The More Things Change, The More They Stay the Same

In 2010, the immigration debate seems to be reaching a fever pitch. It's important to note that the same racially-charged arguments against immigration have been made before. In short, the more things change, the more they stay the same. Guess the year Economist W. Jett Lauck made the following statement:

"our industrial system has become saturated with an alien unskilled labor force of low standards, which so far has been impossible to assimilate industrially, socially, or politically, and which has broken down American standards of work and compensation."

From Wilson Quarterly, Summer 2010, page 20; originally from "The Lesson from Lawrence," published in 1912. Mr. Lauck was apparently referring to Italians, Slovaks, Magyars, and Croatians. I wonder what Justices Scalia and Alito think about the Arizona anti-illegal-immigration law.

EMC and Brocade

Update on 9/2/10: this was posted on July 23, 2010, when BRCD was around 5.03. BRCD declined even further over the next few weeks, dropping to around 4.70. On September 2, 2010, BRCD went as high as 5.64. I get concerned when a stock pops over 20% in less than a month, and with my "two in the hand is better than one in the bush" mentality, I reduced my positions substantially. BRCD is no longer my largest holding, and I no longer have an opinion about the direction of its stock price. However, I continue to think a "horizontal acquisition" (when a competitor buys out its competition) would be ideal for EMC and BRCD. Original post is below.

Update on 9/7/10: today, I sold all but one of my BRCD shares. Will I regret my decision? Perhaps. But as I said earlier, I am risk-averse, especially after seeing a stock move higher so quickly.

More here, in case anyone is interested. Check out the comments section within the link.

____________

I've got a superstitious side. I sometimes get gut feelings based on no evidence or new information, and yet, my logical side fails to ignore these feelings. I know this: I am no prognosticator. You should not rely on my subjective opinions. For some strange reason, I just got a gut feeling that EMC may be buying out Brocade (BRCD). I used to think IBM would buy out Brocade, but now EMC seems a more viable suitor. No logic is involved, just a sudden gut feeling. As of today, Brocade is trading around 5.03/share.

Mind you, I have no idea if or when Brocade will be bought out, but it seems clear that BRCD is too small to compete against IBM, HP, or Cisco. Yet, despite all odds, Brocade continues to offer excellent technology and human capital. As such, once Brocade's earnings get back on track, it will be an attractive takeover target. It seems to me that a smart suitor will buy a beaten-down company right before it starts doing well, not after. Once Brocade performs well, its stock price will increase significantly, making a buyout more expensive. Right now, though, if EMC were to offer Brocade $7.00/sh, I would be very pleased.

Disclosures: I own Brocade (BRCD) shares. As of July 23, 2010, Brocade is my largest individual stock holding. However, my holdings may change in the future.

Update: conventional wisdom indicates a buy-out won't happen any time soon. Oracle's Ellison has indicated he isn't interested in Brocade, and HPQ/Dell seem to be moving towards more software-based companies. Also, EMC has publicly stated it is looking at sub-billion dollar purchases, so perhaps BRCD is too expensive for EMC. Even so, I continue to believe that Brocade will be bought out at some point.

The information on this site is provided for discussion purposes only. 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. Unless specifically stated otherwise, no portion of this blog is commercial in nature in any fashion, nor operated for profit. All copyrighted material reproduced herein appears under a claim of fair use. Nothing herein constitutes legal advice, in any state; those seeking legal advice should consult with an attorney licensed to practice law in the appropriate jurisdiction. No guarantee made of updates at any rate of frequency or periodicity. All statements of fact in this blog are derived from sources reasonably and in good faith believed to be true and accurate. Author not responsible for any harm arising from following anything construed as advice herein.

Movie Recommendation

I highly recommend the 1963 film, Lilies of the Field. Very funny and appropriate for all ages. It is perhaps Sidney Poitier's best film.

Being Self-Employed

Carrie Belt explains what it's like to be self-employed and trying to save for retirement:

http://www.associatedcontent.com/article/5582958/at_28_investor_bitten_by_a_bad_market.html?cat=3

We can't file for unemployment income when work is scarce. There's no severance plan when clients zip shut their pocket-books. While I continue to contribute to my retirement savings when I can, my financial focus is simply staying out of debt. For retirement, I'm on my own. I've never had a plan through another employer. I'm OK with that independence, but I'd love for someone else to pay for my coffee breaks, sick days and health care expenses.

Amen, sister.

Civil Liberties? What Do You Have to Hide?

Warning: article at the link below uses snarky language:

http://www.cracked.com/article_18620_6-completely-legal-ways-cops-can-screw-you.html

Oh, the busy populace.

Derivatives Trading: a Dangerous Game

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

HERE is one of the best-written articles on the 2008-2009 financial crisis [Washington Lawyer, June 2010]. The numbers in Anna Persky's article are breathtaking, and not in a good way. I've added some other numbers, including two interesting numbers from a recent Economist issue.

300 trillion. The CFTC's Chairman "[Gary] Gensler has estimated that the [2010] OTC derivatives market is worth $300 trillion." If you think that's a large number, brace yourself: according to The Summer 2010 edition of The Hedgehog Review, The Bank for International Settlements in Basel, Switzerland estimated that at the end of 2007, the market for unregulated derivatives was $1 quadrillion.

54.5 trillion. The net worth of U.S. households on or around August 2010 was approximately $54.5 trillion, according to "The Globalist Quiz" (re-published by the San Jose Mercury News on August 8, 2010).

47 trillion. According to a July issue of The Economist, the total value of stock trades executed on the American stock market in 2009 was $47 trillion. American stock markets were "the world’s most active, with shares worth nearly $47 trillion, thrice the market capitalisation, changing hands during the year."

45 trillion. "The market size for credit default swaps increased rapidly—-by 2007 the market had a notional value of $45 trillion, about twice the size of the U.S. stock market."

15.1 trillion. According to a July issue of The Economist, the total market capitalization of the American stock market at the end of 2009 was $15.1 trillion. Also, people traded American-listed stocks so many times in 2009, by the end of the year, the value of their stock trades totaled three times the value of the entire stock market. (See 47 trillion number, above.) And yes, in 2007, just the market for credit default swaps was three times the value of the entire stock market at the close of 2009. Shadow banking, indeed.]

14.2 trillion. According to "The Globalist Quiz," re-published by the San Jose Mercury News on August 8, 2010, the U.S. GDP--the amount of the goods and services produced by all Americans in a given year--stands at around $14.2 trillion.

13.2 trillion. According to the U.S. National Debt Clock, as of July 2010, our national debt was approximately $13.2 trillion.

9 trillion. According to Niall Ferguson's book, The Ascent of Money, "Between 1997 and 2006, US consumers withdrew an estimated $9 trillion in cash from the equity in their homes. By the first quarter of 2006 home equity extraction accounted for nearly 10 per cent of disposable personal income." (page 267, paperback)

1 trillion. At the end of fiscal 2008, states had a $1 trillion funding shortfall in public sector retirement benefits. From the Pew Center: "There was a $1 trillion gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises."

992 billion. From ABA Journal, page 59, March 2010: "[R]evolving credit grew from $48 billion in 1978 to $131 billion in 1985 and reach[ed] a high of $992 billion at the end of 2008."

434 billion. "Between 2004 and 2006, Freddie Mac and Fannie Mae, government-chartered mortgage finance firms, purchased $434 billion in securities backed by subprime loans."

On Complexity: “The beauty and the danger of derivatives is that you can create almost anything, and the degree of complexity that is available is almost limitless,” says Robert A. Wittie, a partner specializing in securities finance and investment management at K&L Gates. “Used properly, that can be terrific. But it can become very opaque. It can be hard for investors to understand the assets they are buying.”

Passing the Buck: “When you tell someone that they can sell a hand grenade with the pin out, but they don’t need to worry about it because someone else will own it when it goes off,” [Attorney Philip] Johnson says, “you get a lot more hand grenades with the pin out being sold.” [I've talked about this attenuation problem in detail HERE.]

Canaries in the Coal Mine?: Orange County went bankrupt in 1994 after its treasurer "invested the funds in a leveraged portfolio of mostly interest-sensitive derivatives contracts." Then came Barings Bank in 1995 and LTCM in 1998. The LTCM disaster required a 3.6 billion dollars bailout, which now looks like a paltry sum. In 2001, Enron declared bankruptcy in part due to its derivative trading.

The Fed Asleep at the Wheel?: In 2008, Alan Greenspan emphasized that, excluding credit default swaps, the “derivatives markets are working well.” [Earlier, in 2003, Warren Buffett called financial derivatives “weapons of financial mass destruction.”]

Will the recently passed financial regulation help prevent future problems? On July 15, 2010, CFTC Chairman Gensler said: “The Wall Street reform bill passed today is historic and comprehensive. Over-the-counter derivatives dealers will – for the first time – be subject to robust oversight for their derivatives activities. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. This will greatly improve transparency and lower risk in the marketplace. I look forward to the President signing this crucial legislation. The CFTC stands ready to implement the Dodd-Frank [Wall Street Reform and Consumer Protection] Act to best protect the American public.”

What took Congress so long?

Funny Stuff My Mom Sez

Breakfast

Saturday morning, 8:00AM.

Me: "Okay, Mom, let's go get some pancakes."

Mom: [excited] "Are we going to IHOP?"

Me: "No, someplace better, called Stacks."

Mom: [incredulously] "Better than IHOP???!!"

Me: [shaking head] "I can't believe you think IHOP is the pinnacle for pancakes."

[Update: she liked Stacks, but didn't think it was significantly better than IHOP.]

Not sweet smelling by any name

Mom: "What smells? Something smells really bad."

Me: [finally noticing a smell]

Mom: "It's a skunk, be careful!"

Me: "Uh, Mom, I think that's m*rijuana."

Mom: "In the daytime?"