Random Thoughts: Religion

I am with Thomas Jefferson when it comes to religion: "it does me no injury for my neighbor to say there are twenty gods or no God. It neither picks my pocket nor breaks my leg." This libertarian strain leads me to get slightly upset when people blame any other religious group for any reason. My friends, knowing I am easily needled, quote Christopher Hitchens (of God is Not Great fame) to me whenever they can. Borrowing from C.S. Lewis' The Problem of Pain, I came up with the following argument, which gently straddles the line between proselytizing and confirming faith as a private matter. 

1. If you agree guilt is innate, explain where it comes from? At such a young age, we've all felt guilt. Assuming socialization at that young of an age could not have played a part, where did it come from, if not God or something we cannot understand and therefore name "God"? 

2. Agree that humanity is not omnipotent. Okay. Agree that humanity will always be subject to the unknown, which will nevertheless have real effects on a person's life. Okay. If you believe in cause and effect, the unknown that causes effects has to come from somewhere. Religion assigns a name to that unknown and calls it "God." To not believe in God is to reject the concept of the unknown. 

One way to escape that conclusion is to say "Yes, at some point, humanity will be able to explain everything or will evolve to be able to explain everything." That is not a humble explanation. 

So the atheist must post this scenario: God-believers are wrong and humble, and atheists are not humble but right and can be omnipotent. Therefore, the main difference under an atheist's view between believers and non-believers is believers are predisposed to humility and possibly stupidity. I agreed with this position my friend advocated. I'd rather live in a world where people are humble and wrong than arrogant and right. That division, at the end of the day, seems to be one difference between believers and nonbelievers. Just my two cents from a former atheist (just like C.S. Lewis). 

As for calling particular religions harmful, the New York Times's Lindsey O'Rourke reminds us that terrorism crosses all lines. See A27, August 2, 2008, "Blaming Islamic fundamentalism [for female terrorism] is also wrongheaded. More than 85 percent of female suicide terrorists since 1981 committed their attacks on behalf of secular organizations; many grew up in Christian and Hindu families...The founder of Hamas claimed 'A woman martyr is problematic for Muslim society. A man who recruits a woman is breaking Islamic law."' And, "95 percent of female suicide attacks occurred within the context of a military campaign against foreign occupying forces, suggesting that, at a macro level, the main strategic logic is to create or maintain territorial sovereignty for their ethnic group" (e.g. Tamil Tigers--see an overlooked but incredible Indian film called A Peck on the Cheek for more). 

Of course, Hamas' anti-Semitic comments contradict the Quran's Sura 2:256: "There shall be no compulsion in religion." Just goes to show you can bring a man to the book, but you can't make him understand it.

Yahoo! Shareholder Meeting, August 1, 2008 (YHOO)

(Susan Decker and me)

Yahoo held its 2008 shareholder meeting at the posh Fairmont Hotel in downtown San Jose. Security at the meeting was tight--proxy statements were checked prior to providing a wristband required for entry.

Yahoo did not skimp this year on the food--we had coffee, juices, and pastries galore (the croissants were especially tasty). In fact, the hotel put out so much food, most of it was untouched.

Outside of the meeting hall were several kiosks highlighting Yahoo's different areas, such as search, mobile, green (environment) and advertising. The "green" area hasn't received much attention, but it's interesting. Go to http://green.yahoo.com for more information--the Yahoo employee referred to the "gift guide" tab as one convenient way to shop for eco-friendly gifts.

The formal part of the meeting was more interesting than usual, because some ballots had to be re-done after the Yahoo-Icahn agreement invalidated Icahn's slate and gold card proxies. The presenter indicated votes for Icahn "will not be cast."

Several pension funds talked about their proposals. The first proposal--pay for superior performance--fell flat because the delivery was stunted and overly prepared.

The second presenter did better--he was from a NY Pension fund and chastised Yahoo for its political censorship. He said "Yahoo actively participated in these human rights abuses," and should "not engage in proactive censorship." His proposal also appeared to demand more public transparency when Yahoo complies with foreign subpoenas for information.

The third presenter, from Harrington Investments, dealt with human rights also. The presenter said that Yahoo "lacked true morality, which is the morality of obligation," and failed in its fiduciary duties.

Voting results were released after the meeting, and Yahoo prevailed on the shareholder proposals it asked shareholders to reject. Shareholders also elected all of Yahoo board members by overwhelmingly wide margins, except for Roy Bostock and Arthur Kern, both of whom had about 20% of shares withheld in opposition. Mr. Bostock earlier had 34% of the vote withheld in protest, and many shareholders continue to revile him for his involvement in outsized compensation despite Yahoo's lagging share price.

As a result of placating Carl Icahn, Yahoo was able to dissolve shareholder frustration; make its annual meeting into just another regular meeting (much to the chagrin of most media, who appeared from numerous outlets); and focus on remaining independent. My perception was Mr. Bostock is now responsible for the negotiating with Microsoft, while Sue Decker and Jerry Yang are focusing on how to maximize ad and search revenue.

Mr. Roy Bostock, Chairman of Yahoo's Board, gave a presentation after the formal meeting had concluded. I'm sure he intended his speech to be a fiery "Sinners in the Hands of an Angry God" type, but it fell flat. The more Yahoo talks about Microsoft, the more it sounds like a jilted but still optimistic ex-girlfriend. Bostock said Yahoo was a "victim of misunderstanding." He indicated they had entered into an agreement with Google as part of a strategic plan, but never elaborated on the details of the deal. Bostock indicated, "At no point did this board or management in any way ever resist Microsoft's proposal," making Yahoo sound more and more like a hopeful ex-girlfriend.

The rest of Bostock's speech seemed to focus on blunting a minority shareholder lawsuit by blaming Microsoft for the failed deal. Bostock said Yahoo "proactively" evaluated Microsoft's original and later hybrid proposal and then seemed to get unnecessarily aggressive when he said, "We called the shots." Not exactly the kind of comments that would make Microsoft too happy about a partnership or a deal.

Bostock said the 31 dollar bid was the only express bid, and the express offer "substantially undervalued Yahoo." Bostock then made the typical comments about maximizing shareholder value and then characterized the 33 dollars a share offer as an implicit Microsoft offer rather than a Yahoo counteroffer. Yahoo had a "long-term strategic vision," he said, and it was a "burden to deal with all these offers." It was a stunning statement by a company that basically cost its shareholders a 50%+ premium.

Jerry Yang made the next presentation. His public speaking skills have dramatically improved. He was prepared and polished. He talked about internet opportunity, referring to the projected growth in "incremental internet users" (335 million). 76% of these users would come from Asia, Pacific and emerging markets. Mr. Yang said Yahoo was investing in mobile and emerging markets and had an enviable "collection of assets."

Yahoo receives 3.6 billion visits per month. 3.6 billion visits a month is incredible. An advertiser can hardly ignore Yahoo if it wants broad and international placement of its product or content. Mr. Yang ended by talking about opening up the advertising platform, i.e. making it easier for advertisers to buy ads.

Susan Decker spoke next. She has a firm grasp of Yahoo's diverse businesses. She indicated Yahoo's top 200 advertisers bought 90% of display ads (e.g., the very large ads, especially for movies, on Yahoo's home page). Yahoo was also improving its "sponsored search" advertising process, where advertisers could big for a term like "plasma tv" in an auction.

Ms. Decker then talked about "Buzz," and other social networking tools. She referred specifically to search innovation, "Search Monkey," and other tools to make search engines more user-friendly and integrated. It appears Yahoo is trying to make its platform similar to Facebook so it can continue to be a one-stop shop for users. Sue Decker ended by reading some positive reviews of Yahoo published by various media outlets. Her skill and presence are such that she could pull this off without appearing arrogant.

The CFO was the final speaker. His slides showed "operating cash flow" has been stagnant since 2006, but he indicated the reasons were acquisitions and other growth-driven items. Yahoo has 3.2 billion dollars in cash. Let me repeat that--3.2 billion dollars in cash.

Yahoo also owns stakes in alibaba.com (China), Yahoo Japan, Gmarket (Korea), and TaoBao.com (China). Yahoo estimates these stakes being worth $7.01 per share, not including Alipay.com and TaoBao.com. One source of disconnect: Yahoo kept talking about emerging markets, but its partners are all in developed economies like Japan and Korea, except for possibly China. I don't see any partnerships in India, Eastern Europe, or Turkey, for example.

Paidcontent.org did a good job summarizing the meeting itself and the Q&A session:

http://www.paidcontent.org/entry/419-live-yahoo-annual-meeting-the-meeting-starts/

http://www.paidcontent.org/entry/419-yahoo-annual-meeting-qa-compensation-concerns-china/

The comments under "Fantasy Sports" and "A New Metaphor" referred to my comments at the meeting. I basically said Yahoo--more specifically Roy Bostock--needed to stop talking about the failed Microsoft deal. We get it--it failed. Using more polite language ("bad breakup"), I suggested Bostock stop acting like a spurned ex-girlfriend, and perhaps Microsoft might come back and be more reasonable. No one wants to deal with a bitter ex who keeps ripping you in the press. It's just common sense. I also recommended Bostock stop using the term, "long term strategic plan"--it sounds hollow right now, and if he wants to use it, he should use it when Yahoo's stock price goes above $30 per share.

I praised Jerry Yang for being the founder of the company, reminding everyone that without him, Yahoo would not exist. I said the criticism relating to the Chinese blogger controversy was unfair, because Mr. Yang never intended for the end result to occur. At worst, I said, you could argue he and the company were naive, but not malicious (even though it was Semel who released the information, Yang apologized publicly for it, associating himself with the incident). I continued, saying perhaps a temporary sabbatical would be best for the company, because Mr. Yang is now associated so deeply with the blogger controversy, it's hard to focus on Yahoo's actual business. Unfair or not, he has become a lightning rod for criticism (two of the shareholder proposals dealt with human rights violations), and with Decker already at the helm, perhaps she could take over temporarily as CEO and President. I also praised Yahoo's fantasy sports platform/franchise.

Jerry Yang seemed pleased with my comments, chuckling at the ex-girlfriend analogy, and pointed out he was not the CEO at the time of the blogger incident. He said he had "condemned the Chinese government" for its actions, something I had not read or heard before. Yang's comment against the Chinese government surprisingly did not lead to major publicity.

Decker said the fantasy sports franchise fit with Yahoo's desire to move more into social networking and demonstrated Yahoo's early adoption of social networking.

Bostock made a remark about how he wouldn't compare the Microsoft situation to a "romantic relationship." Despite his attempt to appear strong, Bostock ended up looking clueless every time he strayed from prepared comments. Bostock isn't a natural when it comes to dealing with the public. If he keeps opening his mouth about Microsoft, he'll start to look like Glenn Close in Fatal Attraction soon ("We called the shots" begins to look eerily similar to "Don't you ever pity me, you smug bastard."). If he's trying to play hard to get, he's not doing a good job--and he's certainly not endearing himself to Microsoft or anyone else with his rehashing of the offers and counteroffers. Obviously, there was some miscommunication. A two dollar difference ($31 or $33) doesn't ordinarily derail a deal. Either play nice so everyone can sit together again, or walk away--it's so simple, even a Harvard MBA should be able to get it.

Other questions involved an accusation Yahoo had not sold Yahoo Japan for the highest value. Yang said he recused himself on the Yahoo Japan board at the time of the transaction and sold a stake at the particular price because of tax implications, preferring to get a continuing revenue stream over ten years.

The same shareholder complained about Sue Decker's other board memberships, such as Berkshire Hathaway, Costco, and Intel. Other board members leapt to Sue's defense, saying she was a hard worker and answered emails at 3AM and had a great grasp of the company. Ms. Decker responded politely and added she specifically rejected several invites to join other companies' audit committees to save time for Yahoo.

Bostock rejected a request for him to step down and said director compensation was not high, disputing the numbers the shareholder provided. The shareholder responded that his numbers came from the proxy.

Other shareholders complained not all the directors had shown up and some did not even own stock in the company. Another shareholder complained about the lack of female board members.

Stephen Shankland and Wendy Tanaka wrote accurate summaries of the meeting:

http://news.cnet.com/8301-1023_3-10004577-93.html

http://www.forbes.com/technology/2008/08/01/yahoo-icahn-microsoft-tech-cx_wt_0801yahoo.html

Here is the BBC's take:

http://news.bbc.co.uk/1/hi/technology/7538469.stm/

All in all, Yahoo had a successful day and pulled off a professional event after settling with Carl Icahn earlier. What was projected to be a media circus was just another shareholder meeting. Jerry Yang's image went up dramatically--he looked poised, prepared, and fresh. Meanwhile, Roy Bostock looked tired, bitter, and combative. I added 50 shares of Yahoo, a nominal amount, when I returned to my office. I like the company, but with Bostock around, I'm not sure a deal with Microsoft will get done anytime soon. I was hoping Decker could pull some strings with her colleague Warren Buffett, who would talk to Bill Gates, but now it all seems too complicated. Almost like a messy, bad breakup.

Small Business Bankruptcies Increased

Barry Ritholtz writes about small businesses getting the shaft:

http://bigpicture.typepad.com/comments/2008/07/what-do-bankrup.html

Small businesses in California and elsewhere are being overlooked as Congress and state legislators rely more on corporate donations. We need strong legislators who can help small businesses and who also have the skills to balance the interests of employers and employees. Without predictable regulations and more assistance to small businesses, the path to the American Dream will become limited to the slow hierarchy structure of your nearest mega-corporation. Clark Gable's character famously justified his profession as a freelance horse wrangler by saying, "Better than wages"--but at least he had a choice.

Mark Cuban as Small Business Savior

Sometimes, I imagine I am Mark Cuban's twin, and we were separated at birth. I attract controversy, I'm iconoclastic in my views, and always believe I'm right--and like Mr. Cuban, I usually am. I just need a few billion dollars and an NBA team, and I'd be *right there*. Here is Mr. Cuban's blog post on small businesses, which mirrors my views:

"No taxes of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings."

http://www.blogmaverick.com/2008/07/28/how-to-jumpstart-the-economy-tax-free-small-businesses/

I blogged on a related tangent myself in April:

http://willworkforjustice.blogspot.com/2008/04/does-overpopulation-cause-declining.html

I advocated for the "elimination of all civil laws except for wage and contract laws relating to businesses with fewer than six non-family employees and/or gross revenue of less than 575,000 dollars per year (thereby encouraging entrepreneurs and small businesses)." Mr. Cuban doesn't include the cost of complying with unpredictable laws and judges, which is a form of taxation for a small business. Other than farmers, I have not heard of a single state legislator talk about protecting small businesses in California for years. It's disgraceful.

Mr. Cuban, you and I had to be twins in another life. Just let me know when I can shoot hoops with Dirk, and I'll be there. I predict I'll score at least 4 points in a game up to 15, by ones.

Stocks Update, July 30, 2008

I opened new positions in SO, VNQ, GRMN, and EZU. My next buy will either be WFR or NVDA. My largest positions are now SO, CCT (not included because most shares bought before publicly tracking positions), and VNQ. I am concerned about GRMN going down further in the short-term, but plan on holding onto it for at least a year.

My short-term trades continue to be uniformly positive by small margins. With these short-term trades, I regularly invest large dollar amounts and get out quickly, usually making 1% each round-trip. If I do that 10 times a year with all my money, that's a 10% gain, but I've got too many scattered positions right now to commit to a full-time short-term strategy.

The major outstanding question is whether we have experienced capitulation. There is no uniformly accepted definition of "capitulation"--it's the same as Justice Potter Stewart's definition of pornography: "I know it when I see it." The WSJ wrote today the VIX (volatility index) hasn't reached the levels some experts demand before calling a capitulation, but the market hasn't been acting predictably anyway, so perhaps it's all noise. Experts and fund managers probably want to see panic before they commit major amounts in the stock market, and whatever signal they're looking for, they're not seeing it. As a result, most experts say it's not time yet to jump back into the pool. Me, I am slowly getting back in, but I am aiming for September 2008 as a time to consider adding to my existing positions in a serious way. Other than SO, none of my individual positions currently exceeds 5,000 dollars.

Numbers below are based on prices at the close of market on July 30, 2008.

Open Positions
EWM = -3.49
EZU = +1.24
GRMN = -2.41
IF = -4.56
SO = -0.61 [insignificant movement, so not included in average]
VNQ = +3.39

[Average of "Open Positions": losing/negative average 1.17%]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
GE = -6.4
INTC = 0.0 (excluded from averages and overall record calculations)
PFE = -5.5
PNK = -16.7%
PPS = -2.8
WYE = +2.4%

[Overall Record: Lost an average of 3.97%]

Held less than 7 days:
GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), PFE (1.3%), SCUR (15%)

[Overall Record: Gained an average of 2.96%]

Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record: Gained an average of 1.76%]

Compare to S&P 500: losing/negative 7.32%
[from May 30, 2008 (1385.67) to mid-day July 30, 2008 (1284.26)]

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

New Positions: SO and GRMN

I opened two new positions: Southern Co. (SO) and Garmin (GRMN).

SO is an electric utility company with an annual dividend of around 4.8%. In turbulent times, electric utilities appear to be the last legitimate widows-and-orphans stocks. Pharma has lost that designation, especially after Wyeth's (WYE) plummet today and Pfizer's (PFE) poor historical performance. The problem with having new drugs in the pipeline is if something goes wrong with them at any stage, gains in the stock price suddenly evaporate. That unpredictability makes electric utilities the safer bet, unless regulation becomes unreasonable.

I bought Southern Co. on July 30, 2008, the last day to collect the quarterly dividend, and after earnings had been released. Here's the skinny on the second-quarter earnings: they declined three percent because of a $67 million charge relating to Southern Co.'s development of international energy projects in the 1990s, more specifically, leveraged leases. Still, Southern Co.'s net quarterly income was $416 million, and most of its customers are located in the faster-growing Southeast region of the United States.

I am concerned about more surprises in the leveraged lease area because like CDOs, it's very hard to ascertain how much money a company is losing on a lease when others are involved to limit risk and when the underlying asset is difficult to value. Here is the best definition of a leveraged leased I found, from allbusiness.com's glossaries:

A lease that involves a lender in addition to the lessor and lessee. The lender, usually a bank or insurance company, puts up a percentage of the cash required to purchase the asset, usually more than half. The balance is put up by the lessor, who is both the equity participant and the borrower. With the cash the lessor acquires the asset, giving the lender (1) a mortgage on the asset and (2) an assignment of the lease and lease payments. The lessee then makes periodic payments to the lessor, who in turn pays the lender. As owner of the asset, the lessor is entitled to tax deductions for depreciation on the asset and interest on the loan.

A more detailed review of these leases is necessary to see whether Southern Co. has fully disclosed its potential liabilities and risks on various projects.

GRMN hit a new 52-week low after indicating its much anticipated new product, Nuvifone, would be delayed. GRMN has aviation, marine, and automobile divisions, and all are affected by the increased price of oil. In addition, GRMN has formidable competition from TomTom and Magellan. According to Yahoo Finance, about 18% of GRMN's float is being sold short, so there are plenty of people who dislike this stock. At these prices, however, I consider GRMN to be a long-term value play. I bought shares at 36.06 dollars and may average down if shares continue to go lower.

Eric Savitz's Tech Trader blog has the best earnings summary:

http://blogs.barrons.com/techtraderdaily/2008/07/30/garmin-q2-misses-outlook-weak-nuvifone-delayed/

If you believe oil prices are preternaturally high, and the U.S. dollar will firm back up, GRMN might have some unexpected upside.

On an unrelated note, I just realized something about McAfee's (MFE) shareholder meeting yesterday--every single employee at the shareholder meeting and on the Board appeared to be a white male, except for two white females. A tech company in Silicon Valley without any Asians, Indians, or Persians in the top ranks? That homogeneity makes a company appear very insular and behind the times, especially with Symantec (SYMC) having more diverse key executives.

Educational Attainment and Economic Advantage

David Brooks recently wrote a great article about education's impact on the economy:

http://www.nytimes.com/2008/07/29/opinion/29brooks.html?ex=1375070400&en=7286e3c1957017ac&ei=5124&partner=permalink&exprod=permalink

Starting intensive education earlier (Scotland starts its first grade at 4 years old, at least when I was there) and investing in all-day (9AM to 6PM) elementary schools may be a wise choice. When I tutored at UC Davis, I was stunned at how poorly some UC students wrote, especially after the supposedly higher educational requirements for admission. God only knows what teachers and tutors have to deal with in the California State University (CSU) system.

One personal anecdote: the ESL students, usually foreign residents earning math, science, or engineering degrees, worked the hardest on their writing. Some students even hired me for private work. I remember being ecstatic about making 15 dollars an hour when a South Korean student hired me as a private tutor. Back then, 15 dollars was major bling-bling and meant dinner at the local Thai restaurant (Sophie's Kitchen, apparently under different ownership now, so I can't personally vouch for it) rather than the 99 cent chicken sandwich at Jack-in-the-Box. I discovered sushi for the first time in Davis also. Yup, those were the days.