Tuesday, June 8, 2010

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.?)

Monday, June 7, 2010

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

Sunday, June 6, 2010

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.

Saturday, June 5, 2010

For Aspiring Lawyers and Law Students

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


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.

Friday, June 4, 2010

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.

Thursday, June 3, 2010

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.