Police Kill 350 People Annually

The SF Chronicle recently had an interesting story about police officers killing others in the line of duty. According to the SF Chronicle, police officers kill 350 people annually and tend to get acquitted of murder charges. Full story here.

In contrast, fifty-seven (57) law enforcement officers were feloniously killed in 2007. See FBI chart here. Another chart indicates that eighty-three (83) officers were accidentally killed in 2007, mainly because of traffic accidents.

Officers appear to die at a rate of 140 per year, while killing 350 people per year. Do law enforcement officer have safer jobs than most people think?

Update: I finally researched my theory about whether police officers have relatively safe jobs. My findings are HERE.

[Note: this post has been edited since its publication.]

Helicopter Ben vs. Commander Pessimism

I am shocked by the pessimism I see all around me. GE is around 11 dollars a share. Wells Fargo is around 16 dollars a share. Both are blue chip companies that will definitely survive, especially after the recent bailout; yet, they are being priced as if bankruptcy is imminent.

The problem with Mr. Market is that he tends to swing wildly in both directions. From 2004 to 2007, he swung too high, and now, he is swinging far too low. CNBC and other media channels mimic or just forward information given to them. Their constant repetition of bad news creates a self-fulfilling loop that leads consumers to believe the sky is falling. In reality, every major country in the world is working together to ensure more money is pumped into the economy. To be bearish now is to bet against every major country in the world. Even if you believe you are smarter than every major government, once the stimulus money gets into the hands of consumers, you will also be betting against worldwide consumers. The key issue is getting the stimulus money into the hands of consumers that will spend it, i.e., the middle class and poor. The current stimulus package, while imperfect, accomplishes that task by spreading its largess across multiple and diverse fronts, from high-tech workers to construction laborers. I would have preferred that the government give tax credits of 1,500 dollars to everyone who made less than 75,000 dollars AGI in 2008 and tell banks accepting taxpayer money to lower all monthly mortgage payments by 25%, but I'm not an elected official.

Will inflation eventually occur because America is printing trillions of dollars? Yes, and inflation is terrible for consumers in ordinary times. But these are not ordinary times. in an era where housing prices--the primary source of most Americans' wealth--have deflated, inflation is not an imminent threat. Focusing on inflation now is like a commander refusing to send tanks and planes against invading ground forces because he is reserving them to fight a distant, advancing Navy--yes, fighting the Navy will be important, but allowing ground troops to invade now is unacceptable, because failing to properly combat them will result in immediate defeat.

I own and am long General Electric (GE) and Wells Fargo (WFC). By mid-2009, the market should begin swinging back to normalcy as stimulus money reaches consumers. If you can time the exact moment that Mr. Market will moderate himself, good luck to you. For those of us not blessed with prescience, we can only buy now and hold for the long term. Mr. Market will regain his optimism at some point--trillions of dollars are enough to make even the most depressed person happy, at least over the short term.

Disclaimer: under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Immigrants Add to American Economy

Thomas Friedman echoes my take on immigration here:

According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005.

Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself. The benefits of legal immigration seem obvious in a supply-and-demand economy. Older, educated, and legal immigrants will usually be financial positives for several reasons: one, they are happy to be here, so they usually don't commit crimes; two, they're already educated, so the state doesn't have to subsidize their education or training; and three, being new residents, they cannot inherit anything or rely on family for income or assets; as a result, they must buy rent houses, cars, and other big ticket items, which helps the economy.

I've written about this issue before here.

Clark Winter agrees with Mr. Friedman and me. See here. So does Alan Greenspan. See here.

Foreign Holders of U.S. Debt

If you were wondering which foreign countries own most of our debt, here is the list:

http://www.treas.gov/tic/mfh.txt

China, as expected, is the top holder of U.S. debt.

CS Monitor on Madoff

The CS Monitor has an interesting article on Madoff:

http://www.csmonitor.com/2009/0209/p15s04-wmgn.html

According to the article, Madoff's investors will probably not get a full bailout, but will be able to deduct their losses:

"I've been telling people to renounce their claims," says Robert Willens, a tax attorney in New York. Closing out litigation and other investor-protection claims, he says, opens the door to a "theft-loss" deduction. This lets investors recoup the entire loss minus 10 percent of their gross adjusted income. "Otherwise you'll only get pennies on the dollar," says Mr. Willens.

With the tax deductions, Madoff's investors will be paying fewer or no taxes. That means the Treasury gets less revenue in a year when it desperately needs more. Bailout or no bailout, Madoff has harmed the average taxpayer.

Tragically, some of Madoff's investors have committed suicide. The most publicized suicides during this recession have been rich people (Rene-Thierry Magon de la Villehuchet, William Foxton, et al), not middle class or poor people. That's party because hedge funds and feeder funds relied on a closed circle of affluent investors and connections to supply Madoff with fresh money. Still, it's surprising to see the uber-rich commit suicide, because even without their Madoff investment, they must have property or enough money to be middle class.

Fareed Zakaria on Canadian Banks

Fareed Zakaria is known for his political commentary, but this article shows why I like the Canadian dollar (FXC). Canada's banks don't have the problems American banks are experiencing, making the country's currency attractive. Canada's currency may also rebound as demand for its natural resources increases, and in the meantime, investors can collect a 2.5% yield.

Dolby Laboratories Shareholder Meeting (2009)

Dolby's S.F. brick building

CEO Jasper, me, and Mr. Dolby

I attended Dolby Laboratories Inc.'s (DLB) annual shareholder meeting in San Francisco on February 10, 2009. Shareholders were invited to the third floor, where Dolby had coffee and tea available prior to the meeting. Full size bars of Ghirardelli chocolate were also available to shareholders. I split some white chocolate with two other shareholders, who were initially reluctant to break the bars until I decided to dive in.

The meeting itself took place in a small auditorium and lasted around fifty minutes. President and CEO N. William Jasper, Jr. aka Bill Jasper, ran most of the meeting. Mr. Jasper efficiently completed the formal portion of the meeting, which included an election of directors. The informal portion of the meeting consisted of two presentations. The first one was Dolby's Las Vegas CES presentation, and the second one consisted of charts and financial numbers. It was a good combination--serious, dry numbers alongside highly entertaining visuals. I would have switched the order and done the numbers presentation first and ended with the CES presentation, but that's just a stylistic preference.

The CES presentation was a lot of fun--not surprising for a company whose motto is "every bit amazing." Dolby strutted its product lines clearly and powerfully, showing clips from major films that had used Dolby products. Shareholders saw clips from Iron Man and Spiderman to illustrate how Dolby boosts sound quality. The narrator of Dolby's CES presentation showed what a scene in Spiderman sounded like without "Dolby mobile"--basically, flat and lifeless--and with "Dolby mobile," which produced superior sound. At this point, I should probably point out that I'm hearing-impaired--and even I could tell the difference. Now that's darn good technology.

The next part showed how "Dolby volume" allows users to get consistent levels of sound across all media players. In short, "Dolby volume" minimizes sound distortions. To demonstrate, Dolby showed shareholders other movie clips without Dolby, then with Dolby--and again, the difference was highly noticeable.

The next product was Dolby Axon. Gamers can use Dolby Axon to create a more realistic gaming experience. Rather than have one constant sound level for gaming characters, Dolby Axon modulates a character's voice based on his/her/its surroundings. The video narrator demonstrated the technology by playing a video game where Dolby Axon modulated a character's voice in real-time. For example, if the character went behind a wall, his voice was muffled. If the character moved closer to the screen, his voice increased in volume and sharpness. Gamers can also adjust their character's voice, making it deeper or higher. Of all the Dolby products shown, this one seemed most poised for growth.

The CES video ended with a rousing rendition of the song "Human," by The Killers.

In the next presentation, Mr. Jasper continued to explain Dolby's different customers and product lines. Dolby sells its products to content creators (movie studios); broadcasters (BBC, PBS); gaming companies (Electronic Arts); cinemas; and PC-related companies. It receives most of its revenue--around 85%--from licensing and royalties. Mr. Jasper proudly talked about the fact that Dolby had been around for 44 years, and 3 billion products had been sold using Dolby technology. (A side note: Dolby has only been public since 2005, and apparently went public to assist the founder, Ray Dolby, with estate planning purposes; in other words, Dolby had a healthy balance sheet and didn't go public because it needed a cash infusion.)

Mr. Jasper then said something that endeared himself to any investor who appreciates honesty. He said that although Dolby's recent results had met expectations, Dolby's licensees report results/sales on a lagging basis. As a result, the recently released numbers compiled sales information up to September 2008--before the worldwide financial meltdown. Mr. Jasper said that Dolby's March results would be "more revealing." How refreshing is that? Mr. Jasper didn't have to downplay his company's numbers, but chose to do so to be more transparent. (Bank CEOs could learn a thing or two from Mr. Jasper.)

The most interesting slide related to Dolby's shift in product sales. In 2004, personal computers were only 25% of Dolby's business, while consumer electronics were 60%. In 2008, PCs were 40% of Dolby's business, while consumer electronics were 25%.

In the ensuing Q&A session, I asked the CEO to specify Dolby's top five sources of licensing revenue. The CEO listed the top three: PCs (software), DVDs, and TVs. What this tells me is that if more consumers adopt the Blu-ray DVD format and buy new DVD players, Dolby will benefit.

I didn't hear the next question properly, but I believe another shareholder asked about the locations of Dolby employees and Dolby R&D facilities. Mr. Jasper listed several locations, both domestic and worldwide. Later, in response to another question, he added that in terms of numbers, Dolby was not downsizing employees and planned to add 100 jobs net.

I asked how Dolby was dealing with IP issues in China. ( Given the size of China's consumer market, if Dolby fails to protect its IP, its growth may stall.) Mr. Jasper said that Dolby was "attacking" the IP problem in several ways. He said Dolby performed license audits; had persons monitoring trade shows to discover unauthorized sellers; and had agents in the field monitoring sales of consumer electronics. I liked the specifics, and to be quite frank, there's no magic bullet that will solve the international IP theft problem. It seems like Dolby is taking the problem seriously and is being pro-active.

I asked about the top three countries in terms of revenue sources. The CEO listed 1) United States; 2) Japan; and 3) China and Greater China (including Taiwan and Hong Kong). This was interesting, because Dolby's 10K indicates it receives the majority of its revenue from abroad. I realize the numbers could be 40% U.S., 30% Japan, 20% China, and 10% EU, but investors may want more disclosure in terms of sales per specific country. Such a breakdown, if released every year, would show more transparently how Dolby is doing in terms of international expansion.

Another shareholder asked how Dolby was dealing with the economic downturn. Mr. Jasper confidently answered the question by saying that Dolby's shareholders focused on a long term strategy and were long-term shareholders. Basically, Mr. Jasper was saying that Dolby had been around 44 years and its diversified product line and balance sheet placed the company in a favorable long term position. For a minute, it felt like Mr. Jasper was channeling Warren Buffett and Mr. Buffett's preference for the long term view.

I asked the final question. I asked what Mr. Jasper would do to fix the economy if he were President for a day. Mr. Jasper first joked that he would first sign an executive order mandating use of Dolby Sound in all consumer electronic products. He then became more serious and said that R&D tax credits, especially for small businesses and consumer electronics manufacturers, would be helpful.

Overall, Mr. Jasper presented his company with confidence and clarity. After the meeting, he was open enough to allow me a picture with himself and Mr. Ray Dolby, the founder. To give you an idea of Mr. Jasper's kindness, he patiently waited outside until Mr. Dolby came down so we could all take a picture. (Readers may go to the very top of this post to see two pictures, one of Dolby's S.F. building, and another of the CEO and founder.)

I have only two remaining remarks, both of which are tangential to the company's overall outlook: one, I couldn't find Mr. Jasper's full name anywhere, and I'm still curious what the "N" in his name stands for; and two, all the directors, except for one person, appeared to be Caucasian men. A company doesn't necessarily need diversity to do well; however, with Dolby expanding in China, it makes sense to add at least one director who has experience with Chinese laws and Chinese culture.

In any case, investors who want to open new positions in Dolby stock may want to wait until after its next earnings report, when numbers may not be as sanguine. Long term, however, assuming that it aggressively protects its IP, Dolby seems well-positioned for future growth. After all, even in a recession, most consumers won't stop going to movies, replacing computers, or listening to music.

Disclosure: I own an insignificant number of Dolby (DLB) shares.

Update: an astute friend tells me that Mr. Jasper's first name is "Norval." See

http://www.haas.berkeley.edu/groups/pubs/calbusiness/summer2005/alumni04.html