Justice Souter's Commencement Speech

Justice Souter's 2010 Harvard commencement speech:

http://news.harvard.edu/gazette/story/2010/05/text-of-justice-david-souters-speech/

The Constitution has a good share of deliberately open-ended guarantees, like rights to due process of law, equal protection of the law, and freedom from unreasonable searches. These provisions cannot be applied like the requirement for 30-year-old senators; they call for more elaborate reasoning to show why very general language applies in some specific cases but not in others, and over time the various examples turn into rules that the Constitution does not mention...

A choice may have to be made, not because language is vague but because the Constitution embodies the desire of the American people, like most people, to have things both ways. We want order and security, and we want liberty. And we want not only liberty but equality as well. These paired desires of ours can clash, and when they do a court is forced to choose between them, between one constitutional good and another one. The court has to decide which of our approved desires has the better claim, right here, right now, and a court has to do more than read fairly when it makes this kind of choice. And choices like the ones that the justices envisioned in the Papers case make up much of what we call law...

The Constitution is a pantheon of values, and a lot of hard cases are hard because the Constitution gives no simple rule of decision for the cases in which one of the values is truly at odds with another.

Souter will be one of the most-missed Justices.

Sacramento Corruption?

Sacramento politicians gave $8.7 million to a private medical program that no longer functions. Yes, you read that right.  From Dan Walters: "The Assembly's budget writers wanted to give Drew $12.7 million, even though the Legislature's budget analyst, in a private memo, noted that Drew's medical-residency program no longer exists since its affiliated hospital, King/Drew Medical Center, lost its accreditation."

It gets better. The person in charge of the defunct medical residency program at Charles Drew University is a former Sacramento politician. Best line of the article: "the conference committee unanimously appropriated that [$8.7 million] amount this week without discussion." [italics mine]

Read more here.

[Note: this article has been updated since its original publication.  Outdated links to the Sacramento Bee were replaced.]  

John Wooden's Wisdom

"Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are." -- John Wooden

Are You Smarter than a 7th Grader?

Are you smarter than a 7th grader? Here is a letter from a 7th grader to the CBO, the federal budget oversight office:

http://cboblog.cbo.gov/?p=1045

How will budget deficits affect people under the age of 18?

When the federal government borrows large amounts of money, it pushes interest rates higher, and people and businesses generally need to pay more to borrow money for themselves. As a result, they invest less in factories, office buildings, and equipment, and people in the future--including your generation--will have less income than they otherwise would. Also, the government needs to pay interest on the money it borrows, which means there will be less money available for other things that the government will spend money on in the future.

Kudos to the CBO for publishing the letter.

Downtown SJ

In City Hall, there is a model replica of the city of San Jose. I've spent most of my last eight years working in this particular slice of San Jose.

California Education Spending: Just the Facts

"In 2007, more than four-fifths (82.9 percent) of statewide spending for schools went to pay for the salaries and benefits of teachers and other staff."

From a California Dept of Education affiliated website (Jan 2010): "Although there is some variation, expenditures on salaries and benefits for all employees typically make up 80 to 85% of a district’s budget, with the bulk of it going to teachers." More here.

The California Teachers Association has been the largest lobbyist in California over the last decade and has spent more than $200 million on campaign contributions and lobbying efforts.

Teachers' unions have also been effective lobbyists at the federal level. Unions have received federal money for 400,000 jobs. According to the White House, "Additional federal aid targeted at preventing [teacher] layoffs can play a critical role in combating the [economic] crisis. Such aid would be very cost-effective. There are no hiring or setup costs...The American Recovery and Reinvestment Act of 2009 included some of this aid for 2009 and 2010. The recipient reports filled out by states and school districts show that, last quarter, Recovery Act funds supported more than 400,000 education positions. (White House blog, June 12, 2010)

For more on California politics and government unions, click HERE (Troy Senik, Fall 2009).

Update on June 2012: for a more detailed post on teachers' unions, click HERE.

Update on April 2017: "61 percent of budgetary expenses are related to instruction, followed by 35 percent for support services, 4 percent for food services, and less than 1 percent for enterprise operations. Trying to infer salaries... is tricky, because salaries and benefits will be reflected across the categories, appearing in instruction, support services and enterprise operations. Generally speaking, a school district spends between 80 and 85 percent of its entire budget on salaries and benefits, meaning only 15 to 20 percent remains to address all of the rest of the budget’s priorities and needs... Salaries account for 67 percent of the budget, followed by 22 percent for employee benefits, meaning that school districts have spent close to 90 percent of their instructional budget on staff and benefits."  From https://www.aasa.org/uploadedFiles/Policy_and_Advocacy/files/SchoolBudgetBriefFINAL.pdf

Richard Fisher on Banking

Richard Fisher once again proves he's one of the few honest government officials left:

http://www.ritholtz.com/blog/2010/06/financial-reform-or-financial-dementia/

My message to you tonight is to remember where we have been. We have collectively been to hell and back. Let’s not go there again. Let’s remember that bankers should never succumb to what is trendy or fashionable or convenient but should instead focus on what is sustainable and in the interest of providing for the long-term good of their customers...

This leaves us with only one way to get serious about TBTF [too big to fail]--the “shrink ’em” camp. Banks that are TBTF are simply TB—“too big.” We must cap their size or break them up--in one way or another shrink them relative to the size of the industry.

Ah, common sense. Capitalism can't survive without it.

PG-13 Moment of the Day

From my friend, Nader A.:

Putting bankers and corrupt politicians in the same room is like putting a bunch of drunk sailors in a whorehouse...someone is gonna overpay, and someone is gonna get screwed in more ways than one!

'Nuff said.

Stephan Pastis Autograph!

Mr. Pastis, author of Pearls Before Swine, is a former California attorney. Although he is a big Peanuts fan, Pastis' style is probably closer to Bill Watterson, who penned Calvin and Hobbes.

Update on April 21, 2013 (book signing in Willow Glen/San Jose, CA):

According to Stephan Pastis, the alligators' accents are supposed to be Russian.  I always thought they were Jamaican for some reason.

Numbers Galore

Don't just look at the Fed and BLS numbers--Intuit has an interesting index of small business employment:

http://payroll.intuit.com/employment_index/

SCU Magazine: Giacomini and John Adams

From SCU Magazine, Summer 2010, interview by Ron Hansen:

George Giacomini: John Adams has a quote that goes something like: "I study politics and war that my sons may study mathematics and philosophy and their children may study poetry and music." There's a progression of necessary learning. I'm a meat and potatoes guy. I still think you need to know politics and economics...and that's where I would put my emphasis in my classes...I don't want to trivialize what other faculty are doing, but I worry that in the process of enriching the material, we're losing the foundational events and ideas. Which just means I'm old.

Old Jesuits have lots of wisdom.

Bonus: John Quincy Adams, former U.S. President and Secretary of State: "We go not abroad in search of monsters to destroy." Oh, how things have changed post-Bush II.

Do Sanctions Make It Easier to Declare War?

Interesting theory--sanctions don't work, everyone realizes they don't work, but the sanctions make it easier to declare war against the target country:

http://www.balloon-juice.com/2010/06/09/sanctioning-iran/

Did sanctions work Iraq? Or did they just make it easier for the U.N. Security Council to grant permission to go to war?

Once you show that x country is violating a bunch of rules related to sanctions, you can then argue it is more likely that x country is violating another set of rules, like WMDs, nuclear weapons, etc.

Film Rec: Putting Things in Perspective

If you want to watch an incredible, but tragic film, check out 2005's Beyond the Gates. It's an amazing re-creation of the Rwandan genocide.

If you wish to donate to a humanitarian association that assists refugees, you may want to consider https://www.rescue.org/ 

Peet's Coffee Annual Shareholder Meeting (2010)

Peet's Coffee (PEET) held its 2010 annual shareholder meeting at an Emeryville, California hotel. Approximately 110 people attended. Shareholders were offered fruit, yogurt, juices, water, and, of course, Peet's coffee and tea. The company also gave shareholders a Peet's bag with a pound of coffee and a selection of tea bags.

After the formal portion of the meeting, CEO Patrick J. O'Dea handled the first presentation. Buttressed by Peet's excellent performance, Mr. O'Dea had more bounce in his step than in previous years. Mr. O’Dea mentioned that sales were up 7%, with the grocery business growing at 19% for the year. Grocery’s growth accelerated to 28% in the second half of 2009 and 39% in the first quarter of 2010. The retail business remained stable, and Peet's expanded profit margins +260 bps.

Food service and the office and home delivery businesses were increasing, but growth was slower when compared to other divisions. [Note: According to Peet's, these remain very important businesses, on their own and also as vehicles to introduce the brand to new audiences and build awareness to support grocery growth. This business was slow last year with the economy (8% sales growth), but rebounded to 27% in Q1 2010.]

Mr. O'Dea then turned the meeting over to Doug Welsh (VP of Coffee) and Laila Tarraf (VP of Human Resources). Mr. Welsh referred to Peet's being the "gold standard" of coffee. In an effort to maintain its "gold standard" after substantial growth, Peet's began re-evaluating its values. After much discussion, Peet's decided to focus on four core values: mastery, responsibility, curiosity, and prosperity.

For Peets, "mastery" means pursuing excellence in the craft with integrity. To promote high quality, Peet's holds barista competitions but does not compete in national or world competitions because it wants to focus on regular customers instead of judges. Peet's barista competition starts at the store level, then district managers nominate someone, after which the winners are sent to a central pool of judges, including Mr. Doug Welsh. After that round, baristas move on to a regional competition and then one last level of competition. Also, every single barista is re-qualified each year to ensure quality service.

Mr. Welsh showed several slides of espresso, explaining what a cup of espresso ought to look like. He said "blonding," or discoloration, was bad--"blonde is not more fun in espresso," he quipped. He also said that after sipping, the form and color should hold, not get mixed or discolored.

As for a good cappuccino (my favorite coffee drink), Mr. Welsh explained that it's not a good sign when the steamed milk process "sounds like a 747," because the temperature is probably too high, which creates a scalding taste. It's also not good for the foamed milk to look like "shaving cream"; instead, the foamed milk should be glossy, with the consistency of milk and ice cream.

He showed us several slides of cappuccinos, including a "white-out," where the top of the cup showed nothing but a huge mushroom cloud of foamed milk. Peet's grading assigns a white-out a zero score. An "acceptable" cappuccino looked good to me, but Mr. Welsh explained that it showed a dull sheen with already-burst milk bubbles. The ideal cup has a clear white/brown contrast between the milk and espresso, i.e., a brown ring on the outside that nurtures the foam in the middle. The best cappuccino would be "very bright white inside," contrasted with "a dark grain of espresso all around the cup." This configuration allows you to taste both steamed milk foam and espresso with every sip. In short, you want an "integrated" taste with each sip.

Ms. Taraff said that Peet's "curiosity" balances its "mastery." With 3,500 employees across the country, it's important to be consistent, and Peet's has a "Brew U" website where employees can take classes through development programs to maintain their edge and expertise.

Ms. Taraff turned the meeting back to Mr. Welsh, who talked about Peet's emphasis on "responsibility." Through various slides, he introduced Roberta Mata (a male), who is the leader of the "Dota Co-op" in Costa Rica. He said that Peet's feels an accountability to the co-op, not just to its end users, and the conditions at the co-op are some of the best in the coffee-growing world. The co-op has also won awards for its sustainable practices. More specifically, the co-op turns its pulp waste into methane. (Methane is a biogas fuel and functions as an energy source.)

Peet's long-term outlook can create excellent results. For example, during 2004 and 2008, there was a coffee crisis, and market prices for coffee went below production costs. In other words, it cost more to produce coffee beans than to sell it, meaning co-ops were not making money. Peet's recognized the problem and agreed on a three-year fixed rate for coffee that allowed Peet's to hedge its costs. When the market turned, the fixed-rate arrangement helped Peet's bottom line. Also, Peet's willingness to work with the co-op during the coffee crisis generated goodwill that helped Peet's in future negotiations.

Mr. Welsh also talked about "prosperity," another one of Peet's values. He said that farmers working for TNS (TechnoServe: http://www.technoserve.org/) that sold to Peet's earned a 60% higher price than semi-washed (home-washed) coffee. Mr. Welsh proved that growers were better off upgrading from low level production (home-washed coffee) to Peet's higher standards.

CEO O'Dea punctuated the end of the meeting by saying, "That's your company," and we moved to the Q&A session. Unfortunately, there was no one walking around with a microphone, so many people, including myself, couldn't hear most of the questions. I've done the best I can to provide an accurate review of the questions and answers.

A shareholder asked if Peet's uses "E-Verify." No one seemed familiar with the system, which is used to check a potential employee's eligibility for work. (It's basically something designed to catch undocumented workers.) The system is relatively new and has major flaws, so most states don't use it. (Arizona employers are required to use it; California employers are not.)

Someone else said that his local store didn't carry Guatemala San Sebastian. The CEO said all stores offered all of Peet's coffee selections, and he would check up on the particular retail store.

In response to another question, the CEO indicated that most major grocery stores carry Peet's coffee beans, but Wal-mart (WMT) does not carry Peet's coffee beans. He also said that the "quality of service is the most important thing in retail [i.e., Peet's stores]," so he would not want Peet's retail store employees to have the same aggressive sales personality as its grocery store sellers. (One of the reasons I like going to Peet's is because of its outstanding employees.)

Another person asked whether baristas receive profit-sharing incentives. Peet's pointed out that all employees who are managers and above receive RSUs and all employees may participate in its ESPP, which allows employees to buy shares at a discount. Also, Peet's wages are significantly above minimum wage, which reduce turnover. Moreover, Peet's has the "best health insurance program by far"--after working 500 total hours, a Peet's employee need only work 21 hours a week or more to be eligible for Peet's health care program.

Someone asked whether Peet's would be expanding internationally. "Not in the next twelve months," because growth opportunities exist domestically.

Another shareholder asked, "What happened to Diedrich Coffee?" Peet's had made an offer to buy the company, but the acquisition did not pan out. The CEO said that Diedrich had a "license to produce K-cups," but the licensor was also interested and willing to pay more for the company. (K-cups allow users to easily make single cup servings of coffee.) Peet's CEO said he believes the single cup market will grow, especially in homes. (By the way, Peet's received an 8 1/2 million dollars break-up fee--not bad for a failed deal, huh?)

Peet's has closed stores about six or seven times because the location didn't work out. For example, in some sites, anticipated housing or commercial construction never occurred.

Someone asked about quality assurance, and Peet's CEO responded, "We're not perfect," so they rely on customer feedback. Peet's has customer feedback cards at various stores and also uses mystery shopper programs to check on its customer service.

I asked why Peet's didn't offer more Colombian coffees. The best coffee I've ever had has been from Colombia, and then from Costa Rica. Mr. Welsh said that Colombia was having serious coffee production problems and was four million bags short of production. (Four million bags is significant--a single "bag" is sixty kilograms, or 132 pounds.) Colombia had suffered from bad weather and a tree renovation program that caused the country to use much of its land for trees, limiting the land that could be used for coffee production. Although Colombia is the world's third largest producer of coffee, the supply of Colombian coffee had shrunk considerably, causing prices to skyrocket. Mr. Welsh indicated that "now is not the time" to buy Colombian coffee beans.

Someone asked whether Peet's had a poison pill provision. Peet's does not have such a provision, making takeovers/buyouts easier.

Another shareholder asked when Peet's would issue a dividend. The CEO said that Peet's can still find ways to grow the company and use cash to enhance value; therefore, it currently preferred stock buybacks to dividends.

As I've said before, Peet's consistently delivers a great annual meeting, so if you get a chance to go, you should take it. I am pleased to be a Peet's customer and shareholder.

Disclosure: I own an insignificant number of Peet's shares.

Mish on California's Government Unions

But Mish, tell us how you really feel:

Outrageously overpaid California public union parasites have every intention of sucking the last drop of blood out every taxpayer. Regardless of the cost to taxpayers, and even though their bloated benefit programs vastly exceed what the private sector gets, nothing will get in the union's way of protecting the overgenerous benefits they have, while still demanding more money from taxpayers, no matter what fiscal shape any of the cities are in because of those contracts.

More HERE. Mish is referring to police officers, firefighters, teachers, government lawyers, and anyone else who is part of a California government union that is refusing to accept wage cuts. The unions' refusal to be reasonable has caused layoffs of newer government workers, including teachers. It's sad, but tenured and retired teachers don't seem to care much about the next generation of educators, as long as their own gold-plated benefits are covered.

Here are three ideas: 1) every California government employee, including politicians, with more than seven years' tenure and making more than $65,000/yr should accept at least a 10% pay cut; 2) all new government employees should be eligible for 403b plans, not undefined pensions; and 3) all existing government employees eligible for pensions should increase their pension contributions by 5%.

Also, eliminate "3 Strikes and You're Out" for non-violent crimes and get rid of the death penalty, which costs over 200 million dollars a year to implement. (Do you want to spend 200 million dollars killing a murderer, or do you want to spend 200 million dollars on UCs, roads, community centers, etc.?)

Voting is Tomorrow/Tuesday, June 8, 2010

If you are fiscally conservative and socially liberal, you may want to consider the following candidates:

Superintendent Gloria Romero

Senator Tom Campbell

Governor Meg Whitman (Over the past decade, pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. California recently spent 3 billion dollars on pension costs in just one year. Ms. Whitman is not perfect, but she will try to fix the pension problem and can use her veto power against unreasonable public sector union spending.)

SJ City Council: Sam Liccardo

SJ City Council: David Clancy

SJ City Council: Magdalena Carrasco (I don't know her, but a friend tells me she knows Ms. Carrasco well and can vouch her.)

I suggest voting "Yes" on Props 13, 14, and 15; and "No" on Props 16 and 17. I usually vote no on all the propositions, but this year is unique. By the way, on November 2, 2010, Californians will vote on whether they want to legalize and tax marijuana. It will be interesting to see how libertarian most Californians are.

Gov Employee Pensions Bankrupting New York

MARY WILLIAMS WALSH and AMY SCHOENFELD discuss public sector pensions in the NYT. See HERE for more:

In fact, the cost of public pensions has been systemically underestimated nationwide for more than two decades, say some analysts. By these estimates, state and local officials have promised $5 trillion worth of benefits while thinking they were committing taxpayers to roughly half that amount.

As they say, a trillion here, a trillion there, and pretty soon, we're talking about real money. Sigh.

Bonus: "Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it." -- Richard Lamm

Altera Annual Shareholder Meeting (2010)

Altera Corporation (ALTR) held its annual meeting in San Jose, California on May 6, 2010. Initially, no food or drinks were offered, but when the meeting was over, there was a small table with some pastries, coffee, and bottled water.

John Daane, President, CEO and Chairman, handled the meeting (he is the one in the suit in the picture above). He began by introducing the Board of Directors, executive team, and founders.

Unfortunately, I lost my notes from this meeting, and weeks have passed since I attended. All I remember is that CEO John Daane was extremely impressive. Many times, in response to a question, he would cite relevant numbers and statistics from memory. Mr. Daane seemed confident that Altera was well-positioned for steady growth and provided objective support for his statements.

I apologize for this sparse review--if I find my notes, I will revisit this post and do an update.

Disclosure: I own an insignificant number of Altera (ALTR) shares.

For Aspiring Lawyers and Law Students

The blog, Not a Potted Plant, recently had an interesting post about law school:

http://notapottedplant.blogspot.com/2010/06/law-students-there-is-no-pot-of-gold.html

If you are in law school right now, in California, chances are pretty good that by the time you get your J.D. you're going to have spent $100,000 on your legal education. And if you're like I was, you've borrowed that money. In some parts of the country, that's what it costs to buy a house. Only you can't default on student loans; you can't even bankrupt out of them.

The sad reality of it is, the majority of you law students aren't going to be getting $100K+ jobs.

If you're going to law school because you want to make lots and lots of money, you can do it, but there are better avenues if money is your primary goal.

Charlie Munger's Wisdom

The thoughts of others

Were light and fleeting,
Of lovers’ meeting
Or luck or fame.
Mine were of trouble,
And mine were steady,
So I was ready
When trouble came.

-- A.E. Housman

Charlie Munger: "You can say, who wants to go through life anticipating trouble? Well, I did. All my life I’ve gone through life anticipating trouble. And here I am, going along in my 84th year and like Epictetus, I've had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact it helped me." More here and here.

California Water Service Group Annual Meeting (2010)

California Water Service Group (CWT) held its annual meeting on May 25, 2010 at a downtown San Jose hotel. Chairman Robert Foy, looking dapper in a bowtie, commemorated Dr. Edward Day Harris, Jr., a board member who recently passed away.

Mr. Foy then formally began the meeting by introducing California Water Service Group's executive team. Mr. Foy explained that CWT was holding its annual meeting in a hotel because of new construction on its nearby campus. After completing the formal portion of the meeting, he began a slideshow presentation. The first slide was a Vince Lombardi quote: "Individual commitment to a group effort is what makes a team work." Mr. Foy provided detailed background information on the Board's members and showed several comments praising them ("integrity," "beacon of consistency," etc.). After praising the Board, Mr. Foy turned the meeting over to CEO Pete Nelson.

Mr. Nelson complimented Mr. Foy for his service to the company and elsewhere, noting that the city of Stockton had recently awarded Mr. Foy "Stocktonian of the Year." Mr. Foy--clearly the most charismatic man in the room--was the CEO of Pacific Storage before he came to CWT. In addition, he is involved with numerous community, religious, political and charitable groups.

Mr. Nelson focused on the employees of the company, reminding us that there are "a thousand employees behind one glass of water." He explained that the company has meter readers (52 employees), customer service agents (119 employees), district managers, and many other employees who ensure safe and reliable drinking water. Customer service is a top priority--"96% of calls" get resolved on the first call. Meter readers, who handle five million reads a year, are also trained to be "field ambassadors."

Mr. Nelson said CWT values employee feedback. He said that "the people who do the work are best able to say how to do the work," i.e., "decisions must be local." He ended the meeting by saying that "each individual employee is important to the company."

I asked why someone would want to own CWT over San Jose Water Company (SJW). Mr. Nelson said that the companies were "sister utilities" and cooperated with each other. While different, they are "both good companies." (SJW owns some of CWT, and the Chairman of SJW's Board was present at the meeting.)

I also asked about the financial status of the company's pension plan. The CFO, Martin Kropelnicki aka "Marty," provided a delightfully detailed answer, mentioning the applicable IRS/FASB code sections from memory. The condensed answer is that the plan is over 80% funded, which is a reasonable amount.

Another shareholder complained about the service he was receiving from Delaware Water Company and asked CWT to buy them out. Mr. Nelson said he did not comment on acquisitions.

Another shareholder asked about desalination. Mr. Nelson indicated that "as a supply source, desalination is not economic yet," and there are also "environmental issues" associated with it.

Finally, a shareholder (and retired employee) complained about his medical care benefits and pension checks. Mr. Nelson said that the company had "dropped the ball" and planned on communicating with retirees better.

After the meeting, shareholders received a complimentary box that included a shower head and other water-saving tools.

As an investor, it's difficult to differentiate between publicly traded water companies such as SJW, CWT, AWR, AWK, and SWWC. They all know each other, so no one seems willing to badmouth anyone else. Also, much of the revenue is based on unpredictable political factors, such as the willingness of a water board to grant rate increases. Having a charismatic Chairman like Mr. Foy may give CWT an advantage over its competitors when it comes to political schmoozing, but it's still hard to predict which water companies will outperform. One interesting issue with water companies is that conservation may work against them; in other words, the more users conserve and cut back on water use, the less money water companies make. Overall, I enjoyed meeting Mr. Foy and the rest of the SJW team, especially Mr. Kropelnicki.

Disclosure: I own an insignificant number of shares of CWT, AWK, and SJW. Of the aforementioned holdings, I own the most number of shares in AWK.

Update: a reader on a different site left an interesting comment. See below:

I started following Water Utilities in 1997 and have been an investor in various ones ever since. However, I sold all CA water utilities after the electric crisis a few years back, and vowed never to own another CA utilities again. The cost of electricity spiked during the crisis and the largest operating cost of a water utility is energy to power the distribution pumps. These are operating costs that should be part of rate relief, but the CA PUC refused to allow the water utilities to recoup these higher operating costs, instead making shareholders eat the difference. This is like changing the rules mid-stream.

Callidus Software Annual Meeting (2010)

Callidus Software (CALD) held its annual meeting in the heart of downtown San Jose. Around nine people attended the meeting, including only two non-employee shareholders. The company offered shareholders a small box of donuts, water, and coffee.

CEO Leslie Stretch handled most of the meeting telephonically, along with CFO Ron Fior, who was present in person. CEO Stretch has a delightful English accent, which was fun to hear. There was no presentation, so we went straight to Q&A after concluding the formal portion of the meeting.

A shareholder asked several questions, focusing on the company's top line growth. He asked, "What improvement in gross margins can we expect by the end of the year?" CFO Fior responded that he expected gradual improvement. Over time, he was hoping that some technological improvements, along with scale, would improve on-demand margins. [Note: page 10 of CALD's 10K states, "our overall gross margin declined from 43% to 39% from 2008 to 2009, and "revenue declined by 24%" during the same period.]

The same shareholder also asked how the company expected to get to "cash flow positive" or "break-even." CFO Fior answered that he expected a "gradual increase" in revenues and margins.

I asked about page 14 of the 10K, which shows a shift in Callidus' business model from consulting/professional services to on-demand. I asked why the company made the shift, especially when its own 10K stated that a "substantial portion of [its] revenues are derived from the performance of professional services." (See page 16, 10K)

CEO Stretch and CFO Fior responded that services revenue had been declining for years and switching from legacy licenses business to a recurring on-demand business model with much shorter implementation times resulted in much lower services revenues. For example, a legacy on-premises license might take a year to two years to implement whereas now, in the on-demand center, a new customer can be up and running in 3 to 6 months.

I then asked about the company's "wide moat." People looked confused, so I explained that a wide moat refers to something that protects a company from being conquered or beaten by competitors. For example, Oracle's software, once installed, becomes an integral part of a company's operations. In short, Oracle's wide moat is the "stickiness" of its software. CEO Stretch responded that "no one can do what we do for insurance companies," noting that Callidus' customers include some of the biggest insurance companies in the world, such as Allianz North American and Allstate. He also highlighted Callidus' "90% renewal rate," which indicates customer satisfaction and/or "stickiness."

I wanted to know more about the reasons Callidus' product is especially suited for insurance companies, so I sent a follow-up email. The company was kind enough to send me some of its thoughts: "Our product is especially suited to companies that have large distribution channels (agents), complex plans, and large data volumes from multiple data sources. It allows industries such as the telecom and insurance industries where these conditions exist to simplify the complexity through our rule-based engine and at the same time have flexibility to change quickly. We solve a difficult problem and make it easier for these companies to implement new incentive plans on a much more timely basis. With our acquisition of Actek, Callidus accounts for 2 of the 3 companies Gartner Research ranked positive in the insurance space."

On a side note, when I asked questions about the 10K, someone interrupted me, demanding my name and how I held my shares. At that time, this person hadn't asked the previous shareholder any of these questions, so I was caught off-guard. I repeated my name and disclosed the name of my brokerage. I asked if he was general counsel (i.e., a lawyer who is an employee of the company). It turns out that he was outside counsel (i.e., a lawyer who bills the company for legal services but is not an employee).

I always get concerned when outside counsel takes over meetings, even if only temporarily. First, the general counsel usually attends annual meetings (as in this case), so if there really is a problem, the general counsel can step in. Also, why pay an outside lawyer to sit at meetings when the corporation's own general counsel should be able to handle any legal issues that arise? To me, paying outside counsel to sit at annual meetings seems like a waste of money, but that's just me.

Second, anytime outside lawyers feel entitled enough to direct questions to shareholders, it tells you that the company may be placing too much trust and discretion in an outside law firm. Such faith can be an expensive proposition at 200 to 500 dollars an hour. Personally, I prefer to see strong CEOs and management and weak lawyers--not the other way around.

Third, outside lawyers have directed questions to me at meetings only at small companies where performance has lagged. Perhaps the company's inability to make the numbers emboldens the lawyers, who feel the need to assert themselves; however, successful businesses rarely do well when management is taking directions from lawyers. This is because lawyers tend to be risk-averse, and winning in the business world requires risk and gusto. (I can't help but remember the following words about Citigroup, spoken by its largest individual shareholder: "My recommendation and advice for them is they don't hire anyone unless this guy has expertise in banking. I told them, next time no lawyer, please." See here for more.)

In any case, here is my advice: to the extent a company or lawyer wants to know the names and status of shareholders at the meeting, it's really simple--just have a sign-in sheet outside the meeting room and have someone check the information on the sheet before admitting someone to the meeting. If you can't handle that basic protocol, the solution isn't to interrogate someone during the meeting itself. That's just basic common sense. What if I was a major shareholder?

[Update: the CFO wrote to me and apologized if I felt singled out. It turns out the other person asking questions at the meeting represented a major shareholder and was already well-known to the company.]

Callidus looks like an interesting company. I don't usually invest in software companies, but if you believe insurance companies are growing and will continue to need sales performance management software, you may want to take a look at Callidus.

Disclosure: as of June 1, 2010, I owned an insignificant number of CALD shares.

Cadence Annual Shareholder Meeting (2010)

Around forty people attended Cadence's 2010 annual shareholder meeting. Coffee and some pastries were available. For some reason, the doors to the meeting room had been locked, which meant that if you were a few minutes late, someone with a key had to come by and give you access. (Cadence didn't intend to lock out anyone, and someone did come by within a few minutes to let everyone in.)

CEO and President Lip-Bu Tan (picture above) handled the informal portion of the meeting, which included a slideshow. Some highlights:

-- 46% of Cadence's revenue comes from the Americas, followed by Europe. Mr. Tan said that "last year [2009] we had to survive, but this year [2010] we are breaking out" and doing better.

-- Cadence has $619 million in cash (Q1 2010), with a 2009 backlog of $1.6 billion.

A shareholder asked questions about lost revenue due to overseas IP infringement. He wanted insight into business in China and licensing fraud. He said that he's heard small companies in China will buy one Cadence license and then allow multiple users or affiliates to use the license, costing Cadence additional customers and revenue. Mr. Tan said that Cadence was "making good progress in China," but IP issues would take time. [From what I've seen, it isn't unusual for tech companies to tolerate not maximizing revenue to gain a foothold or market share in China.]

Another shareholder asked about debt and upcoming debt payments. Cadence said it would consider all options but had plenty of money to make the upcoming payments.

I asked about Magma Design (LAVA), a competitor. Mr. Tan said that Cadence "will aggressively compete" against Magma Design. He referred my question about differences in the two companies' products to Dr. Chi-Ping Hsu, Sr. VP of the Products Group. Dr. Hsu said that Cadence was "doing quite well against" Magma Design and felt confident that Cadence's newer product lines would distance Cadence from Magma. Some people have mentioned that Cadence might buy out Magma; however, I saw no obvious signs that Cadence was actively thinking about acquiring Magma.

Mr. Tan also said that Cadence tries to be the full EDA (electronic design automation) solution for companies, referring to the "EDA 360" plan: 1) engage the customer early; 2) help the customer get to market first; and 3) use excellent customer service to prevent commodification. Mr. Tan emphasized that "time to market is essential" for Cadence's customers, because the faster Cadence helps them launch their products, the higher the premium/margin the company can charge in the marketplace. In short, Mr. Tan was saying that Cadence's customer service and complete solutions differentiate it from competitors such as Magma, Synopsys (SNPS), and Mentor Graphics (MENT).

I enjoyed meeting CEO Lip-Bu Tan and Sr. VP Chi-Ping Hsu. Both men carried themselves with confidence and yet without any trace of arrogance.

Disclosure: I own an insignificant number of Cadence (CDNS) and Magma Design (LAVA) shares. I do not plan on buying more shares of any EDA provider. Competition is intense, and companies must constantly innovate to survive. EDA is a very difficult business to be in.

Greenland's Importance to the World

Jim Folger, National Geographic, June 2010:

Greenland is warming twice as fast as most of the world. Satellite measurements show that its vast ice sheet, which holds nearly 7 percent of the world's fresh water, is shrinking by about 50 cubic miles each year. The melting ice accelerates the warming—newly exposed ocean and land absorb sunlight that the ice used to reflect into space. If all of Greenland's ice melts in the centuries ahead, sea level will rise by 24 feet, inundating coastlines around the planet.

Whoa.

Will Arizona be a Democratic State by 2035?

The GOP doesn't realize it yet, but Arizona will be a Democratic state within 25 years. Under our Constitution, every child born in Arizona is an American citizen, regardless of his/her parent's immigration status. Also, children are able to sponsor their parents for citizenship, so the parents that Arizona wants to deport will one day become citizens through their American-born children.

Later, when the children of Mexican immigrants grow up, they will be able to vote. American citizens won't support a political party that wanted to deport their parents. And don't forget: the children of Mexican immigrants go to public schools and will make numerous friends of all ethnicities. Anyone who thinks that second or third-generation American children who grow up playing with their Mexican-American friends will share the same thinking as their parents doesn't understand generational shifts. Put simply, new generations always rebel.

Just look at North Carolina--who would have thought the same state that elected Jesse Helms would one day elect John Edwards?

As for me, I keep wondering when Goldwater/Eisenhower Republicans will create the third party that America desperately needs. Wouldn't most Americans vote for a political party that supports fiscal conservatism, a humble executive branch, and non-interference in our private lives?

Bonus: according to the Brookings Institution, nearly 25% of Americans younger than 18 have at least one immigrant parent.

Film Rec: Wait Until Dark

Audrey Hepburn delivers an incredible performance in the thriller, Wait Until Dark. This film is an absolute must-see, especially for Alan Arkin fans. A very young Alan Arkin plays one of the best villains of all time, "Roat, Jr."

David Einhorn on Keynesian Economics

In "Easy Money, Hard Truths" (5/26/10), David Einhorn--in the NY Times--delivers some interesting facts:

http://www.nytimes.com/2010/05/27/opinion/27einhorn.html

Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.

Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.

Modern Keynesianism works great until it doesn’t. No one really knows where the line is.

So much wisdom in one article. I recommend you read the entire article by clicking on the link above.

Grand Jury Report: Gov Employee Costs "Unsustainable"

Check out the latest report from Santa Clara County's Grand Jury ("Cities Must Rein in Unsustainable Employee Costs"):

http://www.scribd.com/doc/32084199/Grand-Jury-Report

The first priority in any government office should be to reduce undefined, unsustainable costs--such as taxpayer-guaranteed pensions.

Nepotism, Racism, and Fairness

As a California employment lawyer, I've represented people of all races--Caucasians, Africans, African-Americans, Asians, Southeast Asians, etc. After eight years of litigation, I am realizing that most employment issues revolve around a lack of communication. Usually, problems begin when the boss doesn't explain tasks properly or clearly; the employee fails to adapt to a personnel change or new methods; or the employer fails to correctly identify or reward the hardest working employees.

Overall, some of the most difficult cases I've seen involve promotions, especially government promotions. One "hot" current legal battleground is challenging the methods used to test into a particular job, such as a police officer or firefighter.

In San Jose, CA, the police department promotes officers based on several factors, including diversity. After a series of interviews and questions, the SJPD will draft a list of the top applicants and then choose from any of the top ten finalists, regardless of their actual placement. In other words, placing first does not necessarily give someone an advantage over the tenth place applicant. In practice, this "Rule of 10" allows the SJPD to promote based on various subjective factors, including friendships, peer reviews, personal relationships, diversity, etc. Other Bay Area police departments do not utilize the "Rule of 10" but still have diverse police forces; even so, most people would agree that the "Rule of 10" has increased racial diversity with the SJPD. Two questions come to mind: 1) "What about the people getting passed over on the promotion list when the SJPD reaches down and selects a lower-ranked applicant based on subjective factors?" and 2) How do we ensure that taxpayers receive the best employees based on merit, not nepotism?

Prior to answering the above questions, we should consider three interesting background issues. First, some people believe that diversity in hiring and promoting is important because local residents pay taxes and therefore deserve at least some commensurate ethnic representation in local agencies. Having an all-white police force in Oakland, CA or an all-black police force in Newport Beach, CA may appear problematic for various reasons and may weaken the credibility of the agency.

Second, most recent court cases involving promotions and testing deal with public safety officers. This development is not surprising. The cost of a police officer or firefighter has increased exponentially over the past decade due to positive sentiment post-9/11, as well as aggressive unionization. Today, a police officer hired in San Jose has won a lottery ticket. Over the course of his or her career, s/he stands to make millions of dollars in salary and benefits, including unique benefits such as job security, lifetime medical care for the entire family, and a pension of up to 90% pay. It is no wonder that public safety positions are much sought after. However, the more expensive a position, the fewer positions taxpayers can afford, which increases competition.

Hence, the third issue is basic economics: the more expensive you make something, whether it's emeralds, gold, or cops, the more likely it will be scarce. (This is a variation of the usual economics rule that there is an inverse relationship between price and supply.) Thus, as public safety positions become more expensive and more demanding, the number of available positions decreases, which increases competition. (As prices goes up, supply goes down, which increases demand and therefore competition.) Consequently, agencies must formulate tests to weed out some applicants, even deserving ones. Furthermore, although residents often want more officers, they may not be able to afford them in a time when training and hiring an officer has become a multi-million-dollar proposition. In some cities, such as Campbell, California, over half of the entire budget goes to the police and fire departments, much of it to retirees who no longer provide any services to local residents. [See here for more (page 8).] The lesson: price and scarcity are related, and the more expensive you make something, the less of it you can have.

Where does that leave us with respect to answering our two original questions? Stating one of them another way, "How does an agency create a fair test that doesn't slight a deserving person who is passed over?" I originally thought the test should be completely objective, like a multiple choice quiz. But then I realized that many government employees, especially officers, have to deal with the public, which requires social skills and anger management skills, which are difficult to measure in a purely objective test.

Yet, the minute we accept that hiring will be based on some subjective factors, how do we agree on the particular subjective factors to be used? After all, once we get to the top ten applicants in any widely-publicized position, most or all of them are probably capable of doing the job. How, then, do we determine which intangibles to use when it comes to selecting someone who has made the cut? Too often, I see nepotism being used in close calls. Someone golfs with someone else, or knows a mutual friend, etc. None of the aforementioned factors has anything to do with merit, such as an advanced degree, grades, or hours of training. At the same time, no law prevents nepotism, which forces spurned applicants to allege racism or some other element related to a protected class to get legal relief. Consequently, what should be a discussion about formulating a fair test becomes a supercharged discussion about race.

Even so, once we accept that subjective factors such as a person's demeanor, peer reviews, nepotism, or personal connections may be legally used to hire or promote someone, we open the door to other subjective factors, like diversity or race or gender. There's no way around it--one person's subjective factor is another person's public policy goal or another person's unfair reason. Realizing that we cannot use a purely objective test, how do we prevent a person being passed over from thinking that his race or gender caused him to lose the promotion or the job? How do we ensure that everyone is treated as an individual, regardless of his or her race or gender?

Fairness is the problem cities and counties face when hiring and promoting government employees, especially public safety officers. If taxpayers demand the best person for the job, what is the most fair way of making such an evaluation? What subjective factors may someone use during the testing process? Courts are ill-equipped to handle these questions, but applicants must continue to rely on allegations of racism or reverse racism to gain access to an impartial judge, and judges continue to rely on disparate impact numbers to overturn or approve testing procedures. Yet, the most important question of all--how do we make the most fair test?--continues to go unanswered, perhaps because the general public and our elected officials don't know enough about particular government jobs to demand that only certain factors be used. That means that government jobs have become the new cultural and racial playground, which is unfortunate for the applicants as well as taxpayers, who deserve better.

One solution is to make the entire promotion and hiring process transparent and public. We demand Supreme Court nominees go through a qualification process in public, but we allow local officials to hire employees behind closed doors. Yet, it is far more likely that a local police officer, firefighter, county counsel, etc. will have more of a direct impact on your life than a Supreme Court justice. The government hiring system currently lacks accountability because most employees are hired without any public scrutiny or public access to data.

On a lark, I once applied for a Social Security contact/service rep position. This job paid about $34,881 a year and required answering phone calls from people with questions about their statements, etc. The federal government told me that I was unqualified for this position--despite the fact that I've graduated law school and run my own law firm for several years, where I handled all phone calls personally.  I've applied for other government positions, and sometimes, I will get an email indicating I've made the initial cut. Unfortunately, that's all I usually get. Then, I won't receive anything else, not even a rejection letter or email. In one case, I actually received an interview, which required a written test beforehand. I ended up answering the test in a way that was correct but that exceeded the examiner's expected scope on one question. During the interview, my detailed answer appeared to embarrass the examiner in front of his peers, who realized the examiner had not considered other possibilities. The interviewer decided to use the interview to verbally joust with me. Predictably, I made the initial cut, but did not get the position. In another case, I applied for a job and never received anything indicating they had received my application. By the time I finally received a rejection notice, I learned that the agency had chosen its top candidates months ago.

The public and aspiring government employees deserve better. To make the system more fair, we should demand the government's testing and hiring process be open and exposed to public scrutiny. Otherwise, without some check on its power and discretion, the government will continue to mishandle taxpayer monies and weaken morale in existing and aspiring government employees. Over time, if our current nepotism-based hiring and promotion process continues, the government will lose credibility, and citizens may eventually lose faith in their country's representatives.

Are Teachers' Unions Bankrupting States?

How many non-government workers receive guaranteed pensions? Almost no one. Yet, teachers and other government employees have negotiated so many benefits for themselves, they are hurting future generations of students and teachers:

Although it is generally acknowledged that education is the foundation of every modern society’s future prosperity, schools unfortunately will have to compete with retirees for scarce dollars. This competition is uneven, because retirees have a legal claim on promised pension benefits that supersedes schools’ budgetary needs.

Basically, the more generous we become with pensions, the fewer benefits we can give current teachers and current students. For example, let's assume a state has 100 dollars in tax revenue. If it has to pay a retired teacher or police officer a pension almost equal to his or her regular salary, that's 90 to 100 dollars that the state can't use on hiring a new teacher or a new police officer. Or, as the report states, "Education finance is a zero-sum game: the more that is spent on closing pension funding gaps, the less there is to spend on reducing class size or improving instruction."

Note: "California, the most populous state, has the largest unfunded teacher pension liability: almost $100 billion." Yes, that's billion with a "b." See here for more.

Links for Interesting Reading

1. NYT, "Can States Fix Their Pension Problems?"

http://roomfordebate.blogs.nytimes.com/2010/05/20/can-states-fix-their-pension-problems/

"Gov. Arnold Schwarzenegger’s pension adviser, David Crane, recently told a state Senate hearing on pension reform, “One cannot both be a progressive and be opposed to pension reform. The math is irrefutable that the losers from excessive and unfunded pensions are precisely the programs progressive Democrats tend to applaud. Those programs are being driven out of existence by rising pension costs.”

2. 9th Circuit decision (Harper v. Poway, 445 F.3d 1166 (2005)) on academic free speech--no longer citable, but the dissent is worth reading:

http://ftp.resource.org/courts.gov/c/F3/445/445.F3d.1166.html

Judge Kosinski: "Tolerance is a civic virtue, but not one practiced by all members of our society toward all others. This may be unfortunate, but it is a reality we must accept in a pluralistic society."

Judge Kosinski: "We are taught to take pride in who we are; it is, in a sense, the American way. It seems particularly chilling to free expression to restrain speech that expresses pride in one's own religion, ethnicity, sexual orientation, etc."

"[The government] has no such authority to license one side of a debate to fight freestyle, while requiring the other to follow Marquis of Queensberry rules." -- See R.A.V. v. City of Saint Paul, 505 U.S. 377, 392 (1992)

Note: the picture above is of Judge Kosinski and I.  

Richard Wolff: "Capitalism Hits the Fan"

Richard Wolff, on Capitalism:

I don’t know about you, but I must get two to three solicitations for credit cards a week in the mail--none of which I request. It’s so profitable to push debt on the American people that everybody does it. It is a society out of control. It is a profit bonanza looking for more ways to make money. And the financial sector on Wall Street responded to this situation. It didn’t create it. It got its hands on the money and found new ways to lend new people new loans at high interest rates.

More here. Mr. Wolff seems to blame computers for declining wages, but he fails to mention the new jobs that new technology has created. The real issue isn't computers or technology, but the increasing wage gap between college-educated people and non-college-educated people. As the costs of a college education and graduate school increase, this troubling gap may continue.

Where I Feel Slightly Less Guilty

Many months ago, Patrick Kelley of the Pagan Temple blog and I debated about the Swiss ban on minarets. I made a sarcastic comment about his ideas sounding great in their original German, and since then, I've been wondering if I was too harsh. Well, I just saw him make the following comment on Popehat.com (May 17, 2010 @1:16 pm):

I have to admit I’m not a big fan of the current pc buzzwords, like tolerance, diversity, equality, open-mindedness etc., and I’m fine with those so-called “American qualities” going the way of the Dodo bird.

Okay, I can understand bashing ambiguous words like "diversity" and impossible goals like "equality," but being against tolerance and open-mindedness? Really?

And don't forget this gem, written on his website on May 17, 2010:

Speaking personally, and honestly, I don't trust any Muslim any further than I could throw one, and I certainly don't trust them nearly as far as I would dearly love to throw a good damn many of them.

Oh, the idiocy.

Update: the U.S. has ordered a hit on U.S. citizen and preacher Anwar Al-Awlaki. Al-Awlaki has influenced some of the recent terrorists who have attempted to attack the United States. Al-Awlaki uses anti-Muslim statements to motivate would-be jihadists worldwide:

You will find statements made by religious leaders for example, in the U.S., Franklin Graham who is the son of Billy Graham - one of the most well known evangelists in the US - making statements like ‘Islam is the religion of evil’. You have Pat Robertson saying that the Muslims are Ya’juj and Ma’juj. Statements like this are on the rise; they are not decreasing, they are rising.

Words have power, especially antagonistic words. Think about it: when a coach wants to pump up his team for an important game, one of the best motivational tools is the opposing coach's or team's trash-talk. Like it or not, when Americans publicly make negative statements about Islam and Muslims, those words are used to motivate would-be terrorists.

Sage Words

David Edwards: "Once you realize that helping others is also helping yourself, the size of the overall problems becomes irrelevant. You're not a one-man or one-woman army out to save the whole world. You help simply because it does good and it feels good."

Debate on Rima Fakih

Rima Fakih, and American citizen from Michigan, recently won the Miss USA pageant. This wouldn't be a big deal, except she is Lebanese and from a Muslim family. Some Americans are protesting a Muslim winning a beauty pageant, alleging that her victory was politically-motivated. There has also been backlash from Muslims. I don't understand any of it. A beautiful woman won a beauty pageant. Who cares? Well, these people do, and there was a debate about whether Islam allows Muslims to enter beauty pageants. Technically, the Koran specifically requires women only to cover their bosoms and private parts in public, which all the beauty pageant contestants did. Unfortunately, many Muslims are confused about the minimum requirements of their own religion, which has created many problems worldwide. More below:

Z: these contests don't have anything to do with our faith. There's nothing Islamic about what she's representing. I'm just saying, why don't we provide Muslim women professors with an opportunity to be crowned so we avoid the same misrepresentation of Muslim women in the media? Why do men applaud women who reveal their bodies and then pray 5x a day?

M: I don't view Islam as an "either/or" religion when it comes to beauty and educational pedigrees. Also, there is nothing in Islam that forbids the showing of physical beauty. To exhibit physical beauty, one must demonstrate one's physical form. Therefore, demonstrating one's form cannot be unIslamic b/c Islam is not against physical beauty.

You are questioning the degree of the demonstration, which is fine, but you've automatically lost credibility once you make a statement like, "There's nothing Islamic about what she's representing." Is she immodest? Perhaps. But since modesty is an ambiguous term and in the eye of the beholder, we must be more careful before we issue broad statements about what is Islamic or unIslamic. After all, Islam is not like the Catholic Church, where all Muslims must heed a particular interpretation coming from one source (i.e., the Vatican). As such, Muslims ought to recognize that no individual Muslim has authority over what is Islamic or unIslamic, and such debates must be settled by quoting the Koran, which is oftentimes ambiguous and open to interpretation.

Z: if the lines of modesty are ambiguous to you, it speaks volumes about your confusion of Islamic principles. I'm not comparing Islam to other faiths. I'm merely stating that its followers of the faith who are misrepresenting the religion and the media picks up on that. No one said physical beauty is a sin.

M: the Koran asks women to guard their "private parts" and their bosoms and then immediately references husbands and fathers. A hijab covers a woman's private parts and bosom--but so does a one-piece bikini.
The Koran also asks women to act modestly when outside the presence of their husbands or fathers; however, one husband or father may view a bikini as immodest, while another may have no issue with it. Therefore, the Koran seems to be asking women to take actions to minimize jealousy in their husbands and maximize harmony in their families, which requires a case-by-case analysis of the "lines of modesty." I hope this makes sense. Also, note that Muslim-majority countries like Dubai, Iran, Indonesia, Malaysia, and Saudi Arabia have vastly different rules on modesty, which should tell you right away that there isn't any singular interpretation of the Koran's definition of modesty.

Z: as you know Muslims were known for their good character, honesty, and intellect which magnified the beauty of their physical state. This is not an issue of interpretations, the reason I brought this is up is because we need to be thoughtful in our approach about what we're supporting. I'm sure that there are many women who don't practice their faith but wear the hijab because of the rules of their government/families. In a country such as ours where there are no rules about what's immodest, shouldn't we harness the best of our faith and freedom and question the values set forth?

Ask how many of these pageant winners have stalkers and live in fear of their lives. Ask how many of these pageant participants have eating disorders. Ask how many of these pageant winners spend their wealth and time in combating the problems of the world long before they entered a pageant. I see this as further ridicule...it's definitely not praise. It's saying, "look how we can brainwash your women into thinking we accept them for their religion and beauty" or "this should make up for all the bombs we're dropping on the innocent people (in all the Muslim countries you didn't mention)."

M: Connecting categories like beauty and modesty to stalkers and bombs in one leap indicates a fantastic imagination. I don't know anyone who looks at Ms. Fakih and thinks that her award makes up for the death of innocent civilians, so to suggest such a connection is troubling. It's like referencing 9/11 every time a Muslim is stopped at the airport in 2010--it's a tenuous connection at best and ultimately fails to support a conclusion or argument.

F: your statement "there is nothing in Islam that forbids the physical showing of beauty" is true. A woman may ONLY expose herself to other women or to another maharam. This is in the Qu'ran, and not up for debate. Modesty may be an "ambiguous" term, but strutting around in a two piece in front of eight million people is not ambiguous at all. There really is no gray area here.

Also, for anyone to equate wearing a hijab to wearing a two-piece is absolutely illogical. Are you saying that God is ok with either apparel? Clearly the two are not similar. It is either this or that, but not both, because both are contradictions to one another, and we all know contradictions are illogical. Wearing a bikini and wearing a hijab are not the same, so they will not be looked upon the same in God's eyes.

In the Qu'ran, 24:31 says, "And say to the believing women that they should lower their gaze and guard their modesty..." Come on now, we are being asked to lower our gaze!! This is such a modest and subtle gesture. From this you are concluding that it is ok to wear a two piece bikini? You are unsure whether wearing a bikini contradicts this aforementioned verse? what possible argument can someone have? Surely this is illogical right? Why would God put that in the finite book, and then be ok, with naked women on a stage. I-l-l-o-g-i-c-a-l.

33:59 goes on to say, “O Prophet, tell your wives and your daughters AND the women of the believers to draw their cloaks close round them." Yes, draw cloaks around the body, to prevent from giving the woman a discernible shape. You know how girls like to wear things real tight these days?

Whatever Miss Fakih does is between her and her God. It doesn't bother me one bit she calls herself Muslim. It's all good, because the rules, and regulations are all there. We have Taliban and extremist blowing people to bits. A girl strutting her goods on stage is the least of our concerns.

But rules, will be rules. And right will always be different from wrong.

M: First, did you really just admit that "modesty" may be an ambiguous term and then in the next breath allege no "gray area"? (I hope you see the problem there.)

Second, there is no "contradiction" between a bikini and a hijab. Both are articles of clothing, and articles of clothing can't contradict anything. It's like saying that a t-shirt and a sweater contradict each other, which makes no sense.

Also, you use the word, "naked." Ms. Fakih was never naked. She covered her "bosom" and her private parts--the only two areas of the body specifically cited in the verses at issue--so she complies with the Koranic sections that are most specific on modesty.

Since there is no singular authority on Koranic interpretation, all you can say is that your own interpretation of Islam forbids wearing a bikini in public--that's it. You cannot demand only one interpretation for an ambiguous term--this isn't like eating pork or drinking alcohol, which are clearly prohibited in the Koran.

Your other Koranic quotations are also open to interpretation. As I am sure you agree, almost every single Koranic section that discusses modesty and dress does so within the context of family members and husbands, so a reasonable interpretation cannot ignore the variable opinions of a woman's family. Why specifically include husbands and family members in the modesty verses if their opinions--which may vary greatly--are insignificant?

You also take the "cloak" verse out of context. First, a cloak refers to an outer garment that was popular in that time--it doesn't necessarily mean an actual cloak, just an outer garment. Second, take a closer look at the verses. It is discussing a time when women travel abroad or into lands where they will not be recognized as Muslims and may encounter problems with disrespectful men. Within context, the "cloak" verses appear to suggest simple, inexpensive ways for women to feel respected when they travel, i.e., to "be recognized and not harassed" and "not given trouble." There is nothing in the verses that requires women to wear particular outer garments when they travel. The verses merely encourage a woman to identify herself as a Muslim when she travels to foreign lands so she can avoid being bothered by disrespectful men. Such identification may be done in several ways, such as wearing a symbol of Islam (similar to wearing a cross if one is Christian). Of course I do not claim my interpretation is the only interpretation, but I do try to read verses in context.

F: So since there is no singular authority on the interpretation of the Qu'ran, you in your heart believe that it is acceptable from women in Islam to wear bikini's in public? You, with all your given faculty believe, that this is the message that God was striving to send to us? Just because the concept of female clothing is vague and open to a variety of interpretations, does not include the possibility that wearing such a thing in public is correct.

I was not sure what you were trying to say regarding the husband and father. All I was trying to say that a woman's clothing maybe more lax in front of maharam.

As for the cloak/garment verse 33:59, it says that women should cover them selves with this cloak (or garment) to avoid being harassed by men. All other things equal, who do you think has a higher probability of being harassed, a covered woman or one in a bikini? I think the latter. Basically this verse is trying to avoid having the woman attract unnecessary attention. Correct? Women should be clothed in ways that do not attract men's attention. Regardless if they are traveling, not traveling, are in the market, or anywhere in the public.

I'm going to revert back to 24:31. You say that a woman who covers her vitals, as a two piece does, is meeting the minimum requirements. Correct? Then how come this verse talks about a very subtle gesture, that is the lowering of the gaze. Can you compare the lowering of the gaze to wearing a bikini? Are these not on the opposite sides of the spectrum? Are these not contradictory. The Qu'ran advocates the woman should humbly lower her gaze, while you are saying that a woman in a bikini is not trespassing any rule. Can you please reconcile this blatant disparity?

24:31 also has an interesting thing that it mentions. It says for the woman to " not stamp their feet so as to reveal what they hide of their adornment." Looks like to me that holy God is talking about another sense in addition to sight.....hearing. This is the extent to which women in Islam are instructed to behave. That they shouldn't even walk with a heavy foot. So again, when the bikini wearing in public is factored, how do you reconcile this disparity?

You know what the sweet thing about Islam is? It cuts the problem off at the root. Drinking causes problems, so guess what, no drinking AT ALL. Drugs causes problems, guess what, no smoking weed AT ALL. Stealing causes problems, guess what, no stealing AT ALL. Even a dollar. If everyone was allowed to drink "a little bit", or smoke weed "once in a while" then the entire system would crumble. There would always be one guy who drank too much and plowed his car into a group of kids, or a guy who fried his brain over drugs.

Islam, quite candidly is a religion of limits.

M: this will be my last response to you, b/c I've already studied this issue in detail and have explained most of my position. As I said before, in my heart, I believe Islam is not rigid--the different Islamic cultures across the world prove it--and we cannot ignore the varied opinions of family members when interpreting the modesty verses. Such verses almost always refer to women's "husbands, their fathers, their husband's fathers, their sons, their husband's sons, their brothers or their brother's sons, or their sister's sons." These references are consistent and numerous, indicating that the intent of the modesty rules is to promote marital and familial harmony. Each father and husband has different preferences, so a bikini may make one husband jealous while another man may not mind. The only rule we know for sure is that women ought to cover their "bosoms" and "private parts"--anything beyond that is subject to interpretation.

You don't really offer anything new in your latest response. "Lowering the gaze" means women shouldn't look at forbidden things, just like men shouldn't be looking at forbidden things. The "gaze" verse talks about self-restraint, but each individual has unique boundaries. One woman may not be able to handle looking at a man's ankles, while another may be able to look at Fabio and maintain self-restraint. Again, we are back to a case-by-case analysis.

The "stamping feet" verse warns against showing off "ornaments," i.e., expensive jewelry, not body parts. Indeed, near the same place that "ornaments" is used, the Koran specifically cites "bosom" and "private parts," so it appears we are referring to something other than physical areas. In conclusion, if you think Islam has limits, wonderful--you can set up a mosque and preach however you like, but the minute you argue that Islam has only one way or one interpretation, you have crossed into Catholicism or some other religion.

Z: In reference to verse 24:31 about a woman to " not stamp their feet so as to reveal what they hide of their adornment." It is not only referring to jewelry worn around ankles that make sounds to attract a man's attention, but as a woman, it's also referring to the movement of the chest as one walks. God created us all in the best of forms and provided us beauty as well as intellect. Our ancestors were known for their character because of how they used their intellect and that in itself magnified their physical attributes.

Clearly Ms. Fakih possess physical beauty, and no one is arguing that...but I just wish to learn more about her intellect. She has great potential to be a positive role model and I pray she gains the strength to overcome the whirlwind of the life she's chosen.

Would you congratulate your sister, mother, aunt, cousin, wife or daughter if any of them were following Ms. Fakih's lead?

M: if a woman in my family decided to participate in a beauty contest, the appropriate discussion would take place privately. I don't see anything in the Koran that requires a non-family member to judge another Muslim's modesty.

Generally speaking, in Islam, both the wife and the husband are tied together--or yoked together--and both must avoid harmful and immodest behavior. The definition of immodest behavior is based on input from both the husband and the wife. The wife can ask her husband to dress conservatively if such dress conforms to her definition of modesty, and vice-versa. This is why it is important to know the expectations of the person you are marrying. The intent of the modesty rules is to avoid jealousy on both sides, which helps promote a peaceful marriage.

So if you really look at the Koran in context, the intent of the modesty rules is, "Don't tick off your spouse." Thus, outside the house, the wife gets to ask the husband to dress in ways that make her feel comfortable, and the husband gets to ask his wife to dress in ways that make him comfortable. Such preferences are expressed in most marriages anyway, e.g., the wife buys the husband new clothes, throws away old shirts, lays out what she wants him to wear, etc. I've heard Christian husbands refuse to go out if the wife is wearing something too risque, and Christian dads complain about their daughters' clothing, so this issue isn't an "Islamic thing."

The Koran anticipates these marital and familial problems and tries to fix them ahead of time. In real life, women tend to become the focus of clothing/modesty discussions b/c most women are attracted to men who dress up, not down, but the opposite is true for women. At the end of the day, if you marry someone reasonable, modesty and clothing preferences won't be an issue.

Wisdom from Charlie Munger

Many people know about Warren Buffett, but not enough people know about his right-hand man, Charlie Munger. See here for Munger's 1994 lesson on "Elementary, Worldly Wisdom As It Relates To Investment Management and Business":

"If people tell you what you really don't want to hear, that's unpleasant--there's an almost automatic reaction of antipathy. You have to train yourself out of it. It isn't foredestined that you have to be this way. But you will tend to be this way if you don't think about it."

"I think the reason we get into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, 'My God, they're purple and green. Do fish really take these lures?' And he said, 'Mister, I don't sell to fish.'"

Also, see here for more "Mungerisms" and my brief meeting with Mr. Munger.

Joe Queenan on the Money

Joe Queenan has perfectly encapsulated the mood of our times. See WSJ, 5/15/10, "A Lament for the Class of 2010":

Never mind that in order to pay back the $200,000 it's going to cost you to go to law school, you'll need to land one of those plum legal jobs at Goldman Sachs or AIG or one of those other firms that are no longer hiring because they owe so much to the lawyers they already did hire to defend them from lawsuits brought by the government's lawyers, public prosecutors who only took those jobs because Goldman Sachs and AIG weren't hiring. Good luck getting your parents to pay for that one...

Today, even the idiots have college degrees. And the idiots have seniority.

This is what happens when educational standards decline, and high schools and colleges become diploma mills. Until we add law, symbolic logic, and economics to our required curriculum, starting from elementary school, our current state of affairs will not change. I have met too many adults with degrees and high school diplomas who lack a basic understanding of subjects essential to a functioning democratic republic, such as state vs. federal governments, taxes, supply-and-demand, and the potential dangers of executive power.

Next are two questions that will show most of you that your high school education was inadequate:

1. Which parts of government most impact your life on a daily basis? Federal, state, presidential, judicial, etc.? Obama, Reid, the school board, etc.?

2. What functions do cities provide their residents, and what is usually the most significant expense in a city's budget?

Babies, Morality, and God

In "The Moral Life of Babies" (May 9, 2010, NYT, Paul Bloom, see here), the author discusses babies and their sense of innate justice. Below is a description of one of the studies used to determine baby behavior:

[W]e tested 8-month-olds by first showing them a character who acted as a helper (for instance, helping a puppet trying to open a box) and then presenting a scene in which this helper was the target of a good action by one puppet and a bad action by another puppet. Then we got the babies to choose between these two puppets. That is, they had to choose between a puppet who rewarded a good guy versus a puppet who punished a good guy. Likewise, we showed them a character who acted as a hinderer (for example, keeping a puppet from opening a box) and then had them choose between a puppet who rewarded the bad guy versus one who punished the bad guy.

The results were striking. When the target of the action was itself a good guy, babies preferred the puppet who was nice to it. This alone wasn’t very surprising, given that the other studies found an overall preference among babies for those who act nicely. What was more interesting was what happened when they watched the bad guy being rewarded or punished. Here they chose the punisher. Despite their overall preference for good actors over bad, then, babies are drawn to bad actors when those actors are punishing bad behavior.

The babies rewarded the "good" puppet by giving it a treat. This experiment reminded me of C.S. Lewis's book, The Problem of Pain. Lewis, a former atheist turned Christian, argues that pain and guilt must come from God (or some innately programmed code placed by a programmer) because even at an early age, we have feelings that come too early to be explained away by socialization.

Another way to review Lewis's ideas is by examining the problem of a conscience. Most of us, from a very early age, have a conscience that produces guilt and pleasure. Where does a two-year-old child's conscience come from? Lewis contends that the best explanation for a young child having guilt is God, because it is unlikely that biology can produce such feelings in someone so young. Today, we talk about genes for diabetes, cancer, and even homosexuality, but few reputable scientists have tried to argue for a "guilt gene." Of course, there may be genes that make humans more social and more attuned to social networks, but such genes would presumably need more catalysts than a mere two years of experience, much of it spent in a restricted space.

Aquinas, Pascal, and other philosophers have submitted their pro-God arguments, but C.S. Lewis's musings on the problem of guilt/pain don't get enough credit in philosophy classes or general theology discussions. That's a shame, because Lewis has presented an argument that anyone, merely by studying a child, can understand. Reducing theology to child's play might seem overly simplistic, but I see nothing wrong with effective arguments.