with courtroom security has been when an officer confiscated my keychain bottle opener without telling me.)

Right now, courtroom security only protects us from stupid criminals. The smart criminals, if motivated, would have a field day in almost any courtroom in California, especially if two assassins/criminals work together (one slipping in from the exit door, which has no security checkpoint, while another comes through the front door).

Update: I forgot to mention that the Presiding Judge compared the highly paid and numerous officers to an insurance policy, i.e., you don't think you need all that coverage until you actually do. While that sounds reasonable, it doesn't really address the point of the SJ Merc article--namely, that taxpayers shouldn't be paying Cadillac rates for "insurance" when cheaper rates exist for the same or similar coverage elsewhere. It seems that we should either improve the actual security so taxpayers are getting their money's worth, or buy a cheaper "policy." We also shouldn't overpay for any service that is ineffective. If I was in charge of security, I would make improvements first in the family courts, then the criminal courts, and then the civil courts.

Personal S&P Target

For my own personal portfolio, I am setting a 950 price target for the S&P 500 within the next two to five months. Looking at the money flow data, investors are getting out of money market funds and returning to the stock market. The "herd" mentality will probably convince more financial "lurkers" to re-enter equities soon.

In addition, if the White House ushers GM and Chrysler into an orderly re-organization, foreign investors will be soothed. They will continue to buy our Treasuries, bolstering the U.S. dollar, hurting gold prices, and steadying commodity prices. Also, in three to five months, AIG should be able to sell off more assets, which will allow it to repay the government some portion of our money. If all goes well with GM, Chrysler, and AIG--and yes, that's a big "if"--I predict a short-term psychological "high."

Right now, uncertainty and indecision are killing the market. That's to be expected--we have a new administration, and it's been in office fewer than 100 days. As time moves forward, having the Obama administration more settled and more comfortable with the G-20 will calm investors' nerves. The stimulus packages will also impact sentiment, as people either access or see the effects of the increased money supply.

I realize I am focusing on psychological rather than fundamental factors. This is intentional. The market is currently so volatile, sentiment will lead the way in the short-term. Bears can talk about earnings per share, historical price/earnings ratios, and other technical factors all they want, it won't matter--at least not yet. Seeing a decisive end to the constant printing of money is paramount, and the Obama administration, by using the "bankruptcy" word, is signaling to the world that it will not print an endless supply of money to prop up institutions. That is a welcome development--it's the first time in months we've seen decisive action.

Again, I am hoping for an S&P target of 950 within the next two to five months, and I feel confident. After that, I have no set target. The April earnings reports won't be great, but they won't be dismal, either. The market is still priced for dismal numbers, and anything above abject collapse will increase positive sentiment. Good luck out there.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Update on July 20, 2009: today, July 20, 2009, the S&P 500 rose above 950; however, the rise may be short-lived--Bernanke speaks tomorrow.

Thomas Jefferson on Banks

From Thomas Jefferson, paraphrased:

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

President Jefferson's modern-day equivalent would have to be Mr. Ron Paul.

Note: the Jefferson quotation cited above has no credible source. It is apparently a paraphrasing of two separate Jefferson statements:

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale...Bank-paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs.

From Thomas Jefferson to John Taylor, Monticello, 28 May 1816. [Ford 11:533] and Thomas Jefferson to John Wayles Eppes, Monticello, 24 June 1813. [Ford 11:303]

Ford = Ford, Paul Leicester, ed. The Writings of Thomas Jefferson. New York: G.P. Putnam’s Sons, 1892-99. 10 vols.

Basketball and Lawyers

Today's WSJ has an article about Idan Ravin, an attorney who helps train NBA players. Check this out:

After law school he [Idan] started coaching boys basketball at the local YMCA in San Diego to take his mind off his dreary day job as an attorney.

That's exactly how I ended up coaching youth basketball several years ago. I needed an outlet for my stress, and coaching basketball really helped. Idan Ravin now counts Carmelo Anthony and Chris Paul as clients, so maybe my NBA hoop dreams aren't completely outlandish. Hamed Haddadi, if you're reading this, shoot me an email. I've got some ideas on how you can improve your game.

My Meeting with FusionAnalytics

Fans of Barry Ritholtz might enjoy this post. As most of you know, Mr. Ritholtz is the CEO and Director for Equity Research for FusionIQ, an independent quant research firm. He works with Kevin Lane and Michael Conte of FusionAnalytics Investment Partners, LLC. I happened to meet Mr. Lane and Mr. Conte yesterday morning.

Mr. Lane provided some details about his background. He started with MFS and then became Redwood's Chief Market Strategist. When margins on the trade execution side of the business diminished, Mr. Lane shifted gears into market research. Mr. Lane appears to focus part of his research on answering the following three questions:

1. What are the underlying fundamentals?
2. Are we in the right sector?
3. What is the overall market environment?

Mr. Lane is a quant--someone who relies on numerical ("quantative") techniques to time the market and to determine market risk. I asked his thoughts on LTCM, the most famous quant-based blow-up in Wall Street history (read the book, When Genius Failed, for more on this topic). This is where Mr. Lane differentiated his product from other quant-based tools. Many quants believe so religiously in their system, even when the data in front of them tells them a trade isn't working out, they ignore it. In contrast, Mr. Lane mentioned human error and being able to recognize when you've made a mistake. Though he didn't come out and say it, he implied that LTCM fell prey to hubris. Mr. Lane also said that when his own bets on Tempur Pedic International Inc. (TPX) and La-Z-Boy Inc. (LZB) went awry, he exited those positions. His decision to take the loss sooner rather than later saved his investors from more downside movement. Overall, I found Mr. Lane to be upfront and professional. He clearly had passion for his work, and his eyes lit up when he began talking about his investment strategies.

I then spoke with Mr. Conte. If Mr. Lane is the gravitas of the operation, then Mr. Conte is the suave go-getter, the East Coast stud who brings energy and drive to every meeting. Mr. Conte talked about the FusionAnalytics program and how it sought to minimize investment risk. He used the term, "tilt," instead of portfolio "re-balancing," saying it was important to allocate assets in the right direction rather than just haphazardly. Actually, he said it more colorfully--he said that rebalancing doesn't make sense, because you could be rebalancing into toxic assets, except he used a scatalogical term for "toxic assets," which made me laugh.

Mr. Conte also talked about conflicts of interest and how many brokers and advisors had no incentive to protect their clients' money. For example, let's say you recommend a stock to your clients. A few months later, the technical indicators show that the stock is poised for a dive. In most firms, there's no incentive to go back to your clients and tell them you were wrong a few months ago and they should sell. That's because many Wall Street firms don't prioritize protecting their clients' money--their models are based on getting as much money as you can and giving your clients bullish tips. Mr. Conte said FusionAnalytics avoided this conflict of interest by charging a percentage of assets under management, allowing them to focus on results.

As I've written several times before, it's important for investors to see investment advisors and corporate executives in person to gauge their credibility. Human intuition, honed for thousands of years, may not always be correct, but it can sometimes save investors a lot of grief. One reason Madoff might have secluded himself from his investors and created an exclusive (read: isolated) existence is probably because he knew his lies would produce tell-tale signals. Mr. Conte and Mr. Lane both came across as credible, decent men. I wouldn't be surprised to see them doing very well in the future. In a world where a Madoff can exist, it's nice to know that a Mike Conte and a Kevin Lane can also thrive.

One final note: during my chat with Mr. Conte, we experienced a 4.3 earthquake. This was Mr. Conte's first earthquake, and I got to share it with him. It's always good to see how investment advisors operate under pressure. Mr. Conte's face got a little red when he realized what was happening, but he kept his composure. Mr. Conte, welcome to California.

FYI: here is an article re: Mr. Lane's timely calls:

http://www.businessweek.com/magazine/content/02_50/b3812104.htm

"Beat" Poet

Whenever I feel despondent, I've tried to get out of my funk by exercising or playing video games. Lately, however, one simple quote attributed to Lawrence Ferlinghetti has brought me quick happiness:

"Mankind is too stupid and greedy to save himself."

There's something in the statement's inevitability that brings an immediate lightness to the moment. More on Ferlinghetti after the jump:

http://www.redroom.com/authornewsitem/lawrence-ferlinghetti

Legal Pot Sales in California

According to The Atlantic, April 2009, p. 23 (Joshua Green):

Given California's well-publicized budget crunch, it's worth noting that legal pot sales generate $100 million in state tax revenue a year.

That's a lot of dope.