New Treasury Secretary

We have a new Secretary of the U.S. Treasury, Timothy F. Geithner:

http://www.federalreserve.gov/aboutthefed/bios/banks/pres02.htm

What I like most about him? "He has studied Japanese and Chinese, and has lived in East Africa, India, Thailand, China, and Japan." Wall Street apparently likes him, too. The stock market shot up after the announcement.

Stupidity or Genius?

In what can only be described as Las Vegas style gambling, I bought 1300 shares of Citigroup (C) today and yesterday. My average price is around $3.52. When I last checked, C was trading around $3.18, but had dropped as far as $3.07.

I will now proceed to hide under my bed until next week. I am assuming either the government will do something over in a special session over the weekend to deal with the Citigroup issue, or a merger will occur. If I am wrong, well, it wouldn't be the first time. If, however, I am right, I'll probably make between 1000 and 1800 dollars. I wish I had the cojones to hold onto the stock till next year, when it might be much higher. Sadly, my cojones remember the old saying, "The market can stay irrational longer than you can stay solvent."

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.

Update on November 20, 2008: in late-day trading, Citigroup went up to $3.83, and then started to dip. I sold at $3.74 and made around $300. Not bad for 60 minutes of risk.

Gold

From the film, The Italian Job--prescient words from a gold bug?

INT. COIN & BULLION STORE - EVENING

Yevhen is 50 and like many in the gold trade, there isn't a conspiracy theory that he doesn't embrace. As they make their way to a back room, he keeps his mouth in overdrive --

YEVHEN:
All those poor bastards out there putting their life savings in banks and S&Ls and mutual funds. What do they think -- that when the collapse comes they can depend on the government? I don't think so.

Governments are nothing more than puppets on the strings of the Trilateral Commission with their twisted gods.

I mean, it's so obvious that in a world where NAFTA can overturn the Supreme Court, not to mention Microsoft's nefarious financial machinations, this, is our only refuge: gold.

I definitely get the part about feeling like a "poor bastard." Sigh.

A Long Sigh

My poor, poor Roth IRA. I am losing around 2,000 dollars each in Yahoo (YHOO) and a Swiss fund (SWZ). Almost all my other holdings are also losing money. On the bright side, if the aforementioned two investments do well over the next year, along with my S&P U.S. Preferred Stock Index Fund (PFF), my Roth IRA will be somewhat healthy again. Right now, it's on life support. Five years of gains wiped out.

I wish I had more retirement savings to invest. As crazy as it sounds right now, I'd love to buy more stocks in my retirement accounts.

In my non-retirement brokerage account, which is around 90% in money market funds, I picked up some Starbucks (SBUX), Symantec (SYMC), Nvidia (NVDA), 3M (MMM), and ConocoPhillips (COP), and Citigroup (C). I wanted to buy more Cisco (CSCO) but chickened out.

Update on November 21, 2008:

The S&P 500 lost 46.8% from 12/7/07 to 11/21/08 [from December 7, 2007 (1504.66) to November 21, 2008 (800.03)]

In that same time period, my retirement accounts declined in value 27.9%. Although I am beating the averages in my retirement account, I don't feel happy at all.

Public Sector Costs and Benefits

Rio Vista, California is yet another morality tale about how government spending, which includes public sector benefits, has spun out of control:

Link1 [replaced dead link]

Link 2 [replaced dead link]

In Vallejo, CA, another city that had to file bankruptcy, police and firefighter unions tried to force the city out of bankruptcy court so they could preserve their own government benefits--at the expense of the general taxpayers. How many more California cities have to go bankrupt before our government starts protecting taxpayers from unreasonable government spending, which includes comparatively much higher salaries and benefits in the public sector? (See Malanga article for comparison of private vs. public employees)

The costs of pensions and lifetime health care benefits depend on employees' lifespans and are difficult to estimate, because some employees may live longer or may need care that far exceeds the estimated costs. As a result, it's very difficult to ascertain employee pension liabilities because so many unpredictable factors are involved. Inevitably, because of the uncertainty involved in calculated how many years a public employee has to be paid after retirement, the government will have under-funded pensions. The result is that the taxpayers--and our children--will suffer as a result of the government continuing to provide itself with generous and hard-to-estimate benefits. Almost no private sector employees receive pensions anymore because companies figured out they shouldn't be in the insurance business. If a voluntary 401(k) or 403(b) plan is good enough for most engineers, nurses, and lawyers, why isn't it acceptable for government workers, firefighters, and police officers? Who exactly is the government protecting and serving?

Cisco's Annual Shareholder Meeting (2008)

Cisco's (CSCO) annual shareholder meeting was held on November 13, 2008 at the Santa Clara Convention Center. The meeting was open to all--Cisco did not check to see if anyone was actually a shareholder. The food spread was above average--OJ, cranberry juice, bagels, fruit, and Starbucks coffee (what I call "the Convention Center special").

Cisco ran its meeting professionally, almost too much so--at times, the meeting felt like a stiff, over-starched white-collared shirt. No one was allowed to ask spontaneous questions, because all questions had to be written down and submitted to employees, who would pick and choose which ones they wanted to display to the CEO. The meeting was designed to run smoothly, and with no unexpected problems or risks. Well, you know what they say--"Man plans, God laughs."

During one of the shareholder proposals relating to China, an older Chinese shareholder stood up and demanded to be heard. He held his hand in the air continuously and would not sit down, even after a Cisco employee came up to him. He had an issue with shareholder proposals being voted on without soliciting public comments. He had a point, but his heavily-accented English made him hard to understand. To his credit, CEO John Chambers later addressed the gentleman's concerns. Mr. Chambers said, towards the end of the informal presentation, that Cisco did not modify its equipment for any customer--the equipment is the same, i.e. "no unique capabilities [are given] to any government in the world." He also made a point of walking towards the gentleman to garner his support. I've never seen a CEO make an effort to approach an audience member who appeared somewhat aggressive, and Mr. Chamber's pro-active behavior made him instantly likable. After the meeting, I saw someone from Cisco talking politely with the gentleman, who appeared to be hawking his book. This high level of corporate professionalism is much talked about, but rarely practiced.

The formal part of the meeting had two presentations, one by Harrington Investments, and another by Boston Common Asset Management. Both focused on human rights issues and transparency. Ms. Carol Malnick (of Boston Common) made very interesting points. She said that censorship would decrease Internet traffic in the long run by discouraging new Internet users and limiting the use of existing users. Cisco's growth, of course, depends on more Internet users. It basically sells products that gets computers to talk to each other over the Internet, and the more computers sold with Internet capability, the more Cisco grows. She asked Cisco not to exit certain international markets, but to be transparent. She listed several countries she felt were Internet censors, including Saudi Arabia, China, Algeria, and Syria. I thought Carol Malnick's presentation was much more effective and polished. Others agreed--only 68% voted against her proposal, while 98% voted against the Harrington proposal. After her presentation, CEO Chambers made a point to use the word, "transparent" several times while looking directly at Ms. Malnick, as if to say, "We hear you, and even though we defeated your proposal, we are working on it." This was a very gracious and conscious move by Mr. Chambers.

CEO Chambers had a video and spoken presentation. The opening slide spelled "Globalization" as "Globalisation," with an "s," indicating that a British employee had worked extensively on the presentation. Mr. Chambers talked about a "six point gameplan," which focused on general ideas, like investing in emerging markets (note: I am sick of hearing about "emerging markets" at shareholder meetings--of course companies must invest in other countries) and Web 2.0. He said that Cisco had "3,000 telepresences a week," which meant that Cisco's sales force was connecting to thousands of potential buyers domestically and worldwide, without the need for any travel. If the telepresences, like the ones you see on Star Trek, become commonly used, it will be Cisco that takes us there. Mr. Chambers acknowledged that some companies wouldn't feel the need to upgrade their technology, which would limit the roll out of newer internet products; however, he was also hopeful, saying that the "next wave of productivity" would happen, and Cisco would be at its forefront. After some more generalities of "vision, strategy, and execution," Mr. Chambers showed a moving video presentation.

This video presentation showed the effects of the devastating 2008 earthquake in the Sichuan Province of China. In a brilliant move, John Chambers traveled there immediately after the earthquake and worked with the cities to rebuild their infrastructure. Cisco donated 45 million dollars to rebuilding efforts (See News Report). The cynic in me says that Mr. Chambers is a PR genius. He knows China represents his company's best chance for growth with its 1.2 billion people. By going to China and lending a hand and funds, he hopes Cisco will be remembered down the line by the Chinese government. But Mr. Chambers has a way of winning people over. He appeared completely sincere when he spoke about his experience in China. In fact, I almost teared up after watching the video. Various pictures were shown of Mr. Chambers interacting with earthquake survivors amidst the rubble, and he joked that a young Chinese boy who was bold enough to approach him would grow up to be a Cisco salesman. Mr. Chambers also mentioned a little girl who hadn't spoken since the earthquake but who spoke again after seeing new faces arrive. The girl, of course, represented the power of the human spirit, something we all implicitly understood. At this moment in the presentation, you could have heard a pin drop. It was hard not to be emotionally affected after seeing the pictures of the two children.

Most important, Mr. Chambers called upon us to act, saying that it was an "embarrassment to us" that 3 billion people in the world live on less than three dollars a day, because we had the power to change this situation. He said that Cisco's worldwide expansion would help "700 million people in China" because Cisco brought high paying jobs and the increased likelihood of a middle class, not only in China, but all over the Middle East. His implication was clear--Cisco would help usher in a new era of worldwide progress.

The Q&A session began, with questions presented to Cisco employees on index cards, which were then typed on a large screen behind Mr. Chambers. One question asked about Cisco's 27 billion dollars in cash. This elicited a funny remark from Mr. Chambers, who said that in the current unstable market environment, "cash is king, queen and the entire royal family." He also said that before he left the company, Cisco would pay a dividend to shareholders. Paying a dividend would help stabilize Cisco's stock price, because the dividend would attract long-term investors and would prevent Cisco from using their cash in unproductive ways. (Also, paying a dividend might allow more mutual funds to buy Cisco stock.) The best question was tongue-in-cheek: "In the spirit of GM, what could make GM obsolete?" Mr. Chambers sat down to show the audience he took this question seriously and said that Cisco hadn't lost its sense of urgency. He mentioned Lucent and other companies that used to be technology high fliers and talked about Cisco's growth and its desire to continue growing.

On their way out, shareholders were treated to a Cisco-branded luggage tag holder, an interesting choice, given that Cisco's technology will probably decrease business air travel.

Overall, Cisco's meeting was run very professionally. In the future, Cisco ought to allow live, spontaneous questions and comments prior to voting on shareholder proposals. Beyond that, Cisco looks like a company well-positioned to benefit from the worldwide expansion of Internet users.

Disclosure: as of November 19, 2008, I own 6100 shares of Cisco (CSCO). I will, however, reduce my positions before the end of the year if not sooner.

OCM Revisited

I keep talking about OCM--Other Countries' Money. Very few people seem to understand the consequences of being dependent on the kindness of strangers. Now, the U.S. is considering selling Japanese-backed bonds rather than its own:

http://www.nakedcapitalism.com/2008/11/japanese-float-idea-of-treasury-selling.html 

Oh, the embarrassment.