Now That I Have Only 4 Readers Left April 14, 2000January 28, 2017 I really dug myself into a hole with all that mining stuff! Well, OK, so now it’s just the four of us. In the meantime, it’s been exactly a month since I suggested those five “old economy” stocks that I thought — for all their boredom — might actually wind up looking better over the next few years than some of the new economy stocks. It’s much too early to tell, but so far these five are up 27.5%, while the NASDAQ is down about 25%. Many of the higher fliers are down a lot more. Inkotmi is down from 210 to 110. China.com is down by nearly two-thirds, Webmethods dropped a further 50 points yesterday. Internet Capital Group, last knocked in this space on December 27th at 212, is down in the last month from 125 to 42. One clue that the switch back to value was about to occur — however temporary it may prove — was the capitulation of Tiger’s Julian Robertson. Here was this very smart, very successful value investor, legend around the world, finally giving up. A perverse sign that perhaps the craziness that had defeated him was in fact . . . over. The converse of that sign may have come a couple of years earlier when a large, full-service brokerage firm FedEx-ed me the extraordinarily good news that I could now, for the first time, have my money managed by the legendary Julian Robertson. I don’t have the deal in front of me, but it basically said that, in the past, you would have had to invest at least $5 million (or was it $25 million?) before you could get into his fund. And perhaps be a non-U.S. citizen. But now, through great effort and ingenuity, this broker had persuaded Tiger to allow it to pool my $500,000 (or was it $1 million?) with a lot of others, so that we little guys could get in on the astounding returns, too. Yes, the broker had fees and Tiger had fees. But was I blind? Just look at this man’s prior performance! It brought to mind the old-standby, “If this is such a good deal, why are they offering it to me?” I am not privy to the exact results of this particular partnership — I decided that $500,000 (or was it $1 million?) was just way too big a chip for me, and that the fees just went against all my notions of a light jockey. (See Personal Fund if you don’t know about the jockey.) But whatever the exact results of this partnership over the last two years, I’m pretty sure I missed a bullet. And the fees just made it worse.
The Column Too Embarrassed to Have a Title April 13, 2000February 15, 2017 I know, I know. No more mining. I am so ashamed! But who could resist this from Michael B? “I have to comment on the following line from Jim Whyte’s message: “If you oppose mining on the grounds that it is by its nature bad for the environment, you have to be consistent right down the line and go dig with a stick”. A friend of mine went to India last year and saw a group of women digging holes in the ground using only sticks. The holes were in a line, and the plan was to join the holes to make a trench. He asked why a trenching machine wasn’t used for efficiency and speed. He was told that this provided income to the women (something like $1 per day). The kicker, though, was that the trench, dug with sticks, was to be used to lay cable for Internet access. The old world meets the new.” Or this, from Jim Strickland? “Well I know this sound Buck Rogerish, but none the less, I truly believe it. The biggest and most important reason to go out into space is to make life better for the people of earth. What better reason to go than to mine the moon and the asteroids? This would of course be very expensive to begin with, but once the technology hurdles were ironed out and the infrastructure were in place, it shouldn’t be to hard. And getting stuff down to earth is cheap — just aim toward some lake or the middle of the ocean, and let it drop. And of course the law of unintended consequences comes into play. All the research needed to make this work would probably have all sorts of spin-offs for everyday use. Research is never pointless, even when it seems so.” OK, so it will be a coal day in July before the hurdles are ironed out. And the ripple effect of this particular plan could be pretty dramatic (tidal waves?) and I would imagine there is the problem of keeping the ore from burning up in space during reentry, as meteors do, or fishing such material as makes it through the atmosphere from the bottom of the ocean and then getting it to Detroit. But with heat shields that double as flotation devices and a good Westerly current . . . Or this, from Jon Raymond? “It’s too easy to set up a straw man that represents the most extreme and ridiculous caricature of the ‘opposition’s’ viewpoint and then proceed to light him on fire or at least portray him singing If I Only Had A Brain. This is one of the reasons I don’t have much patience for shows like CNBC’s Hardball. While there might be environmentalists who wish to ban all mining and survive using sharp fingernails, I’ve never met them. On the other hand there are most certainly individuals who wish to undermine (no pun intended) any attempts at government regulation of toxic activities. We call them Libertarians.” Oh, boy. A cat fight. Listen, my libertarian friends: just remember that I am only quoting Jon Raymond, Hardball style. Mary Black spied this bumper sticker on a geology professor’s car. It’s printed by the National Mining Association and reads: EARTH FIRST! and then, smaller: Will mine other planets later. “Chuckle aside,” she writes, “current mining is not the same as strip mining of old.” She credits the government and environmental awareness with this improvement. And finally, from Steve Gilbert: “Bob T’s suggestion that the free market will solve mining’s environmental problems (“Mine operators in third world countries would be happy to fill the gap, netting very little in extra expense for the end user”) is the sort of Not In My Back Yard argument that causes criticism of international trade agreements. Free trade is a great idea, say its proponents, and it’s not our problem if the manufacturers of products we import use slave labor or destroy the environment in their countries. It is ironic that Bob’s comment follows the report on cyanide poisoning. I guess cyanide poisoning elsewhere than in the US isn’t so bad.” Steve is exactly right. Fortunately, it can all be finessed once we get those heat-shield floatation devices working.
The Final Word on Mining – I Promise April 12, 2000February 15, 2017 For those who have followed all this, I would like to say: (a) I’m sorry for subjecting you to it — I just admired Jim Whyte’s pluck, wit and obvious good will, even though I agree with those of you who felt he was over-reacting to a “straw man.” The world needs more Jim Whytes, even if this particular space does not need further discourse on mining. (b) Yes, we need metal. We appreciate metal. Many of us even suck zinc lozenges at the first sign of a cold. Mining, practiced responsibly, is a very good thing. And on that note I would like to use my executive privilege to give the last word to Russell Turpin, chief technology officer of an Austin, Texas, Internet start-up, who writes: “Hank Gillette says ‘without government intervention many mining companies would do their mining with a total disregard for the environment.’ Your well-spoken mine supporter, Jim Whyte responds: ‘Maybe, maybe not — can he honestly make that kind of broad-brush statement about people that dig up resources? How many of them does he know?’ “And I say that Hank Gillette is right, for an objective economic reason. Cleaning up is a cost, and the cheapest way to deal with the mess from an industrial process is to leave it for others to suffer. Any time an industry can gain advantage through externality — a cost that others must bear — it will. The morals of those in the industry are inadequate to prevent this. The businesses that refuse to take advantage of the externality will suffer a competitive disadvantage vis-a-vis those that do. As the industry evolves, the businesses that initially failed to take advantage of the externality due to management’s moral qualms will either change their management or lose their market share. Either way, the industry as a whole will behave as Hank Gillette predicts, running over the moral objections even of its own former leaders. “This has happened time and time again. We cannot hope that an industry will self-regulate with regard to advantageous externalities. The ethics of individual business people will NOT stop telemarketers from interrupting your dinner, hog farms from destroying streams, refineries from polluting the air, or mining companies from leaving big pits in the ground. The industry will evolve as economic law dictates, selecting for its leaders individuals with morals that are ‘efficient’ for the existing rules of the game. The only thing that stops industries from imposing their costs on others are rules from outside the industry that say ‘you don’t have any right to interrupt people at dinner, to pollute our water and air, or to leave big pits in national forests.’ “Don’t get me wrong: I am 100% for marketing, hog farms, refineries, and mining companies. Heck, I own stock in some of these. But I also believe that businesses should bear the full cost of what they do, and that law is required to make sure this happens. Good ground rules are the only way to make sure that business produces the right goods and service, that is, those whose costs are justified by their benefit.” Which is why George W. Bush’s rotten environmental record in Texas, or John McCain’s zero rating from the Natural Resources Defense Council (which is what started this thread in the first place), are worth noting.
Cooking Like a Guy™ April 11, 2000February 15, 2017 We did money-, earth-, and face-saving yesterday but forgot the all important time-saving. Not that Cooking Like a Guy™ isn’t light on the budget and the planet — it is. But for saving time, nothing can top it. RECIPE #4 – Chicken à la King 1. Open can. 2. Serve. I would point out that by “serve” I mean: hold the can in one hand and a spoon in the other. (You will know instinctively which goes in which.) I am fully aware that some will choose to place the contents of the can in a microwaveable container, heat a minute, and then serve. That’s fine, too. And hey, maybe some parsley on top! Some linen napkins and a touch of sherry! But gimme a break. We are talking about cooking like a guy. Coming Soon: Treasury Inflation-Protected Securities (TIPS)
Loose Ends April 10, 2000February 15, 2017 1. MONEY-SAVING: amazing-bargains.com. 2. EARTH-SAVING: Of our interminable mining discussion, Roger Wiens writes . . . “When dealing with extremes, don’t forget the bumper sticker: Save the Earth, Kill Yourself.” 3. FACE-SAVING: Along with the clickle and the pre-signatorum, faithful readers will know that this column has another world-changing notch in its belt. We recently dispatched that dreadful Black-Tie Optional convention, which makes everyone feel so awkward. We replaced it with “Black Tie” (period) and “Black Tie Suggested” (most people will be wearing black tie, but you don’t have to). I’ve thought of one more: “Black Tie Welcome” (few people will wear it, but go ahead — be wild). Meanwhile, Charles and I finally decided it would be better to attend the event that occasioned all this soul-searching in dark suits. And weren’t we happy! As it turned out, there were about 1200 suits in the room and 17 tuxedos (77 counting the wait staff). Whew! And yet I’m told that at the Los Angeles version of this organization’s very same event next Saturday — the one we went to was in more-formal New York — almost everyone goes black-tie. Pity the poor guys in suits who don’t know. Guidance, people — we need guidance! Black Tie . . . Black Tie Suggested . . . Black Tie Welcome — the new social standard.
Oh, God, It’s the Mining Thing Again April 7, 2000February 15, 2017 Well, I told you you had not heard the end of this. J.Raymond: “I cannot resist including a hyperlink to a very short synopsis of the Romanian cyanide spill, which should interest anyone involved in this discussion.” Bob Tyldsley: ” It is apparent to me that we, as an advanced society, require metals and minerals; but, also, that mining screws up the environment. We should charge mine operators large fees to mine public lands and increase onerous regulation. This should raise the cost of mining here to an uneconomic level. The mines would close. Mine operators in third world countries would be happy to fill the gap, netting very little in extra expense for the end user.” Hmmm. As you might imagine, Jim Whyte, our original Canadian pro-mining maven, who kicked this whole thing off, does not agree. Jim writes: “Hey, everybody — it’s me. Roseanne Roseannadanna. So I see this fancy-schmancy financial guru Andrew Tobias, reading an e-mail from a Canadian guy, and it’s goin’ on and on and on about mining . . . and he confuses me with Emily Latella! I thought I was gonna DIE! An’ I said, ‘HEY! Andrew Tobias! Whattayadoin’ confusin’ me with Emily Latella? You tryin’ to make me sick or somethin’?’ “Seriously, I’m flattered (or is it flattened?) to see my spleen splattered across your website. And I guess I should be a little bit pleased that it generated so much traffic about La Dolce Gilda. (Shameless hint: this may be a good chance to plug Gilda’s Club, a charitable foundation helping women with cancer, and their families.) “By the way, remember Emily on ‘conserving our natural racehorses?’ Well, if you don’t, never mind. “Anyway, this is for you, rather than for the website. I go to your website to read your opinions, not mine. I get enough of mine at work. So does everyone else. Unless you have strong feelings about running more of this, I’m happy to keep this message between us.” [I do have strong feelings. Jim’s writing is too much fun to keep to myself. But in the interests of time, I have cut it way back. You should be at work by noon.] “Your vote of confidence in mining reassures me a great deal. Still, what you said about Sen. McCain implies that a pro-mining stand is anti-environmental by definition. It ain’t. “My dissection of your Omaha trip overdid it, no question, but a chance to spin that kind of rodomontade was just too good to pass up. Overkill or not, my argument still stands: if you oppose mining on the grounds that it is by its nature bad for the environment, you have to be consistent right down the line and go dig with a stick. Just make sure you break the stick over your knee — sawing it is against the rules. “And there definitely are people and groups that oppose all mining. They say they don’t oppose ‘environmentally responsible’ mining, but then label every project that comes along as irresponsible, no matter what. “They tie up the approval mechanism, they go to court, they go process-shopping to find a means of stopping the project regardless of its design or its predicted impact. That suggests to me (if I may twist a passage of yours) pressure groups that have ‘not carefully weighed the pros and cons in every instance.’ “And I know you were joking, but consider what you said about people who ‘chimed in on the side of the environmentalists or in defense of arsenic contamination.’ See how you painted it? Pass me that black hard hat — the one with the lamp and the arsenic trioxide stains on it. I have to go kill a few gentle forest creatures. (Now I’m joking too.) “The Mining Law of 1872 is a separate issue. The Common Law understanding of mineral resources is that they belong to the people, but would not be of any use to the people unless someone came along to dig them up. Digger and people each get a share: thus do mines pay royalties. (Incidentally, that is where the word comes from — proceeds of a sale paid to the Crown.) “Maybe those royalties are too small, in which case governments ought to increase them — or maybe they’re too large, which means they will be enough to kill a project. That’s one of several thousand questions you have to ask yourself when doing a mine feasibility study. (If you can’t make money on the project on paper, you shouldn’t try doing it on the ground.) “Hank Gillette says ‘without government intervention many mining companies would do their mining with a total disregard for the environment.’ Maybe, maybe not — can he honestly make that kind of broad-brush statement about people that dig up resources? How many of them does he know? “More to the point, we don’t live in a world without government intervention. We live, thank goodness, in democracies where the people have made sure their governments do regulate industrial practices. ” I have absolutely no quarrel with forcing mining companies to plan for, and pay for, closure and complete rehabilitation of lands they use. My objection is to pressure groups that block mining projects on the general principle that mining is always and everywhere a bad thing for the environment. That’s not true. “Mine projects are now only approved when they are designed for closure; those closure costs are paid out of the project’s cash flow, not out of the public purse. [And it’s not always so expensive.] For example, waste rock doesn’t need to go to dumps any more, it can be used for backfill underground, and is ‘cleaned up,’ so to speak, as part of the day-to-day operation. Designing mines for minimum impact is just another part of the job these days. “The old ways may have turned Butte into a Superfund site, but we are emphatically not talking about the old ways any more. Or at least I’m not.” Okay. We’re persuaded. (Aren’t we?) In that case, I will allow some mines to remain open.
Are Margin Accounts Risky? April 6, 2000January 28, 2017 John Ebert: “Your comment regarding moving shares from margin accounts to cash accounts [to squeeze the shorts] got me wondering. Is there any more risk with a margin account than a cash account? I never buy stocks on margin, always pay in full. Should I change the status of the account to cash rather than margin?” No. The only risk is that, given the extra options a margin account allows you — like borrowing and shorting — you will do something rash. But in terms of the safety of the account itself, you needn’t worry. Then again, if your broker isn’t giving you a good deal, perhaps you should instruct him to transfer all your holdings from “type 2” (margin) to “type 1” (cash). It won’t make any difference to you, since you never use margin; but it will keep the broker from earning (tiny) fees lending your stock. If he’s not being nice to you, why should you be nice to him? SPACKLE What, we have been speculating, is a spackle emergency? Michael Choquette: “It’s the last weekend of the school year and your dorm room is about to be inspected. You are in a hurry to return home and look for job because you are low on cash and don’t know where your next glass of beer is coming from. If the room passes inspection, your damage deposit is returned to you — cash that you wrote off and forgot nine months ago, but God! what a windfall today! Any wear and tear beyond the normal in your room and the school will keep some or all of your deposit. What to do? There’s holes *everywhere*. Wait, I know! Toothpaste! But mine is the wrong color, mint, pastel green. If someone down the hall uses some off-white stuff, the deposit is good as mine. Heck, I’ve known guys who mixed toothpastes just to get the right color.” Michael concludes: ” If you rent, keep toothpaste. If you own, buy spackle and do it right.”
Cheap Gas, Spackling With Colgate . . . April 5, 2000January 28, 2017 Note: The market was a little volatile yesterday. If you’re in it on margin (borrowed money), that’s a mistake. If you own stocks you don’t really understand, and whose valuations you can’t defend based on reasonable assumptions for future earnings, this might be a good time to take profits or cut losses. If you do understand what you own and believe it represents good value (not just good companies; good companies can have stocks that are way overpriced) — sit tight. And now for the important stuff . . . CHEAP GAS Mark Rindsberg: “The main problem is that we in the USA have become spoiled by cheap gas. Just about anywhere else in the world, except perhaps Saudi Arabia and some of the other Gulf States, gasoline costs about $1 per liter, or nearly $4 per gallon. We have no reason whatsoever to complain.” Jon Raymond: “Amen! I look at it this way. If G. Bush Jr. gets elected, gas is going to cost me a LOT more when I move to Canada, so why whine about the current price here? Even at today’s prices, gas doesn’t reflect all of the external costs associated with our heavy reliance on it.” Rick: “While I like some of your other alternatives, if I had to choose between a gas tax and an income tax to fund highway maintenance, I’d pick the progressive income tax. The gas tax makes it more expensive for a poor person to get to his or her job.” WACKY WEB SITE Tim B: “Colgate toothpaste for spackling? Coca-Cola for rust removal? Sure, these wacky uses for common stuff will probably work. But I would have expected you, if anyone, to note the problem with this: the cost of these items. Toothpaste (even the generic brand from the warehouse store) is much more expensive than spackling compound from the hardware store. Coca-Cola is more expensive than rust remover. (And that’s not even considering whether they work as effectively as the regular product does.)” Mmm, maybe. But even if a dab of toothpaste is 5 times as expensive as a dab of spackle, it’s still just a dab of toothpaste. What’s that — a tenth of a cent? And here’s the thing: I don’t keep spackle around on a regular basis. I should, I know, but I just keep forgetting to buy it. Tim 2: “I’m trying to figure out what would constitute a spackling emergency?” Any time I try to hang a picture.
Going Private April 4, 2000February 15, 2017 Mark McMillion: “I would like to know what would happen if a company bought back 100% of its stock. Are there rules against this? I understand that companies buy back their stock when they believe that action is the wisest investment of free capital. Who would own the company if they bought back all of it?” It’s called going private. In bear markets, it happens a lot, because the big shareholders think the stock is a bargain, the company is a steal, and it’s a pain having to file all those public reports and take abuse from angry shareholders disappointed with the share price. Simple example: In the Seventies there was a company that published a profitable magazine called Institutional Investor. If memory serves, it went public at $10. But in the bear market, with the Dow dropping to 577 in 1974, it got down to $2 or less, and so the founder of the company — who had probably been sole owner, or close to it, when he sold part of his stake to the public at $10 — now bought it back at $3. He was back to owning 100% of the stock again. And free of the expense of S.E.C. filings and an Investor Relations Department and all the rest. A few years later, he sold the whole company to a larger company at what would have been $20 or $30 a share had it remained public. I am fuzzy on the numbers and details — for one thing, he may have had partners — but that was the general idea. All legal, by the way. In going private, the company has to issue an extensive document disclosing the terms of the deal. But if enough shareholders sell, the rest have to. I’m not expert in the law on this, and it may vary depending on the state of incorporation. But you can’t just say “no” and keep your 200 shares and be the only outside shareholder left. The general rule here is that companies go private when it’s not to the long-term advantage of their shareholders. Companies rarely go private in bull markets, because managements realize their stocks are not a bargain . . . and because in a bull market managements like the public market in which to enjoy the fruits of stock option grants and the ability to use stock to acquire other companies, motivate employees, and so on. When stocks are high, the shrewd owner wants to be in a position to sell to the public. When stocks are low, and the public, disgusted, is willing to jump at almost any offer (3 sounded pretty good when Instituional Investpr was under 2), the shrewd owner want to buy. You’ve heard the term “leveraged buy-outs” (LBOs)? These were rampant in the early Eighties, when the market was again in the total pits. The Dow, which had briefly topped 1000 in 1966, was bottoming at 777 in the summer of 1982, 16 years later. Managements, plus some shrewd outside investors like former Treasury Secretary William Simon, realized they could buy their stock back from the public on the cheap. With just a few top managers and a couple of very wealthy investors (an insurance company, perhaps, and/or an LBO specialist like Kohlberg, Kravis & Roberts), all the public shares would be bought in. Much of the cash to purchase the shares was borrowed (hence the term leveraged buy-out), and with so few shareholders left, the company would be “de-listed” from the stock exchange, and there would no longer be a public market in it. At the peak of this trend, even giant RJR Nabisco was taken private in an LBO. That saga — atypical, because the price was so rich — became the subject of an entertaining and instructive book, Barbarians at the Gate. Once private, corporate jets would be sold off, limos abandoned, staff trimmed to the bone . . . suddenly management had a real incentive to serve the shareholders, because they were the shareholders. They cut expenses to generate cash, first to pay down the debt taken on to buy in the public shares, then to show the profits needed to allow the company to go public again in a few years (or be acquired by some larger company) at a much higher price. Now, you may actually have known all this, Mark. Your question may have been, what happens if the company buys ALL its stock back — even from the very last shareholder? In that case (assuming the corporate by-laws and various state and federal regulations allowed this), I suppose the corporation would own itself. The directors would be responsible for it, but no one would own it . . . just as the board of directors is responsible for running the Red Cross, but no one owns it. I’m sure one or more of our fine readers will educate us on this last point, and I will share the results. Tomorrow: Cheap Gas, Spackling With Colgate . . .
Wise Words from a Republican April 3, 2000February 15, 2017 But first, for your morning laugh (seems we may really have driven these people totally bonkers), call this toll-free number: 1-800-578-7453. And now . . . Click here. Tomorrow: Going Private