Scarred for Life by Friendly’s Merger September 14, 2007March 8, 2017 QUARTERLY ESTIMATED TAX DUE MONDAY Click here if you need instructions or the form. A VIEW FROM BOOTS ON THE GROUND Last month I excerpted this ‘from the 82nd Airborne via the New York Times‘ – As responsible infantrymen and noncommissioned officers with the 82nd Airborne Division soon heading back home, we are skeptical of recent press coverage portraying the conflict as increasingly manageable . . . – and suggested it was ‘well worth’ reading the whole thing. ‘(Surely we owe the authors that much.)’ Well, two of the seven authors were killed Monday. It shouldn’t matter – people are killed there every day, and every person’s life is precious. But somehow, this just brings it home all the harder. DON’T SELL YOUR BOREF, EITHER Posts like yesterday’s elicit questions like, ‘Are you still short DNDN?’ (Yes.) ‘Do you still have SYM?’ (Yes.) Why didn’t you say not to sell BOREF?! (Because some things go without saying!) But let me say a little more about the latter two. (As to DNDN: one of the conditions of the User’s Agreement you digitally signed to gain access to this site was that you would never short stocks because – forgive the legalese – ‘If Danny jumped out the window, would you jump out the window, too? Now go do your homework.’) I’m still long SYM for two reasons. The remotely sensible reason is that a friend who owns more than 100,000 shares and does nutty things like actually go to the annual meeting and – imagine this – read the S.E.C. filings and the footnotes, believes the value of the company lies in its real estate, and that one day the company will be sold to unlock that value. He doesn’t know what it will go far, but at $20, a few months ago, he was hoping for more like $25 or $30 or $35, and had long since adopted the attitude of ‘being in it til it’s over.’ (We bought it around $8 in February, 2004; it paid out a $1 dividend about a year later; it’s around $16 now.) And that’s the second reason I still own it: because of Friendly’s watermelon sorbet and their mayonnaise-drenched tuna salad sandwiches on wheat toast. If you don’t see the immediate connection to Syms off-price clothing stores (‘an educated consumer is our best customer’), it’s this. I really liked Friendly’s, especially those two items, and back in the 1970s I bought a few shares thinking others would feel likewise – and that the company was a perfect acquisition target. I waited and waited – time moved a lot slower then, when a year represented 3% of my entire life (do you remember how long a year was when you were seven?) – and the stock just did nothing. And there were other tempting opportunities, but I didn’t want to sell. But the stock still did nothing, and, as I may have mentioned, there were other tempting opportunities – indeed, temptation was everywhere. But I didn’t want to sell. (Patience, Jackass, patience!) And then one day, with the stock at least a little higher, I rolled the money into something else. And the next day, or the day after, a merger was announced at double or triple price. I don’t remember the specifics, just that I was deeply scarred. (And not too thrilled to think I had been lured to sell by a price rise doubtless brought on by some insider buying. If they had managed to keep the deal completely secret, so the price didn’t creep up in anticipation, catching my attention and tempting me to – finally – take a small profit, I would have woken a few days later with a terrific surprise.) Irrational animals that we are, we internalize experiences like that. I’ve owned SYM for five years. If it can wait, I can wait. Sometimes, of course, this is a recipe for disaster. I might wind up riding SYM back down to 5 – or worse. But there is more at stake here than money. If the stock went to $5 I’d be bummed. But if I sold at $16 and it got bought out at $28 a few weeks later, I’d be nuts. (Of course, it is from just such irrationality that poor investment decisions are born. But I’m only human. I’m not selling my damn Syms until Sy Syms sells his.) With BOREF it’s different. In the first place, there’s no one I could sell to. This is a stock that trades, like, three shares a day. I have, like, a billion shares. In the second place, I don’t own it mindlessly, relying on a friend’s assessment. I own it brainlessly, perhaps, but not mindlessly. To me – as you know ad nauseum – it represents a lottery ticket with terrific odds. Yes, there is a very real chance we’ll lose all our money. Really. But – unlike the typical lottery ticket – there is also, I think, a significant chance of winning. Not a million times your bet overnight, but perhaps 10- or 20-fold over a few years. And, yes, I know how stupid that sounds, given all the red flags. But the plane really did move, so far as I can tell; and the magnetite deposit really does appear to be very large and quite possibly commercial . . . and, one foot in front of the other, slowly, progress is being made. So providing you have made your bet only with money you can truly afford to lose, don’t sell your BOREF either. COMMODITY FUTURES FUNDS Less Antman: ‘Tuesday’s commentary was good. One quibble: I agree that, in a DEFLATIONARY depression, both commodity futures and stocks would do poorly (before considering the reduction in the cost of living) and bonds well (as would having no debt). Given Fed policy and the absence of a gold standard, an INFLATIONARY depression, which would slaughter bonds, is far more likely, and that would be a dream scenario for commodity futures. Of course, that is essentially what Nixon managed to produce [in fairly mild form] in the early 1970s.’ Chris Luse: ‘In regard to Michael Fang’s comment about a recent increase in correlation between asset classes (and Less’s request for data to back that up) – SmartMoney.com has correlation statistics between mutual funds and the S&P 500 over the last 3 years. PCRDX has a correlation statistic (R squared) of 0% – perfect for diversification. For comparison, bonds (via VBMFX) has an R squared of 1% (also good), while real estate (via VGSIX), which is often touted as a diversifier, has an R squared of 38%.’
Don’t Sell (Not These, Anyway) September 13, 2007March 8, 2017 But first . . . “HELP US WITH EQUITY AND WE CAN HELP YOU WITH GROWTH.” This interview with Barney Frank, chair of the House Financial Services Committee, is almost like having lunch with him yourself. And now . . . I am pretty heavily in cash myself – perhaps the best reason for you to think stocks are headed for good times. But, at least with money you can truly afford to lose . . . DON’T SELL YOUR FMD The dividend was raised yesterday – yet again. A long time ago, I wrote that the only earnings statement you can really trust ‘is a dividend check that doesn’t bounce.’ This was more glib than factual – there are certainly companies that pay dividends right up to some horrible revelation. But if I were among those who’ve sold more than 9 million shares of FMD short, it would make me nervous to see the company growing at 50% a year with a P/E of 7, highlighted as the Motley Fool’s ‘hidden gem‘ of the month. (As in: who’s the fool now?) None of which is to say FMD is a sure thing; just, I think, a good bet. DON’T SELL YOUR HAPNW Speaking of which – fingers crossed, touch wood, hope to die, I’ll be good! I’ll be good! – there was some good news on HAPN yesterday as well. You will recall that we win or lose this bet in just two weeks, September 26. If the acquisition of Infusion is scuttled, so, for all practical purposes, are our warrants. But if it goes through, our warrants will become exercisable, giving us something like three-and-a-half years during which we can buy the underlying stock (currently $5.70) at $5. Well, yesterday it was revealed that some of the company’s directors had just purchased hundreds of thousand warrants – trading in the open market yesterday at 25 cents – for 70 cents each. They did this apparently because the company needed a final cash infusion to carry it through to completion of the much-delayed acquisition, and these directors supplied it, buying the warrants direct from the company treasury. Seventy cents was the minimum price allowed under the terms of the company prospectus. This doesn’t guarantee anything; but if the directors expected the deal to tank, they might not have done this. The bigger news was that the long-agreed to $140 million acquisition price was lowered to $100 million, presumably in recognition of changing market conditions and perhaps – I’m just guessing here – pressure from large shareholders threatening not to approve the acquisition otherwise. So this is doubly good news. To me, it suggests an even greater likelihood – albeit no guarantee – that shareholders won’t scuttle the merger. (Hurdle one.) And it means that we own warrants on a better deal. So that, some time in the next few years, the stock could be $6 or $7 or $8 or $9 a share. (Hurdle two.) If so, the right to buy it at $5 will be worth a lot more than the 25 or 35 cents we paid for it. DON’T SELL YOUR GLDD John T. ‘I have a bit of GLDD. It is working out fine. But I have one question. For an old-line company which is in the most stolid, boring of businesses, it sure is volatile. For example, today it is down 0.50. Longer term, the price is hanging around 9.00, but with some very large intra-day moves. It seems like it should only move maybe .10 per day. Is this just noise (if so, any guesses on why so much) or is this related to fundamentals of the company?’ ☞ Yes, Great Lakes is a stodgy old-line firm. But it’s just gone through a major financial event, with the exercise of millions of warrants owned by decidedly new shareholders, all with varying game plans for taking their profits (sooner, later, or much later). Eventually, the volatility may subside. In the meantime – assuming you bought this major mud mover with minor moolah not much missed – I’d pay no mind. (The volatility could be even greater with HAPN and HAPNW if the merger goes through. In that case, zillions of warrants and a decidedly new-line company.) SURE – SELL YOUR GOLD Stephanie Hill: ‘It is my opinion that anyone who suggests buying gold as an investment has never really looked at the historic price of gold. I am old enough (just!) to remember gold at $850 an ounce in early 1980. But I don’t think anyone even expects gold to hit that again anytime soon. (Remember, the only meaningful historic price range in U.S. dollars is from 1971 on, when Nixon ended use of the gold standard.) Just in order to keep up with CPI since 1980, gold would have to trade at $2200+ per ounce today.’ ☞ Which I suppose some might take to mean it’s undervalued here at one third that price. But I’m with you, Stephanie. I’ve never advocated buying gold. I just enjoyed the Krulwich piece (when has Krulwich ever not been enjoyable?) – which wasn’t advocating it, either.
Reason Enough September 12, 2007March 8, 2017 THE HONDA AD Reason enough to buy one – or at least to hire their ad agency. Click here. (Thanks, Roger!) GOLD Reason enough to buy some – or a least to read or listen to this piece from last Valentine’s Day on where it comes from. (Thanks, Del!) GOLF It can best be defined as an endless series of tragedies obscured by the occasional miracle, followed by a good bottle of beer. (Or so sayeth an email circling the World Wide Web.) Reason enough to play 18 holes. Well, not really, but people do seem to enjoy it. EATING MEAT IS WORSE THAN DRIVING Certainly from a cow’s perspective it is; but consider this, from the New York Times. (‘In late November, the United Nations Food and Agriculture Organization issued a report stating that the livestock business generates more greenhouse gas emissions than all forms of transportation combined.’) So whatever your feelings about the ethical treatment of animals, you’ll save money and the planet and live longer if you have a nice bowl of pasta. Oil, garlic, some salt, ground pepper – how can you go wrong? Be on the lookout for a Hummer with a driver in a chicken suit who’ll be showing up for the cameras to make this point. DON’T SELL YOUR FMD My guru weighs in on the latest news: ‘A 55% year-over-year increase in volume. I would expect the margins of this month’s securitization to be reasonably good. If so, that means another year of over 50% earnings growth, in which case it’s currently selling at roughly 5.7x forward earnings. [Fast growers usually sell at more like 20 or 30 or 40 times earnings.] The analyst panning FMD in that New York Times assassin piece was anticipating a securitization volume of $1.25 billion. Instead, it came in at $2.8 billion.’ ☞ So the stock has bounced up to $34.94, a modest profit from where we bought it (adjusted for the subsequent split) – but well below the $57 it was in January. The shorts are convinced it will blow up at some point, and maybe it will. But for all the reasons laid out by Tom Brown and my guru, I’m betting that it won’t. Indeed, if they keep raising the dividend – which the shorts have to pay – they might at some point wonder whether it’s worth it to stay short.
Cantango! September 11, 2007March 8, 2017 TODAY Notice, of course, that President Bush is rolling David Petraeus out [the week of] Sept. 11 – because, one more time, he’ll try to make the case that Iraq is somehow tied to 9/11. It’s a phony argument, but one that Petraeus, apparently, is more than willing to help him make.* – Bill Press BOREALIS Borealis subsidiary Chorus Motors subsidiary WheelTug – you know, the one we hope will have pilots driving their 767s around the tarmac like golf carts – announced yesterday an important step in the process of getting certified by December, 2009. There is no assurance any of this will happen, of course, let alone within the hoped for timeframe. But it’s nice to see this news picked up in the Wall Street Journal On-Line. And my guess is that Newport Aeronautical would not be taking on this assignment expecting to fail. Patience, Jackasss – patience. (And here, by ‘Jackass,’ I am of course referring to myself.) THE SUBPRIME MESS Jonathan Edwards: ‘You write: ‘Smart people at high levels of the Administration …. are working for the softest possible landing.’ That poor guy is terribly overworked. No wonder things are going to hell in a hand basket.’ ☞ Point taken. (His name is Hank Paulson! But I also said ‘and Congress,’ which would include, for example, Financial Services Committee Chair Barney Frank.) COMMODITY FUNDS TO STRENGTHEN YOUR RETIREMENT PORTFOLIO? Do not feel you need to read every word that follows. The very short summary is that (in my view) it would be perfectly reasonable to put 20% of your retirement fund into PCRIX as Less advocates (or PCRDX if you can’t make the $25,000 minimum). I also think – and Less will kill me for this – it’s not the worst time to have some of your retirement fund earning 5% or so in cash. Okay? Here we go. Paul Ward: ‘Less Antman is advising people over 50 to put 20% or so of their retirement savings into commodity future mutual funds. He apparently has about 30% of his own portfolio in such funds. As I understand it, he views this as an effective way to diversify a portfolio against stock market risk. What do you think?’ ☞ I think Less is a very smart guy. That said (and as he would acknowledge), in a depression, both stocks and commodities would fall terribly (where the value of government bonds would rise) . . . so that is one chink to be aware of. (Less notes that commodity futures funds, which is what he’s recommending, might not fare as badly as commodities themselves). There may be other chinks, but as you will see, Less is unfazed by the skeptics. For example, several of you cited this persuasive article by Bill Bernstein, the nub of which is that some of the underlying factors that made Less’s strategy a good one in the past are no longer valid. ☞ Less responds: ‘I read Bill Bernstein’s piece when it came out last year. Since it is long, it deserves a long response, which I have provided here. The short version is that the case for commodity futures rests on their low correlation to stocks (and bonds and REITs). Even if everything Bernstein wrote in that piece about future returns were true, this case hasn’t been weakened in the slightest, and unleveraged, diversified commodity futures are still worth considering by anyone interested in reducing the risk of their overall portfolio by applying the insights of Modern Portfolio Theory. Note, too, that Roger Ibbotson, Bill Gross, Rob Arnott, Mark Kritzman, and Roger Gibson are on my side of this argument. I have very good teammates in this contest.’ Mike Albert: ‘Less Antman’s argument looked really good to me (I’d considered diversifying with commodities before) until I looked at the 1.24% expense ratio of the PIMCO Commodity Real Return Fund (PCRDX) Less favors. For a Vanguard lover who expects index fund expenses of a few tenths of a percent, that’s a deal breaker. A bit of Googling reveals that the iPath® Dow Jones-AIG Commodity Index Total Return ETN (symbol: DJP) tracks the same index Less likes. However I’m not sure how an ETN differs from an ETF, and the computation of the fund’s annual fee is (to me) incomprehensible. Do you have any thoughts on this or other less expensive alternatives?” ☞ Less responds: “The PIMCO Commodity Real Return Institutional Fund (PCRIX) has a 0.74% expense ratio, and is available through Vanguard with an account minimum of $25,000. Furthermore, since it uses TIPS instead of T-Bills as collateral, it should earn an extra 1.5% or more per year, on average, making its expense ratio, in comparison to the Dow Jones AIG Commodity Index itself, negative. Even PCRDX, for those who cannot meet the high minimum of PCRIX, has an effective negative expense ratio once you take into account the use of the higher return TIPS (which also make it more of a hedge against unexpected inflation, and may lower the correlation of PIMCO’s funds to stocks even more than the regular index!). “DJP is an Exchange Traded Note issued by Barclays Bank. It pays a return based on the performance of the Dow Jones AIG Commodity Index, with T-Bills as the assumed collateral, so that I expect its net return to be worse than either PIMCO fund. That isn’t my main concern, though. If you purchase that note, you are not investing in commodity futures: you merely have an unsecured note from Barclays in which they promise to pay an amount equal to what the index return would provide . . . and if Barclays should have financial trouble, you could lose your investment regardless of the performance of the index. While Barclays is a reasonably secure AA-rated company, this is an undiversified risk I’m not willing to take myself or suggest for others. “For those who want to use ETFs, they might consider the all-ETF portfolio that I use for my own personal commodity investments, and whose running results are posted on my wiki. I put one-third into DBA, one-third into DBE, one-sixth into DBB, and one-sixth into DBP. This produces a similar category allocation to a PIMCO fund, with a couple of key advantages: (1) it doesn’t automatically choose the nearest contract, but the lowest price contract, which reduces the ‘contango’ problem Bill Bernstein harps on, and (2) it doesn’t contain any animal futures contracts, which makes this vegan Taoist very happy. A disadvantage is that it uses the traditional T-Bill collateral, so the TIPS bump isn’t there; but the weighted average expense ratio of this option is only 0.8%. By the way, DBC is not an acceptable all-commodity substitute, as it only contains 6 commodities, and is weighted far too heavily toward energy futures. GSG is even worse.” Jonathan Edwards: “I wonder why Less Antman prefers PCRDX (expense ratio 1.24%-1.99%, plus a load as high as 5.5%, depending on the class of shares) to DJP (annual fee 0.75% of account value, as near as I can tell)?” ☞ Less responds: Already answered. Naturally, I would only use the no-load versions of PCRIX and PCRDX. David Maymudes: “Do you have 30% or even 10% in commodity futures funds? [Me? No. I’m mainly in mud. – A.T.] I still don’t understand what they are. My impression from what Less has said is that these mutual funds are 95% invested in TIPS, and then take the remaining 5% and buy commodity futures. Then, they charge a close-to-2% fee on the whole bundle . . . so it seems like you’re paying 0.5% fees for the TIPS and close to 30% fees to play the commodities market (treating the extra 1.5% mutual fund fees relative to the 5% that’s really in commodities.) I understand in principle the benefits of non-correlated assets, but these funds look pretty scary to me. I asked Less about this issue on his message board [last item on the page] and didn’t get much of an answer.” ☞ Less responds: “I basically agreed with David. I look forward to competitive pressures bringing down the fees over time (Vanguard: where are you when we need you?).” Jacob Roberts: “I really don’t like it when comparisons of portfolio performance are made over only one time period. Comparing relative returns over just the 1972-present time frame is going to include the worst bout of inflation in our nation’s history, and I doubt that this is particularly representative of the next 30 years. While I actually agree with the main thesis of the article you published (no reason not to diversify into commodity futures and they should be somewhat negatively correlated with stocks), this is a bone I have to pick with anyone who makes these types of comparisons. Further, the difference is somewhat thin between the stock/bond and stock/commodity investment strategies and while this makes a tremendous difference over a long time it also means that small changes in the nature of the markets could reverse the positions of the relative returns (or more likely result in more comparable returns with higher volatility in either one of the components). Also, the bond component used in the example is not particularly realistic. Short-term treasuries are the true riskless rate of return, and by adding a bit more risk in the bond portion of the portfolio via taking on longer durations, the relative results could have been significantly different. I would prefer to see a comparison between a weighted bond portfolio and commodities over the same time span and better yet, over numerous time spans. Also, there are TIPS now and there weren’t in the 70s and so a structured bond portfolio could look pretty different today as compared to then. Obviously, these things touch a nerve with me. Have a good day.” ☞ Less responds: “As the piece by Bill Bernstein indicates, there are other studies going back to the 1950s, and the stock market was so sanguine from 1942 to the start of my data period that I don’t expect to find any worse results (except possibly for the stock-bond allocation during the late 1960s). I made reference to studies that go back to the 1950s in my original piece, and while raw data is hard to find for free on the Internet, there is a solid piece here. There aren’t any formal studies going back longer, and I share the reader’s desire for more data: since commodity futures are more than a century old, these should be forthcoming, and any conclusion must be open to the possibility that other data will contradict the findings. I already noted in my piece that the Great Depression would probably have been bad for commodity futures, although I don’t know for sure, since commodity futures and commodity prices are not the same thing, and it is possible that heavy discounts from expected prices might even have resulted in positive returns in the early 1930s. It frustrates me not to have that data. I tried switching to longer bonds: the worst-case scenario was even worse, and I thought people would accuse me of an unfair comparison, as I was discussing safety, and most people would expect that short-term Treasuries are the safest. The return using the Lehman Bond Index was still lower than stocks/commodity futures. I agree with the reader about TIPS, but a long-term comparison utilizing them was impossible. Click here for more on my choice of time period.” Michael Fang: “My…where to begin. What Mr. Antman is suggested is decidedly HARMFUL to your readers. I hope NO ONE follows his advice. Let me start by saying that at this late stage in the economic cycle, it is extremely STUPID to get into a commodity fund. But let’s leave aside this timing question for now. Let’s address the issue of the ‘studies’ that Mr. Antman referred to that purportedly show seemingly ‘free lunch’ diversification benefits. First, those studies were done in a period when NOBODY bothered to invest in commodities as an asset class. Because of that, plenty of commodities exhibited backwardization properties, meaning that the price of the longer expiration futures contracts are lower than the near term expiration futures contract for a given commodity. This means that if you buy the more distant contract, and even if the underlying commodity price doesn’t change, you will enjoy a ‘roll yield’ as the contract’s term becomes shorter. The problem is that ‘investing in commodities’ is now widely known among the insitutional investors. As a result, backwardization has disappeared for a lot of the commodities contracts simply because of the torrent of institutional money that went long these contracts. In fact, the more common phenomenon is contango, meaning the distant expiry contract’s price is higher than the near-term contract price. This means you now have a ‘drag’ or a negative roll yield. Second, A big part of the futures’ index total return comes from the interest you earn on the full margin you post if you don’t use any leverage. When the studies were done using histories in the 70’s, 80’s and 90s, interest rates were relatively high vs. now. That is obviously GONE in the context of the current environment. I don’t want to turn this into a treatise, but suffice to say, for an investor buying into commodity futures as an asset class as a diversification play, he may be sorely disappointed. BTW, the negative correlation between commodities and stocks and bonds have gradually disappeared in this decade because of hedge fund participation. Do your readers a favor and at least post this other point of view. You want diversification and a contrarian play? How about CASH? Cash is such a neglected asset class, and until the last month, was actually referred to as ‘trash’ (‘cash is trash’). But when every else is declining in value, CASH’s purchasing power actually increases. It is the perfect asset to hold in a deflationary environment.” ☞ Less responds: “I addressed Bernstein’s return arguments in the long version on my board. As for correlations rising between commodities and stocks/bonds, I would appreciate some evidence. As I indicated, there hasn’t been a 3-year period in which both the equal weight S&P 500 and the Dow Jones AIG Index dropped since at least the early 1930s. That includes the past decade. The argument that NOBODY ever treated commodity futures as an asset class until recently is, shall I say, rather extreme. Major textbooks on allocation have been addressing them for decades, commodity futures were popular enough for you to start your 1978 version of the ONLY INVESTMENT GUIDE YOU’LL EVER NEED with a discussion of them, the gold bug movement was indicative of a popular love of commodities in the 1970s, wealthy investors in hedge funds have been trading them for ages, and, once again, none of that affects the correlation argument. The argument for commodity futures is NOT that now happens to be a particularly good time to invest in them. I have no crystal ball, and I’m not as smart as those people who know exactly when an asset class is about to go up or about to go down: that’s why I diversify as widely as possible. All the time.” Frank Walker: “I have been diversified into commodities – mostly timber – for a number of years. It has treated me well. I didn’t understand Mr. Antman’s remark at the end of his piece that ‘any allocation less than 10% means taking an unnecessary risk.’ Is that because too much remains committed to other assets?” ☞ Exactly. But note also that his strategy is not the same as buying commodities themselves (you bought a forest?) or buying stock in the companies that own commodities (PCL?). # Look at you! You actually read all the way to the bottom. You are intrepid. A deep bow to you. May good fortune follow you all your days, like a piece of particularly juicy piece of gossip. # * . . . [S]ix weeks before the 2004 election, when Bush was in a tight race for re-election against John Kerry, Petraeus wrote an op-ed citing ‘tangible evidence’ that American troops were making significant progress on the ground in Iraq.
First Mud, Now Paper September 10, 2007March 8, 2017 But first . . . Thursday was Charles‘s show. Tim Gunn, of Bravo’s ‘Project Runway,’ told the Associated Press ‘he had a grin on his face throughout.’ ‘I was blown away,’ he said. . . . But [continued AP] the real show-stealers were the civilian models, including a gray-haired woman who works at the U.S. mission to the United Nations and a handful of children who walked the runway, one of them reaching out to the press, retailers and socialites in the front row. . . . ☞ The beautiful ‘gray-haired woman’ was Senator Kerry’s sister, Peggy. The child reaching out unselfconsciously to the press – a political career in the making – was Mari Rooney, Charles’s niece, aged 3. There was also a human rights lawyer on her way back to Afghanistan (she has a proposal to divert the poppy crop away from the Taliban for use, instead, in Third World countries where there is a shortage of palliative medicinal opiates) . . . a third cousin to the Queen of England . . . some pirouetting members of the American Ballet Theatre . . . and our pal Ghyllian, a yoga instructor, and her 8-year-old niece Ashley. Oh – and some for-real models who earn anywhere from $1,200 to $8,000 for an hour’s work. Click here to see all 51 ‘looks’ from the show, which Style.com called, ‘heartfelt, fun, and as American as apple pie.’ (Don’t even think about buying any of the men’s stuff – I can’t afford it, and I get a steep discount.) Here‘s word from the Cleveland Plain Dealer style editor: Why isn’t the name Charles Nolan better known? A wonderfully skilled designer, Nolan cuts beautifully and thoughtfully for women of all shapes, sizes and ages — well-evidenced by his runway show on Thursday, in which members of his staff and friends and family were sprinkled in among the professional models on a makeshift runway set up in his studio workspace in a Chelsea loft. They’re the clothes every woman should have in her closet, but rarely seem to — the perfectly cut khaki trenchcoat, the well-seamed crisp white shirt, the wide-legged trouser. A few pieces here and there over the years would add up to a lifetime of chic. Saks Fifth Avenue at Beachwood carries a bit of the line — pop in and try it on. You’ll wonder why you haven’t looked this way your whole life. ☞ And not just Saks anymore. Lord and Taylor and Nordstrom are beginning to carry the line, as are some some smaller independent shops in places like Birmingham, Grand Rapids, and Omaha. And then there’s this (‘Charles Nolan: The Sleeper Hit‘) from ALMOST GIRL: ‘Was it a show! . . . I saw piece after piece that I wanted to buy, a first for me this season so far.’ And this from AOL’s style page (‘Although it can feel like a big schlep to get to a show which isn’t in the Bryant Park tents – particularly on day two of a taxi strike! – it was worth the trip to get to Charles Nolan’s show yesterday in his West Chelsea studio. . . . [Y]esterday’s looks were the kind of pieces with panache which make you smile every time you see them in the closet as you’re deciding what to wear.’) Few people noticed all the details. For example – every model in every look was carrying a book, ranging from The Book of Common Prayer to Christopher Hitchens’ God Is Not Great to Bill Clinton’s Giving to Miroslav Sasek’s This is Rome to that old erotic classic, The Story of O. (And, yes, one investment guide.) And how many people would have imagined that Charles had painted the ‘scrim’ – a 192-square foot curtain – all by himself just a couple of nights before? But they sure noticed when the light came up behind that innocuous beach scene and (as is the way with scrims), the scene ‘disappeared’ to reveal a tableaux of eight models in a still life, who then – once the scrim was pulled aside for real – came to life one by one to walk out onto the runway. And if they didn’t know what the FINCA T-$hirts were (‘small loans / big changes’ – microlending that empowers women), they certainly noticed how good everyone looked wearing them. Okay. Enough. The holidays are coming. You’ve got a wife? A girl friend? A sister? A daughter? An assistant? A grand mama? Go ahead: make my day. Buy her something nice. And now . . . FIRST MUD, NOW PAPER The original Aldabra, you may recall, was a blank-check company that chose to make itself payable to Great Lakes Dredge & Dock, acquiring that old-line company (and adopting its name and stock symbol: GLDD). Those were the warrants we did well with, more or less quintupling or tentupling our bet, depending on what we paid for the warrants, in about a year. Those of us who’ve exercised some or all of the warrants find ourselves in the mud business. I, for one, feel very good about this. Now the sequel, Aldabra 2, on which some of us have also bought warrants, has made a deal to acquire a Boise Cascade paper products business. Newsprint, copy paper, cardboard boxes. Ah, you say – has no one told these people that newspapers are on the way out? That the paperless office is on the way in? That Wal-Mart is leading the charge toward less packaging? Well, my shorthand answer is that these guys are pretty smart (albeit not infallible), and may actually have considered some of that before choosing to spend $1.6 billion. The investor presentation, a 42-page powerpoint, is here. The nub of it is on page 4: We are buying a significant cash flow generating and asset-rich business and believe the purchase price of 7.0X LTM Adjusted EBITDA* . . . is attractive . . . [the more so] considering Boise Cascade is nearing the completion of several extraordinary capital spending programs to expand production of certain paper grades and value-added products which should enable the business to grow EBITDA over the near term. In addition to the attractive valuation, we believe the business benefits from several unique customer relationships and positive industry dynamics. We believe the paper industry is in the early stages of significant rationalization due to consolidation, the closing of facilities, and the application of financial discipline which should drive higher returns on capital. ☞ Time will tell whether this investment thesis is valid. If it is, and AII** climbs to $14.50 in the next three and a half years or so before our warrants (currently $1.18) expire, we will roughly sextuple our money (before tax). If the stock stays exactly where it is ($9.22), we’d make half a buck or so (the warrants give us the right to buy the shares at $7.50), which works out to a gain of about 45% before tax. And if it all tanks, as it could, we lose every cent, which is why you must only make this speculation with money you can truly afford to lose. * Seven times last twelve months adjusted earnings before interest, taxes, depreciation and amortization. ** Which will change its name to Boise Paper Company if the transaction is completed. DON’T SELL YOUR FMD More reassurance from Tom Brown, who follows this closely. (My own FMD guru obviously agrees.)
Rudy Video and More September 7, 2007March 8, 2017 No question, I have a bias. But there really are differences between the two parties, and real differences (though Ralph Nader scoffed) between a Gore, say, and a Bush. So with that in mind, a little politics to enliven your weekend. A GREAT TIME TO BE A REPUBLICAN IF YOU LIKE THE WAY THINGS ARE GOING From the Los Angeles Times: GOP hopefuls are staying Bush’s course By Janet Hook More than two-thirds of Americans say the country is ‘seriously off on the wrong track’ under President Bush. Still, a remarkable thing is happening among Republican candidates for the White House: They are enthusiastically embracing Bush’s major policies and principles – even some of the most controversial and unsuccessful ones. Mitt Romney wants to keep the Guantanamo Bay prison open – even expand it – and endorses Bush’s failed plan to overhaul Social Security. Rudolph W. Giuliani, like Bush, sees tax breaks as the key to expanding health insurance coverage. Sen. John McCain of Arizona is a stalwart defender of a war that has left the nation unsettled. All the leading GOP candidates want to continue Bush’s tax cuts. And like Bush, they all oppose a bill to expand a health insurance program for children . . . RUDY GIULIANI I don’t think he’ll be the candidate – I think it’s Romney. But if he is, you may be seeing a lot more videos like this one. As usual, it’s not just the error in judgment that’s troubling (why would you locate your command center inside the target?), but also the failure, even now, to own up to it. JOHN McCAIN To my Log Cabin friends . . . consider this from the Washington Post. Not only does McCain oppose marriage and civil unions and allowing gays to serve openly in the military, he was recently flummoxed by the acronym ‘LGBT.’ . . . Another student asked McCain what he would do on ‘LGBT’ issues . . . McCain, paused, confused by the question. Someone in the crowd shouted out “lesbian, gay, bisexual and transgender.” “I had not heard that phrase before,” McCain said of LGBT. (It’s a mark of the different planets the candidates from the two parties live on that McCain said this. Hillary Clinton, Barack Obama and John Edwards have long lists of “LGBT” supporters they’ve sent to reporters across the country). McCain then explained that while he opposed discrimination, he also felt marriage was between a man and a woman and noted he supported the “Don’t Ask, Don’t Tell” policy on gays in the military. The student, a junior named William Sleaster, then persisted, asking the candidate if he supported gay marriage or civil unions. McCain said “I do not.” The student, standing at microphone across from the stage where McCain was speaking then declared “I came here to see a good leader. I do not.” The Senator seemed surprised, but said he respected the student’s views and his right to express them. “That’s what America’s about,” McCain said. At the end of the hour long event, McCain came back to this point, looking at the student’s direction and saying “we should be thankful” to live in a country where such frank discussions can happen. ☞ And McCain is of course right about that. There are many reasons to admire John McCain. Fewer, I think, to vote for him. AL GORE I don’t think he’s going to run, even if he wins the Nobel Peace Prize, but I do think his reflections on 2000, recounted in the current Vanity Fair, remind us what the Democrat – whoever he or she is – will face. Also, how very badly the electorate is so often served by the media. An important piece, long overdue.
Money Angles and Disposable Cups September 6, 2007January 6, 2017 HOLD OFF ON BUYING COMMODITY FUNDS Several of you sent thoughtful counterpoints to Less’s analysis yesterday, including links to this by William J. Bernstein. I’ve passed them on to see what he thinks. So – having waited a lifetime on this – wait another day or three before taking the plunge. THE LITTLE BOOK THAT BEATS THE MARKET Long-time readers know I’m a fan of this book, by Joel Greenblatt. One of you recently wrote to say he’d been following the book’s system and the results had been only so-so. What did I think? I thought he should be patient, but I asked Joel what he thought. And he replied: ‘Each investor who picks 5 or 6 stocks every quarter will have varying results over the short term (meaning a couple of years). However, I gave a class on the results from the large cap model that I reported in the book. During that very successful 18-year period (basically doubling the market’s return), there was a point-to-point 4-year period and a totally non-overlapping 3-year period when the model did not outperform the market averages. That means there were long periods that the model did not beat the market. Yet, looking backward, it is very clear that the strategy (double the market’s return) was a good one. So…what can be learned by one person’s picking a few stocks over a year and a half? Nothing. It either makes sense to buy above average companies at below average prices or it doesn’t. If it does, that still means you need a 3 to 5 year horizon to bear that out.’ FMD Monday I linked to a story designed to make any FMD shareholder nervous (but not nervous enough to make me a seller). Herewith a knowledgeable comment addressing – and dismissing – that story. There are no guarantees, of course, but if you own the stock, you’ll feel much better after reading this. BOREF Patience, Jackass, patience! (For those new to this page, click here.) The drilling continues, with encouraging results – most recently, this press release. The WheelTug work and all the rest continues as well. May this all amount to naught? Sure. But patience is my middle name. THOSE RED PLASTIC CUPS I RETRIEVED FROM THE TRASH Well, of course, as some of you pointed out, it would be better not to use them at all – just use real glasses and rinse them out. But out by the pool, where they could break? Or tailgating at the football game? And what if you have 100 people dropping by, but don’t happen to have 200 glasses? (No way is everyone going to keep the same glass throughout a party.) Now, I know: you are appalled I have a pool, skeptical I attend football games, and completely disbelieving I could get 100 people to come by for a drink – especially after asking them all for money for the past 9 years. But leave that aside. YOU might have a pool or a stationwagon or friends. So the question remains: WASH AND REUSE? Or CONVERT TO REFUSE? I say: reuse! Mark Centuori: ‘Where was Charles when all this trash retrieval was going on?’ ☞ Rolling his eyes to the point of near sprain. Lindsay Leveen: ‘A couple of weeks ago my understudy, Ajay Kshatriya, a brilliant young Chemical Engineer here at Genentech, prepared the following [essay for my weekly Thermo Thursday newsletter].’ As I sleepwalked towards the coffee machine Monday morning I grabbed a paper cup to pour that sweet elixir, I wondered what was the thermo implications of using this paper cup rather than bringing a coffee mug to work? For starters, we need to determine the cost of production of a standard ceramic mug (~300g) to a paper cup (~10g). Source: Hocking, Martin B. “Reusable and Disposable Cups: An Energy-Based Evaluation.” Environmental Management 18(6) pp. 889-899. Now, we need to also take into account the mechanical energy of moving water for washing a ceramic mug with ambient water (~10 sec from a 1.5GPM sink) versus tossing the cup in the trash and sending it off to the landfill. So we will assume a per use basis, the water is coming from Hetch Hetchy, and the trash (according to South San Francisco Scavengers that contracts with the city) is dumped in Ox Mountain Sanitary Landfill in Half Moon Bay. Assuming the downward flow of water from the mountains to sea level does not require booster pumps, the cost of moving .25 gallons of water from our reservoir in San Mateo is roughly 200kJ/wash. Moving 1 cup from the South City to the landfill is 4.2kJ/cup. So 48x more energy is required to move water than to move a cup. However, we need to take into account mechanical efficiencies – even if we assume a 25x efficiency in moving water than moving a cup (due to less friction losses), the disposable cup is still 2x more energy efficient per use! So from an energy of manufacturing standpoint, ceramic mugs will beat paper cups after 25 uses, but once you start washing your coffee mug every use, the 2x more energy expense from washing mitigates any savings of going ceramic. From a thermodynamics perspective, the disposable cup is the winner! Why then would we decide to use the ceramics? SUSTAINABILITY. Even though the energy expense is more for ceramics we’re not logging forests or clogging landfills when we reuse our coffee mug. The disposable Ecotainer we use at Genentech tries to mitigate these problems by using a biodegradable liner and sustainable forests, but their environmental footprint is still not zero. So what’s the solution? — If you don’t wash your ceramic cup every cup of coffee (but wash it every other use) than the ceramic will win out in 25 uses. Not only did we learn thermo today, but we have a great excuse not to do our dishes! ☞ Did you follow that? Neither did I. But big plastic cups are tougher on the environment than paper cups, and rinsing them out has to be a better plan than tossing them. Don’t worry: I’ll get off this. Tomorrow: politics!
Commodity Funds; Gonzales and Rove September 5, 2007March 8, 2017 LESS ANTMAN’S CASE FOR COMMODITY FUNDS As many of you know, Less Antman is as smart as they come. If you want to get his newsletter, or otherwise avail yourself of his wisdom, just click ‘Ask Less’ at the upper left of this page – the link with the discreetly blinking asterisk. (‘Try me,‘ that asterisk seems to be saying – ‘Try me.‘) Here is his latest newsletter (please ignore all the mutual admiration): When I was first starting out as an advisor, one of my regular quips to new clients was to tell them I needed to know their astrological sign in order to determine what percentage of their portfolio should be put into pork belly futures. I figured that anyone who thought I was serious was not going to make a good client. A few years later, it turned out I WAS serious (about the futures, not the astrology). For an investor, especially a retiree, it is important to consider all reasonable ways to reduce the volatility of a portfolio without substantially reducing expected investment returns. I have come to the conclusion that commodity futures can play a valuable role in the portfolio of most of these people. Historically, a very common recommendation for widows and orphans was to split their money equally between stocks and bonds. The idea was that they needed the growth that could only come from ownership (equity) investments, but also needed to protect themselves from massive declines, and could do so by placing some funds in interest-bearing (debt) investments that were less volatile, at the cost of somewhat lower returns. To see how that would have worked, consider an investor if they had begun such a strategy at the start of 1972, and continued it for 35 years until the end of 2006. Assume also that their stock investment was allocated equally over the Standard & Poors 500 stocks (a list of large US companies in all sectors of the economy), and that the remainder was kept in short-term US Treasury securities. They would have had an annualized rate of return of 11.4% over that time period, and $10,000 invested at the start of the period would have grown to $436,900 (ignoring expenses). More importantly, if they checked their portfolio annually, they never would have seen a cumulative loss of more than 11%, which is a pretty modest decline given the excellent growth in the portfolio. You can see why this was considered a good, reasonably safe approach for widows and orphans. Instead, though, let’s say they had split their money between stocks and commodity futures (using the reasonably balanced Dow Jones AIG Commodity Index). Over those 35 years, their annualized return before expenses would have increased to 12.8%, and $10,000 at the start would have become $686,400, which would have provided them with over 50% more money than in the stock-bond allocation. Of course, most people understand that the returns of a portfolio including commodity futures ought to be larger than one using short-term Treasuries, because of the much greater risk of the former. But checking their portfolio annually, the worst cumulative loss was only 10.2%, slightly SMALLER than the worst loss for the stock/bond portfolio. Much more wealth with virtually identical risk. (For those who have seen similar examples with slightly different results in other writings of mine, please notice that this example is using the equally-weighted S&P 500, while my other examples used the traditional, market-weighted S&P 500: I prefer the former for reasons I discuss in other writings of mine, one of which is that the downside risk using it is smaller than portfolios that use the latter. I’m also using short-term Treasuries in this example instead of Treasury bonds, for the same reason. This article is about improving safety.) This is the magic that results from understanding Modern Portfolio Theory (http://simplyrich.editme.com/ModernPortfolioTheory). Combining different risky assets produces a portfolio with the returns of those assets but with much less volatility. It is especially useful when the worst years of each asset tend to be the best years of the other. And that is a relationship that has historically existed between stocks and commodity futures. Higher than expected inflation generally has hurt stocks and helped commodity futures, and lower than expected inflation generally has helped stocks and hurt commodity futures. Combining the two investments has, as a result, provided a much smoother ride than either of the investments separately. Most people are frightened when they hear about commodity futures, as they have some vague memory of it being a really dangerous investment. The first chapter of my dear friend Andrew Tobias’ book THE ONLY INVESTMENT GUIDE YOU’LL EVER NEED has a story about the danger of commodity futures, along with a statement that the overwhelming majority of people who invest in them lose money. This hardly sounds safe or prudent, but the use of commodity futures described in that chapter is nothing like the use in the allocation I described above. The example in his book was [typical retail commodities speculation] – equivalent to a bond investor who purchased junk bonds on margin in the 1980s, or a stock investor who bought highly leveraged options on dot-com stocks in the late 1990s, or a real estate investor who acquired no-money-down raw land in the current decade. They weren’t hurt by the investment category, but by making undiversified and heavily leveraged bets in those areas. (My first exposure to the diversification potential of commodity futures came from an article by Mark Kritzman that Andy included in his ‘Managing Your Money Better’ software newsletter in the early 1990s. But the absence of any appropriate investment vehicle at the time kept me from using them.) Let me start with a brief example of how commodity futures work. Commodity futures are very straightforward. Assume a wheat farmer is trying to obtain protection against a price drop between now and the date of delivery of the harvested wheat to the marketplace. The farmer sells a wheat futures contract and the buyer purchases it, with the contract to be settled at a time near the expected harvest (I’ll pretend it is a year, although actual contracts are for shorter periods). Since the farmer is, in effect, obtaining insurance against a decline in the price of wheat, the futures contract will be at a price that is lower than the expected delivery price of the wheat (which, by the way, is not the same as the current price). Let’s say the current estimate is that wheat will sell for $7.00 in a year. The current futures (sounds like jumbo shrimp) price might be $6.70, and the difference is essentially the cost to the farmer of the insurance on their livelihood. This means that, assuming wheat actually is priced at $7.00 when the contract is settled, the buyer will make 30 cents (the farmer will lose the same, but remember that they also will sell the wheat for $7.00 around the same time to Wonder Bread or whomever, and will net $6.70). Of course, if the price of the wheat is only $6.80, the buyer will only make 10 cents, and if the price of wheat is only $6.50, the buyer will lose 20 cents on the contract (the farmer will net $6.70 no matter what the price, and that certainty was the very point of their entering into this contract in the first place). Of course, if unexpected inflation causes the wheat to be worth $7.50 at the time of contract settlement, the buyer makes much more than expected (80 cents). Notice that the deck is stacked in favor of the buyer of the contract: the farmer is willing to make a contract at a lower price because it is insurance to him. Historically, buyers of futures contracts who didn’t use any leverage earned a rate of return similar to that of insurance company stocks, which makes sense when you consider that the buyer of a futures contract IS essentially acting as an insurance company, and should make a rate of return similar to that of others in the business. What is most important is that the circumstances that would result in major losses to the buyer (lower commodity prices) is beneficial to the bulk of businesses, so that combining stocks and commodity futures in a portfolio appears to be an excellent way to reduce risk without reducing expected returns. This is why 30% of my own investable assets are in commodity futures. The best way for most people to invest in commodity futures is through a mutual fund that holds a wide variety of commodity futures contracts. Diversification is always important, and for an individual to be able to duplicate the portfolios of most commodity futures funds, they would need millions of dollars in collateral. I’ve estimated that it would take approximately $5 million for an individual to duplicate the portfolio of the PIMCO Commodity Real Return Fund, which is my current favorite open-end mutual fund of this type because (1) it uses Treasury Inflation-Protected Securities as collateral, earning extra returns above the more typical Treasury Bills, and (2) the Dow Jones AIG Commodity Index it duplicates is the most balanced of all indexes that are currently represented by funds, as of the date I’m writing this piece. I want to also address some common confusion that arises when I recommend commodity futures as part of a diversified portfolio: (1) Commodity futures are not the same as investments in commodities themselves (such as gold bullion, coins, or trusts). The return on a commodity will only represent the change in its price, less storage costs, and this is far lower than the expected return on futures contracts that are insuring the commodity producer. (2) Commodity futures are not the same as investments in businesses that produce the commodities (such as oil companies). The latter are affected somewhat by the price of the commodity, but also by general business conditions (very often prices have risen because of major production interruptions that hurt the stock) and general stock market fluctuations. (3) Commodity futures funds don’t end up with the commodities in actual form. Futures contracts are always settled by the payment of cash based on the difference between the price index for the commodity at the settlement date of the contract and the price index at which the contract is originally struck (my stepfather used to speculate on pork belly futures in the dangerous manner described in Andy’s book, losing lots of money just as Andy’s book said usually happened, and I occasionally had nightmares of my stepfather forgetting to close a futures contract in time and having tons of dead pigs dumped on our front lawn by the seller). (4) The diversification benefit of commodity futures is mainly a long-term phenomenon, and it doesn’t generally help much over periods of days and weeks. Correlation is the extent to which two assets move up and down together. If they always do so, they have a correlation of +1.00. If they generally move up and down independently, they have a correlation of 0. If they always move in opposite directions, they have a negative correlation of -1.00. On a daily basis, the S&P 500 & Dow Jones AIG Indexes have had a correlation of around +0.50 with each other. On a monthly basis, the correlation has been extremely close to 0. Over triannual (3-year) periods it has been -0.40. In fact, with the longest reliable indexes on commodity futures going back to the 1950s, I cannot find a single 3-year time period in which both US stocks and commodity futures declined, and suspect it hasn’t happened since the early 1930s, when the Federal Reserve System orchestrated an insane massive deflation of the money supply that triggered the Great Depression and that the current FRS chairman, Ben Bernanke, is virtually certain not to repeat. As for the percentage of a portfolio that belongs in commodity futures, that depends on several factors, not the least of which is the comfort of an investor with investments that everybody tells them are risky. Although my clients trust my judgment, I haven’t yet put 30% of the portfolio of anyone other than myself into commodity futures. Because the income on these funds is generally taxable each year (unlike stocks and stock index funds, which can generally postpone capital gains indefinitely), it is best used in tax-sheltered accounts, and many people only have tax-sheltered investments in 401(k) plans at work, which rarely offer commodity futures funds as choices (although that may change in the near future, given all the academic research in support of their usefulness). Also, for a younger investor minimizing volatility is not as important as it is for an older investor, and dollar cost averaging can make a portfolio consisting entirely of stocks to be reasonably safe without the extra diversification. Thus, I am more adamant about using commodity futures for my retiree clients (which has always struck people as odd, but makes perfect sense if you understand this article). It is still, in my view, a good idea for younger investors, but given my earlier comment about 401(k) plans not offering them, I don’t get terribly concerned when a client under the age of 50 isn’t using them yet. If you understand the potential usefulness of commodity futures, you will find that even a small commitment to them can reduce the overall volatility of your personal investment portfolio. Personally, I think any allocation less than 10% means taking an unnecessary risk, and most of the academic studies (which you can find all over the Internet with a few well-chosen Google searches) agree with me. In practice, few advisors approach the 20% to 25% that I use in many client portfolios (at least those with large tax-sheltered accounts), but the reason given for not doing so is often that the clients would resist putting so much into a category that scares them, or that the advisor doesn’t want results that will vary considerably from the performance of the US stock market. Personally, I don’t mind varying my clients’ results from the US market when the latter is in a free fall, and prefer to rid myself of clients who complain about commodity futures when they appropriately drag down a portfolio during a general bull market. But you’re not my client, are you? So even if this piece (and answers to questions on my message board) are not enough to convince you to add this to your portfolio in quantities comparable to those I use for clients and myself, remember that even a few percent in this category will be better for diversification than not using it all. At least think about it, okay? AND WHILE I’M QUOTING SMART PEOPLE This comes from investigative journalist (remember those?) Greg Palast, whose newsletter is also free: American Nightmare: Gonzales “wrong and illegal and unethical” by Greg Palast Tuesday, August 28 “What I’ve experienced in the last six months is the ugly side of the American dream.” Last month, David Iglesias and I were looking out at the Statue of Liberty and Ellis Island where his dad had entered the US from Panama decades ago. It was a hard moment for the military lawyer who, immediately after Attorney General Alberto Gonzales fired Iglesias as US Attorney for New Mexico, returned to active military duty as a Naval Reserve JAG. Captain Iglesias, cool and circumspect, added something I didn’t expect: “They misjudged my character, I mean they really thought I was just going to roll over and give them what they wanted and when I didn’t, that I’d go away quietly but I just couldn’t do that. You know US Attorneys and the Justice Department have a history of not taking into consideration partisan politics. That should not be a factor. And what they tried to do is just wrong and illegal and unethical.” When a federal prosecutor says something is illegal, it’s not just small talk. And the illegality wasn’t small. It’s called, “obstruction of justice,” and it’s a felony crime. Specifically, Attorney General Gonzales, Iglesias told me, wanted him to bring what the prosecutor called “bogus voter fraud” cases. In effect, US Attorney Iglesias was under pressure from the boss to charge citizens with crimes they didn’t commit. Saddam did that. Stalin did that. But Iglesias would NOT do that – even at the behest of the Attorney General. Today, Captain Iglesias, reached by phone, told me, “I’m not going to file any bogus prosecutions.” But it wasn’t just Gonzales whose acts were “unethical, wrong and illegal.” It was Gonzales’ boss. Iglesias says, “The evidence shows right now, is that [Republican Senator Pete] Domenici complained directly to President Bush. And that Bush then called Alberto Gonzales, the Attorney General, and complained about my alleged lack of vigorous enforcement of voter fraud laws.” In other words, it went to the top. The Decider had decided to punish a prosecutor who wouldn’t prosecute innocents. All day long I’ve heard Democrats dance with glee that they now have the scalp of Alberto Gonzales. They nailed the puppet. But what about the puppeteer? The question that remains is the same that Watergate prosecutors asked of Richard Nixon, “What did the President know and when did he know it?” . . . During the Watergate hearings, Nixon tried to obstruct the investigation into his obstruction of justice by offering up the heads of his Attorney General and other officials. Then, Congress refused to swallow the Nixon bait. The only resignation that counted was the one by the capo di capi of the criminal-political cabal: Nixon’s. The President’s. But in this case, even the exit of the Decider-in-Chief would not be the end of it. Because this isn’t about finagling with the power of prosecutors, it’s about the 2008 election. “This voter fraud thing is the bogey man,” says Iglesias. In New Mexico, the 2004 announcement of Iglesias’ pending prosecution of voters (which he ultimately refused to do) put the chill on the turnout of Hispanic citizens already harassed by officialdom. The bogus “vote fraud” hysteria helped sell New Mexico’s legislature on the Republican plan to require citizenship IDs to vote – all to stop “fraudulent” voters that simply don’t exist. The voter witch-hunt worked. “Wrong” or “insufficient” ID was used to knock out the civil rights of over a quarter million voters in 2004. In New Mexico, that was enough to swing the state George Bush by a mere 5,900 votes. So what is most frightening is not the resignation of Alberto Gonzales, the Pinocchio of prosecutorial misconduct, but the resignation of Karl Rove. Because New Mexico 2004 was just the testing ground for the roll-out of the “ID” attack planned for 2008. And Rove who three decades ago cut his political fangs as chief of the Nixon Youth, is ready to roll. To say Rove left his White House job under a cloud is nonsense. He just went into free-agent status, an electoral hitman ready to jump on the next GOP nominee’s black-ops squad. The fact that Rove’s venomous assistant, Tim Griffin, was set up to work for the campaign Fred Thompson, is a sign that the Lord Voldemort of vote suppression is preparing to practice his Dark Arts in ’08. It was Rove who convinced Bush to fire upright prosecutors and replace them with Rove-bots ready to strike out at fraudulent (i.e. Democratic) voters. Iglesias, however, remains the optimist. “I’m hopeful that I’ll get back to the American dream. And get out of the American nightmare.” Dreams. Nightmares. I have a better idea for America: Wake up. Greg Palast is the author of Armed Madhouse: From Baghdad to New Orleans – Sordid Secrets and Strange Tales of a White House Gone Wild. Sign up for Palast’s investigative reports at www.GregPalast.com Tomorrow: The Little Book that Beats the Market; and Red Plastic Cups
The Easter Bunny, The Planet, Warrants and Student Loans September 3, 2007March 8, 2017 THE EASTER BUNNY MEETS $9 TRILLION IN DEBT In this Doonesbury. PLASTIC CUPS You know those big red plastic Dixie™ party cups we all buy sooner or later? “You wash those?” asked a guest who’d just seen me retrieve his from the trash and put it in the sink. Let me rephrase that question, and with some urgency: “You don’t?” Surely the little bit of hot water it takes to wash the white wine out of a cup is less than the energy and petroleum required to make a new one. AND SPEAKING OF THE PLANET – A NOTE FROM AL GORE Dear Friend, As you know, the Earth is moving closer to several negative “tipping points” that could — within as little as 10 years — make it virtually impossible for us to avoid irretrievable damage to the planet’s habitability for human civilization. My friend Leonardo DiCaprio has just produced an amazing documentary on this subject. The film was created using over 150 hours of interviews with some of the brightest minds on the planet, including physicist Stephen Hawking and Nobel Prize winner Wangari Maathai. Moreover, Leo himself is very eloquent and persuasive in this movie. I recommend it highly. Through interviews and beautiful footage of the environment, The 11th Hour demonstrates how human beings have created the climate crisis and related environmental crises, and shows that we have the means to solve them. The 11th Hour is both a portrait of a planet and a source of hope and solutions. I hope that you will go to see this important film. You can find out if The 11th Hour is playing near you by [clicking here]. Thank you, Al Gore ☞ “Urgent, startling and absorbing,” opines the reviewer for the generally conservative San Diego Union. So let’s see: Leonardo DiCaprio . . . star of “Titanic” . . . unheeded warnings . . . a seemingly immense craft (carrying a whole lot of passengers) that is actually but a speck in the firmament . . . hmmm. FMD The New York Times tells the story. Nervous-making, to say the least. But just as the article says, the company’s FAQ advises students to take out lower-cost government loans first . . . plus, there is no penalty for prepayment, so if they can get a better deal elsewhere, they’re free to grab it. One of the shorts I know calls their lending practices “shameful,” but this doesn’t seem so shameful to me. HAPNW Three weeks from now, on September 26, we either win or lose, as HAPC, Inc. either succeeds or fails to make its acquisition of InfuSystem from I-Flow. If it fails to make the acquisition, the warrants some of us have bought – with money we can truly afford to lose – will trade much lower. They’d retain a little value, on the slim chance that HAPC might be able to line up another acquisition prior to next April and close it successfully prior to next October. But if no acquisition is completed, the warrants expire worthless. If the acquisition is approved, the warrants should trade much higher, because a three-year option to buy at $5 a share a stock currently trading at $5.65 should be worth a lot more than the 23 cents at which the warrants were trading Friday. Being one to keep my expectations low, I am fearing the worst. The first of two things that need to go right September 26 should be no problem: more than half those who vote have to vote to approve the merger, and I assume they will. But it turns out there is a second hurdle that I’m told is “standard” in the structure of “blank check” companies like this one, but which I had missed in the prospectus: if, out of the entire universe of shares outstanding (not just the smaller number for which votes are actually cast), 20% oppose the merger, and then exercise their right to “get their money back” from the cash sitting in trust to make the acquisition, the acquisition is blocked. Might some large holders go for the cash? Yes, they might. Then again, if they want cash, why not just sell the stock here, at $5.65 or so, rather than having to wait several months for a couple of dimes more? (Last Wednesday, nearly half a million shares did change hands at around $5.70, perhaps with just that thought in mind.) Yes, the money in the trust is earning interest; but I think it would also suffer a $3 million hit for a “break-up fee” if the current acquisition did not go through . . . so this seems like a lot of trouble to turn $5.70 into, say, $5.90. I don’t think anyone can know for sure what the outcome will be September 26. The market may be telling us this is not going to work – why else would the warrants be so cheap? Then again, you have some bright folks who’ve put a lot of effort into this, with a big incentive, to make it work, so I’m hopeful that it will. It did with Aldabra – their acquisition of Great Lakes Dredge & Dock was approved, and that stock closed Friday at $8.87 . . . meaning that the folks who voted for the acquisition have done a lot better than they would have had they grabbed the cash instead. (And it may work with Aldabra 2, which is on the hunt for an acquisition even as we speak, and the warrants of which some of us, with money we can truly afford to lose, have bought, too.)