Update on Nvidia (NVDA) and Long's Drugs (LDG)

A couple of highlights:

1. CVS bought out Long's Drugs. I predicted this would happen on May 29, 2008:

http://willworkforjustice.blogspot.com/2008/05/longs-drugs-stores-corporation.html

Longs is going to be a good company and attractive takeover target, assuming its insurance company purchase works out. It's too difficult for new entrants to get into the pharmacy business, so there seems to be a wide moat here. Also, no one (except maybe Walgreen's) has the stores in California that Long's has, so CVS is going to be knocking one of these days. As long as anti-trust issues don't harm any possible deal, Longs should be a decent long term investment.

2. NVDA stock increased 10.75% today, one day after I indicated the stock was oversold and bought shares. I sold today, making 8% (I had existing shares bought at higher prices, lowering my gain).

People seemed concerned about NVDA's numbers, and some headlines mention "big quarterly loss" and "disappointing" results. These headlines are overblown. Analysts expected 12 cents a share. If you exclude one-time charges and go with the non-GAAP numbers, NVDA beat earnings and earned a diluted net income of 13 cents per share. See numbers here:

http://biz.yahoo.com/prnews/080812/aqtu102.html?.v=54

Put simply, I believe the non-GAAP numbers and the share buyback are the reasons for the 10.75% increase today.

Nvidia (NVDA) Reports Earnings After Market Close

If you're looking for a quick, high risk bet, check out Nvidia (NVDA). They release earnings after the close today. I now own over 600 shares at a purchase price of around 11.10. Although both AMD and Intel are going after NVDA's turf, NVDA has no debt and its competitors have been trying to muscle into the high-end GPU business for years, without success.

In addition, Intel's Larabee won't be released till 2009, meaning NVDA needs to duke it out only with AMD/ATI for X-Mas laptop and desktop sales. Bottom line: from my vantage point, NVDA stock looks oversold at 11 dollars a share.

I don't expect NVDA to go above $13-15 in the near term because whenever Intel enters a market, a rough road lies ahead for everyone else. For now, the only real competitor is AMD, with its ATI GPU chips; however, AMD/ATI chips have a reputation for poor quality here in Silicon Valley, whether deserved or not, so NVDA probably isn't concerned about ATI.

Right now, I am captivated by the siren songs of value investors: one, no debt; and two, very low expectations.

Greatest Hits List: I correctly called a short-term bottom in the financial stocks; I was correct about CNB; and about the oversold dollar. If NVDA goes to 12 dollars or more within the next week, I will add them to my list of greatest hits.

Disclaimer:
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.

For the Record: Teachers

Let me say, for the record, I like teachers. I hate teachers' unions.

I hate the principal who gets fat off of taxpayer money and sits at a desk all day making phone calls. I hate the vice principal who doesn't teach kids but who gets paid more than the math teacher with a Master's degree. I hate the unions, who are opposed to vouchers, even though they know charter schools can help many poor children. I hate seeing teachers not get the resources they need while unions pay lawyers to sue states like California for more taxpayer money. I hate seeing property taxes go towards a failing system. I hate how PTAs have to do bake sales and car washes to upgrade their facilities or get new books because their schools can't figure out how to handle taxpayer money competently. Most of all, I hate how the union-mandated seniority system rewards experience and incompetence over youth and fresh ideas.

More on teachers' unions in general, after the jump:

http://www.city-journal.org/html/15_4_taxpayers.html

Thanks to union-friendly legislation that requires public school teachers to become members or pay dues even if they don’t join, the size and wealth of teachers’ unions have made them fiercely intimidating lobbying and electoral forces almost everywhere...

Unions have also convinced Americans that teachers are underpaid, when they now take home considerably better pay packages on average than professional workers in the private sector. The federal government’s national compensation survey estimates that local public school districts pay teachers an average of $47.97 per hour in total compensation, including $12.39 per hour in benefits—figures that far outstrip not only what private school teachers earn, but also the average of what all professional workers earn in private business, a category that includes engineers, architects, computer scientists, lawyers, and journalists....

The education lobby’s success most clearly shows up in the stunning growth of U.S. public education spending. In the last 30 years, per-pupil spending has nearly doubled, after accounting for inflation, to about $10,000 a year—far more than in most other industrialized countries, according to the Organisation for Economic Co-operation and Development, whose latest figures show that the U.S. outpaces Germany in per-pupil spending by 66 percent, France by 56 percent, and the United Kingdom by 80 percent. Even so, American students rank only in the middle of countries on student achievement tests, the OECD reports.

The Conspiracy Against the Taxpayers
by Steven Malanga
City Journal, Autumn 2005

Terminator v. the Controller: the Missing $15.2 Billion

The Governator (Republican) has sued Chiang, the Democratic State Controller, to force him to slash government pay until a budget is passed. See

http://www.sfgate.com/cgi-bin/article/article?f=/c/a/2008/08/11/BAVF1293CA.DTL

Here is a more detailed article about the budget issues:

http://www.sacbee.com/111/story/1145146.html

Republicans...say even more is needed: a spending cap to restrict annual expenditures through a formula tied to growth in population and inflation.

In California, a 2/3 vote of each legislative house is required to pass a budget. You would think our legislators would be able to figure out a budget cannot get passed without cooperation and civility, but this partisan samba seems to happen every single year. Still, few things make me more happy than government workers talking about cutting spending.

How can someone profit off of this? Perhaps by buying muni bonds or state bonds.

http://www.buycaliforniabonds.com/

Good luck to Sacramento. I'm going back to work. In my job, I don't get paid for being ineffective, or for missing the same deadline every year. I wonder where I can get a job that doesn't tie getting results to my pay? I'm still scratching my head...I'm sure the answer will come to me later.

WSJ Letters Section

I recently blogged about some WSJ letters I liked:

http://willworkforjustice.blogspot.com/2008/07/july-25-2008-wsj-letters-to-editor.html

After praising the WSJ's recent letters section, the gods smiled upon me--my short letter was published in today's WSJ (08/11/08). I was responding to an article about teachers and investing. The WSJ profiled teachers who were literally crying over being unable to understand investing in their retirement plans. You can view the WSJ letters section here:

http://online.wsj.com/public/page/letters.html

Here is my short letter (a blurb, really, but I'll take it!):

We are entrusting our children to people who can't handle basic investing and, somehow, we wonder why we end up with financially illiterate adults.

Campbell, Calif.

____________________

Update on January 17, 2009: here is a link to my August 11, 2008 letter. I'm unsure if it's a permalink, but as of today, it works.

To Settle or Not to Settle?

A new study indicates plaintiffs are better off settling cases than demanding to litigate to trial.

http://www.nytimes.com/2008/08/08/business/08law.html

While I agree with the overall conclusion, I wish there was more available information on specific types of cases. For example, what are the numbers with respect to personal injury cases? Employment cases? IP disputes? Surely the statistics are not the same in different legal areas.

More on Taxes and Paying Your Fair Share

The WSJ published an article on taxes I somehow missed. See

http://online.wsj.com/article/SB121659695380368965.html

Here's an interesting statement from the article:

Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts.

To that I say, "Pfffff." If you bring in an extra billion but increase spending by two billion, I am not patting you on the back.

The article's failure to incorporate Pres. Bush's expenditures reduces the impact of its other cited statistics:

1. In 2006, the top 1% of Americans (making $388,806+) paid 40% of all income taxes; and

2. The top 10% (making $108,904+) paid 71%. That means 90% of all Americans only paid 29% of all income taxes, indicating their income tax burden is relatively low (compared to the affluent). (Note: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)

The article states that "Americans with an income below the median paid a record low 2.9% of all income taxes" in 2006. Some argue such a relatively low tax burden creates a moral hazard, because poor and low income residents receive similar benefits as the rich--police and fire protection, schools, access to courts, FDA protection (food and drugs), FAA protection (air travel), and so on--but pay almost nothing for it. Consequently, some people have argued that the lower income brackets should pay more taxes to create a more fair understanding of the high costs of government and public services.

My opinions on this issue of "fair taxation" is evolving, but I support Obama's stated plan to raise the payroll tax threshold. While the poor don't get taxed much on their income, their income is still taxed relatively high if you factor in the the payroll tax and other taxes. The payroll tax is used to finance Social Security and other social programs, but it taxes income only up to a certain amount of wages/salary. In 2007, if you made more than $95,000, you paid the same amount in payroll taxes as the hedge fund manager who made $1 billion. And if you made $1 billion, your wages were deducted the same percentage in payroll taxes as the person who made $30,000. That scenario doesn't appear equitable when the Social Security program is underfunded.

One idea might be to increase the payroll tax threshold (thereby helping save Social Security) while also instituting a national sales tax (which would affect poor and rich alike). This way, current income tax rates would be maintained, and the poor would have an incentive to spend less, perhaps saving more of their money and moving up. I remember telling a friend who protested the sales tax because it disproportionately hurt the poor, "Get the tap water (pointing to my free glass of water), not the Coke." In other words, at least the sales tax is a tax people can avoid most of the time. I realize this makes me sound like Marie Antoinette, but I don't see too many other potential compromises, and such a national sales tax should go into a "lockbox" the government couldn't tap for anything other than benefit payments. [Update on September 18, 2012: my views on sales taxes is not fully formed, but I believe taxes in general should come from predictable and diverse revenue streams.]

Still, reading an article like the one below inspires me to try harder to think of a more equitable and effective scenario:

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/02/AR2008080201672.html?referrer=emailarticle
(Thanks to creditslips.org for the tip; see http://www.creditslips.org/creditslips/2008/08/no-cushion.html#more)

It's no secret that the poor and middle class spend their money, while the rich save it and try to live off their interest and dividends, which are taxed at a lower rate (now 15%). As a result, any decent economist is going to want to try to get as much money into the hands of the poor and middle class as possible.

At the same time, as a Californian, I want more people outside the state to pay their fair share. It is not unusual in Santa Clara County to see people making 109,000 dollars or more (top 10% income bracket nationwide). It's incredible to think Californians pay so much in federal taxes, basically subsidizing Middle America, and yet are looked down upon by so many of our compatriots. For example, Texas took money from (robbed?) California through Enron. New Yorkers consider Californians soft. Dan Gable, from Iowa, reportedly refused to enroll California wrestlers because they were lazy. I dislike the status quo, which breeds resentment among the states and pits classes against one another while government spending runs amok. There has to be a better way.

More below on taxation.

McCain on Social Security (from http://www.csmonitor.com):

Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed.

An Example re: What Happens When You Tax One Group Too Much (taken from internet comment board):
Suppose that every day, ten men go out for tea and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily tea by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his tea. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’
‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had tea without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Update on April 13, 2009: Ari Fleischer has more income tax stats in today's WSJ (A15):

A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes.