Sex Returns to Texas July 31, 2009March 15, 2017 But first . . . MEDAL OF FREEDOM Yesterday, 16 Presidential Medal of Freedom recipients were announced – America’s highest civilian honor. That one of them will go, posthumously, to Harvey Milk, and another to Billie Jean King, speaks volumes. They will be joining folks like Stephen Hawking, Ted Kennedy, Bishop Desmond Tutu and Muhammad Yunus this year . . . and folks like Rosa Parks from prior years. The full list speaks to diversity, talent, courage, possibility, and hope. Is this a great country, or what? And now . . . HEALTH AND THE PLANET Kaye Brillian: “It was good to see the Washington Post op-ed about how going vegetarian can help the planet. It also does wonders for your health. (It’s our own little healthcare plan.) About four months ago, my husband and I learned about Mike Anderson, who wrote The Rave Diet and Lifestyle. He is desperately trying to tell people about how meat and dairy are killing them, polluting the planet, and costing us billions every year. I would recommend going to his website and getting the book and DVD – very inexpensive. He’s not selling a program, he’s not making big profits, he’s just trying to get the word out. Within 10 days of changing our lifestyle, my husband was off his blood pressure meds completely, I was down from 3 blood pressure pills a day to one. After 3 months, our blood sugar counts are down, I have lost 32 pounds, my husband has lost 25 pounds, and at 60 years old, we have a sex life again!!! We must begin to look at what is causing people and the planet to be ill. The raising and consumption of meat and dairy products is the biggest cause of both. And, it is something we can do as individuals that makes a huge difference.” ☞ May I just add that Kaye and her husband are not from Vermont? They’re from Texas. There may be hope for the planet yet. Speaking of which: VW 70 MPG Mitchell Sereda: “Re your expressed desire for ‘70 mpg and cupholders’ – look no further.” . . . the Euro-only VW Polo, a Rabbit-like hatchback – only smaller – with plenty of room for four adults, a modest hatch that could swallow a weekend’s worth of gear, and a 1.4-liter, turbocharged diesel under the hood. Oh yeah, and a five-speed manual transmission. Here’s the kicker: The Polo gets 60 to 70-plus mpg. And it’s really fun to drive. . . . ☞ One day soon, such efficient cars may be available in America. (For a VW that got 238 mpg, and a Civic lesson, come back Monday.) IT’S GETTING TOO EASY – II Yesterday my friend David noted: “The 1929-30 rally lasted 147 days and was 46%. The rally off the March 6th low this year has been 145 days and is 46%. Here’s the chart.” Today my friend Chris Brown responds: “It has been rigorously proven that individual investors, due to poor market-timing decisions, consistently underperform benchmarks by 400 to 800 basis points per year when managing their own money, so the vast majority of your readers would be well served to pay no attention to stock market timing.” I agree, especially 95% of the time when the market is neither preposterously high nor unreasoningly low. Chris goes on to say, “I think low quality (high debt, poor cash flow) stocks are slightly overvalued here, but there’s nothing wrong with owning some high quality, high cash flow, high dividend blue chips and the investment grade bond issues of those same companies. There’s also no immediate technical reason for the market to fall here. In 1930, the market sold off after hitting a huge wall of overhead resistance. Overhead resistance represents trapped buyers who are desperate to get out at ‘breakeven,’ a universal psychological quirk of investors. Presently, we aren’t anywhere close to overhead resistance. We don’t have to worry about that until the 1100s on the S&P 500. Not only is the technical picture strong for the market here, but also the accommodative (pro-bubble) monetary policy being practiced around the world supports higher stock prices, and, lastly, don’t overlook the power of the legions of portfolio managers who are seeing their jobs threatened by underperforming the indices here due to oversized cash allocations – those guys and gals are having a very stressful month, and can create a self-sustaining reaction (for a while) if this buying stampede continues. Investors will be well served to be moderate in their approach here. (As usual.)”
Peanut Butter and Jelly July 30, 2009March 15, 2017 IS IT GETTING TOO EASY? With the market up so smartly from its low, one has to wonder if it’s getting too easy. I have no answer, but I definitely have the question. To wit: David: ‘This is almost too spooky to be true, but I manually checked the data points and it’s correct. The chart shows a day-count overlay of the bear-market rally in the Standard & Poor’s Index from the 1929 crash low (Nov 13, 1929) to the bear market rally top (Apr 9, 1930) vs. the current rally. The 1929-30 rally lasted 147 days and was 46%. The rally off the March 6th low this year has been 145 days and is 46%. Here‘s the chart.’ I TELL YOU AGAIN: BAKED ZITI From an op-ed in the Washington Post: . . . It’s not simply that meat is a contributor to global warming; it’s that it is a huge contributor. Larger, by a significant margin, than the global transportation sector . . . Two researchers at the University of Chicago estimated that switching to a vegan diet would have a bigger impact than trading in your gas guzzler for a Prius . . . A Montanan who drives 40 miles to work might not have the option to take public transportation. But he or she can probably pull off a veggie stew. A cash-strapped family might not be able buy a new [energy efficient] dishwasher. But it might be able to replace meatballs with mac-and-cheese. That is the whole point behind the cheery PB&J Campaign, which reminds that ‘you can fight global warming by having a PB&J for lunch.’ Given that PB&J is delicious, it’s not the world’s most onerous commitment. . . . It’s also worth saying that this is not a call for asceticism. It’s not a value judgment on anyone’s choices. Going vegetarian might not be as effective as going vegan, but it’s better than eating meat, and eating meat less is better than eating meat more. It would be a whole lot better for the planet if everyone eliminated one meat meal a week than if a small core of die-hards developed perfectly virtuous diets. BILL O’REILLY’S AMSTERDAM Here. MATH IS NOT BILL O’REILLY’S THING (Or, as this brief clip summarizes it, ‘Bill O’Reilly is a Complete Idiot.’)
15 Seconds to Better Health Care July 29, 2009March 15, 2017 HEALTH Want a public option? This takes 15 seconds. Join me in signing it? HEALTH II Eat less, save money, live longer, be healthier, improve our national economic strength (because as you’ve doubtless heard, our epidemic obesity is setting us back $147 billion a year in added health care costs). You’ll even cut oil imports – it takes less fuel to propel lighter passengers. Now will you ix-nay on the ed-bray, eat apples instead of donuts, and walk more? Here’s a book that may help. The Gabriel Method: The Revolutionary DIET-FREE Way to Totally Transform Your Body. I haven’t read it. I was certainly skeptical of the hype. But as you’ll see, the reader reviews are glowing. (“I finally gave up on dieting, and in the past two years I’ve lost over 30 pounds.”) HEALTH III Howard Dean, guest hosting for Keith Olbermann, interviewed Philip Longman last night. Longman – author of Best Care Anywhere: Why VA Health Care is Better Than Yours – had an intriguing twist on all this. As part of the public option, why not go to all the public hospitals in the country that are in such trouble, many of them in danger of closing, “and say basically this: if you will adopt the VA protocols of care, if you will wire up your hospital with their software and use it, and we’ll help you to do that, we will guarantee you this new pool of patients that have been recently mandated – and then we’ll have an actual delivery vehicle for their care, and the Congressional Budget Office and others will actually be able to score with realistic estimates what it will cost.” The VA is generally acknowledged to provide great care – even conservative powerbroker Bill Kristol inadvertently admitted that Monday night – and it’s done at relatively low cost. Longman says the VA’s cost per patient has actually been gloing down. Demand the public option! It takes 15 seconds. HEALTH IV Watch Bill Maher ask why we stick to a profit-driven private business model for health care. Or read the full, albeit sanitized, version. Actually, they are sufficiently different, it’s worth doing both. And then take the 15 seconds.
Exxon Goes Slimy, Opel Goes 113 Miles a Gallon And INCY Nearly Doubles July 28, 2009March 15, 2017 CANADIAN (SINGLE PAYER) HEALTH CARE Erich Almasy: “My wife and I have been in Canada for ten years and despite some initial concerns about quality of care, we have never encountered any serious issues with the system. Unlike the United States, where even the best employer-paid plans always fell short, with us making up the difference. By the way, many employers in Canada supplement the provincial system with ‘premium’ support such as private rooms and free prescriptions.” NEWSWEEK’S COVER STORY . . . . . . announces that the recession is over (after a fashion) and includes this excerpt: For 60 years, policymakers have relied on a series of simple tools for combating slowdowns and promoting growth: the Fed cuts interest rates, government slashes taxes, and a deregulated Wall Street provides easy money. All of which spurs debt-fueled consumption and the movement of goods and services around the globe. No more. The Fed literally can’t cut interest rates further—the overnight interest rate it controls is at zero. Given the deficits and Democratic control of Washington, the prospect of broad-based tax cuts are slim. Americans are still stuffing cash under the mattress. “The last several recoveries were not sustained because they were based on bubbles, they were led by consumption, and they enhanced inequality,” says [Larry] Summers. “The president’s emphasis is on having a different kind of expansion.” The Obama administration’s strategy rests on what some might call industrial policy or excessive government intervention—or even creeping socialism. I call it “the smart economy.” It means eschewing the blunt economic instruments we’ve always used and focusing resources and rhetoric on strategic sectors: renewable energy/green technology, infrastructure, broadband, and health care. It means making investments to run vital systems more intelligently and efficiently, thus creating a new infrastructure on which the private sector can work its magic. This philosophy, legislated in the $787 billion American Recovery and Reinvestment Act, holds that a mixture of targeted investments, tax credits, subsidies, reforms, and direct purchases can preserve or create jobs in the short term, improve America’s economic competitiveness in the long term, and catalyze private-sector investment. 113 MPG Hubert Heller draws our attention to the 112-horsepower Opel Eco Speedster, an ultralight diesel “concept car” that got 113 miles to the gallon – way back in 2002 –reaching a top speed of 155 mph. Watch it here. (Any chance of building a bigger, slower model with cup holders that gets, say, 70 miles to the gallon?) VERY GOOD SLIME NEWS Tom Anthony: “Big brains and big money (Craig Venter and Exxon) are tackling the algae-plus-CO2-to-oil opportunity – as reported here. Venter has a reputation for achieving the very difficult in impossibly short times, i.e. mapping the entire human genome years ahead of the times that experts initially predicted it would take. Hopefully, he will succeed again.” INCY This one, suggested five weeks ago, may certainly go higher, but with its having nearly doubled since then, I sold mine yesterday.
Four Takes on Health Care July 27, 2009March 15, 2017 HEALTH CARE Peter Singer’s recent New York Times Sunday Magazine piece on health care rationing – we already ration health care even though we prefer not to think of it that way – concludes: It is common for opponents of health care rationing to point to Canada and Britain as examples of where we might end up if we get ‘socialized medicine.’ On a blog on Fox News earlier this year, the conservative writer John Lott wrote, ‘Americans should ask Canadians and Brits – people who have long suffered from rationing – how happy they are with central government decisions on eliminating ‘unnecessary’ health care.’ There is no particular reason that the United States should copy the British or Canadian forms of universal coverage, rather than one of the different arrangements that have developed in other industrialized nations, some of which may be better. But as it happens, last year the Gallup organization did ask Canadians and Brits, and people in many different countries, if they have confidence in ‘health care or medical systems’ in their country. In Canada, 73 percent answered this question affirmatively. Coincidentally, an identical percentage of Britons gave the same answer. In the United States, despite spending much more, per person, on health care, the figure was only 56 percent. ☞ We should have the Canadian system with a uniquely American twist – namely, the freedom to pay extra for ‘premium’ care: a luxury room, ‘no-wait’ elective surgery, house calls . . . anything the basic, decent plan won’t cover. HEALTH CARE II Ted Strange: ‘I am distressed by the way the Republicans are portraying the Canadian health system. They are unfairly distorting the truth: We can walk in to a ‘Walk-in Clinic’ without an appointment any time during office hours. (Free.) We can go to the emergency room at a General Hospital any time 24 hours a day. There we will be triaged immediately. If it is acute, we will be looked after IMMEDIATELY. (Free.) If it is not acute, yes we may have to wait. Your American system is an anomaly, as you are ordinarily noted for being efficient. There was a documentary on TV a while back that compared a hospital in Seattle with a hospital in Vancouver, cities of comparable size. The billing department in Vancouver took up one floor of a building. The billing department in Seattle was a five-storey building. Yes you do have to wait for elective surgery and that is sad. But no one is bankrupted by major medical events.’ HEALTH CARE III Paul Krugman, in small part: ‘There are no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.’ HEALTH CARE IV Here’s an out-of-the-box idea. Bill Press asks: Why does Congress have to take an August recess? Why not spend the time getting health insurance reform done and then take whatever might be left of August? Hmmm?
Wal-Mart, Coke – and Glatfelter? July 24, 2009March 15, 2017 BLACK Warning: this is Lewis Black on health care reform. I take no responsibility. Gentle sensibilities, steer clear. BLUE I have come to the distressing summertime conclusion that blueberries are the only blue food – and even they are not really blue (on the inside, they are greenish). What was God thinking? We should have more blue food. GREEN As a long-time Wal-Mart shareholder, I was pleased last week to read that ‘Wal-Mart is on a mission to determine the social and environmental impact of every item it puts on its shelves. . . . In the future [shoppers may] have information about the product’s carbon footprint, the gallons of water used to create it, and the air pollution left in its wake.’ That will help us shop smarter, encouraging producers to be more green in the first place. ARE WAL-MART AND COKE GOLD? And speaking of Wal-Mart (and, earlier this week, Diet Coke) . . . my friend Boykin Curry of Eagle Capital likes them both. I don’t have remotely enough capital to have him manage it for me, which is a shame, because he generally beats the market by a few points and has for the last 20 years, but he graciously shares his views from time to time anyway. I thought you might be interested to read his most recent quarterly client letter: At a recent luncheon we had the good fortune to be seated next to Freeman Dyson, one of the twentieth century’s most brilliant mathematicians and physicists. Dyson, a laser-sharp 85, is most famous for the unification of the three versions of quantum electrodynamics formulated by Feynman, Schwinger and Tomonaga. Today he is at the Institute of Advanced Study in Princeton, considered the nation’s ‘most rarified community of scholars.’ The most investment-relevant subject we discussed at lunch was model-building. Dyson pointed out that models can be helpful in explaining the past, but they are often poor at predicting the future, especially in dynamic environments. When one is looking at earning estimates, asset allocation, value at risk, or global economic prospects, a nearly infinite number of variables affect the outcome. A backward-looking model can isolate the key variables, making the result easy to understand, but over time these variables and their relative impact can change in unpredictable ways. Furthermore, many of the inputs respond to the outputs themselves, sometimes exacerbating volatility; sometimes muting it. Dyson warned that people who spend their years developing models often grow to love them and attribute greater power to them than they deserve. Model-builders are naturally susceptible to the same enthusiasm the rest of us have for anyone who seems able to predict the future. Trusting PhD’s and their computers is easier than asking tough questions. Risk managers at Lehman Brothers, Long-Term Capital, Bear Stearns and other firms found that over-reliance on past relationships in their risk models produced a poor result when markets changed. The investment lesson is to use models as tools but to pressure test the assumptions as well as the output with common sense logic. A number of credible economic models predict an inflationary outcome to the economic policies of the U.S. and other governments around the world. It is important to understand how the spending and monetization of debt will create inflationary pressure, and we want to be sure that the companies we buy can maintain their profits in real terms in an inflationary world. But for inflationary pressure to become actual inflation, it must be accommodated by the Central Bank, which today insists it will tighten when necessary. Models help us understand the pressures that will build and the tools that institutions have, but relying only on the math will not get us all the way. Ben Bernanke is an example of an unpredictable input. Perhaps, in the face of inflation, he will capitulate, accepting higher prices for short-term relief. Certainly, the pressure will be immense. His term ends in January, and he wants to be reappointed. But perhaps Bernanke will pull in liquidity, even if it means a slower recovery. We think he may realize that forsaking monetary discipline to get economic growth would leave the nation with neither. In addition to the long-term costs, inflation would be an immediate catastrophe for the Treasury. Government bond durations are so short now that any attempt to inflate our debt away will raise the borrowing cost just as fast. It is a treadmill to nowhere. Mr. Bernanke is a smart man with a healthy ego, and as he considers his historical legacy, he surely ponders the tattered reputation of Arthur F. Burns, the Central Bank Chairman responsible for accommodating U.S. inflation in the 1970’s. What are the odds that Bernanke will choose to go down as the fool that ended three decades of low inflation? More to our point: How do the most sophisticated economic models get into the head of a single man, as he debates his own place in history? We don’t know which outcome will occur, and neither do the models. But we believe that Coca Cola and Wal-Mart will retain their pricing power and will grow their value in real terms, whether prices are rising or falling. Happily, at a time when many are placing big aggressive bets on inflation, depression, or both, we don’t have to predict either. If one is careful, rigorous, and thinks long-term, there are plenty of opportunities to profit through either scenario. We recently received a set of questions from a client regarding our views on the economy, the market, and investment opportunities. We thought it might be helpful to share our responses. 1. Is the recession over? Do you expect steady growth or another recession on the horizon? The recession seems over, but the cost of ending it quickly is that monetary and fiscal policy will have to be tighter for the next ten years. At every sign of recovery, the Fed will need to tighten and to sell down its bloated balance sheet. The Federal government will probably raise taxes at every possible juncture. Combined, these factors should make a strong recovery difficult. Consumers will also be a long-term drag. The core problem has been too much debt. If we are now to live within our means, then the nation will have to adjust to a lower base. Finally, if a consensus builds that the government is debasing the dollar and investors lose confidence in US bonds, interest rates will have to rise in order to finance new government borrowing and to roll the debt already on the books. Even a moderate increase in 3-year rates from 1% to, say, 7% (not high by historical standards) would be very tough on mortgages, real estate and many types of asset values. The idea that we can just inflate our way out of this assumes that lenders here and abroad are permanently confused. 2. Are the current EPS estimates too low? EPS estimates seem generally appropriate, though 2010 and 2011 estimates are probably a little optimistic. 3. How worried are you about inflation? We are concerned about inflationary pressure, but the Central Bank may press back as described above. In any case, long-term interest rates would rise, and some popular inflation bets may not do well. We are looking for businesses that will preserve their real earnings power in either inflationary or deflationary environments. 4. How do you see growth in the U.S. compared to Europe, Japan and emerging markets? The U.S. GDP will probably do better than Europe in the coming five years — our fiscal and financial situation is not as bad, our demographics are better, and our economy is more flexible and innovative. However, emerging markets will almost certainly grow faster, in part because they don’t need innovation to get huge gains. With human and financial capital in abundance, they only need to adopt proven techniques from the developed world to build rapidly. 5. How do you view equity valuations in Europe, Japan and emerging markets? Valuations seem reasonable across the board. Note that stock market returns do not necessarily follow economic growth. For one thing, markets may not reflect the domestic market; Toyota earns more of its profit in the US than Coca Cola does. Also, profitability does not simply follow GDP. Many emerging market businesses are in industries with structurally low profits. Certain companies that are based in the U.S. could grow earnings much faster in third-world countries than the companies that are based in those markets. 6. How much attention do you pay to interest rates? What are your views for long term rates and their impact on stocks? As long as our companies have pricing power and can raise their profits along with inflation, then their shares can be viewed like an inflation indexed bond. If Coca Cola has an earnings yield of 7% plus 2-3% of international growth, then investors should earn 9% plus inflation (whatever it is) on their investment. If inflation is zero, then the total return will be 9%. If inflation is 6%, then the total return should be 15%, but after inflation it is still 9%. Currently, interest rates seem too low, even without a spike in inflation. Fortunately, stock prices already reflect higher rates. In any case, we would rather own a staple with a 7% earnings yield + growth + inflation than a 20-year bond yielding fixed 4.5% and no inflation adjustment. 7. How is your portfolio positioned for Q3 and 2H 09? To ignore the macro economy is naïve, but to predict it is arrogant. We do not try to predict the coming quarters, but we believe we are defensively positioned for a difficult period, and we are constantly trying to upgrade the portfolio and add attractive securities when we find them. We are steadfastly focused on preserving capital and finding companies that will thrive in a challenging economy. ENOUGH PROPAGANDA Jeff Cox: “I like you and I agree with you. I drive a small car. I carpool. I use fluorescent light. However, one advantage of reading is not having to watch documentary films in order to stay informed. Enough with the movie propaganda already. Tell me what you think of Glatfelter (GLT), a stock with a 4-percent dividend and a price below book value.” ☞ Never heard of Glatfelter, so I’ve asked someone smarter than me to look into it for you. In the meantime, watch Earth 2100 and Home. The latter seems to be experiencing technical issues but “will be back soon.” (Also: Hangover, 500 Days of Summer, and Yoo-Hoo, Mrs. Goldberg. But I digress.) Okay? Watched ’em? Here’s what Aristides’ Chris Brown says about GLT: “I’ve owned it 2 or 3 times in the last couple years on eps beats. It’s a poorly managed cyclical company with lots of labor discontent and a forward EV/EBITDA that is slightly on the rich side given the company’s debt. The price-to-book is where it should be given the company’s inability to get a decent cash return on its assets. Definitely not a buy here.” Earth 2100 and Home, by contrast, are definite winners. Have a great weekend.
Coke, Almonds, Slime, 263 Horses and Torpidity July 23, 2009March 15, 2017 COKE ZERO Paul O’Donnell (on yesterday’s nutrition tips): “If you are a Diet Coke guy, try Coke Zero. I’ll bet my subscription fee you’ll switch.” ☞ According to this, “Coke Zero is sweetened with aspartame and acesulfame potassium (ace-k) and has zero calories. The only chemical difference between Coke Zero and Diet Coke is that Coke Zero has about half the aspartame but has more ace-k.” So can we even taste the difference? Well, a software development team blind tested Diet Coke, Classic Coke, and Coke Zero and reports: “Adam, Brian, and I all correctly identified the three flavors of Coke. Adam and I choose Coke Zero as the best, while Brian favored Coke Classic. Tim thought Coke Zero was Coke Classic and he also thought it was the best tasting. So, Coke Zero is our big winner.” ALMOND MILK Kristen Eisenman: “Almond Milk is a great tasting alternative to cow milk. The Almond Breeze Unsweetened Vanilla is great in cereal or in Rooibos Tea and only has 40 calories per cup. The Chocolate makes a great Mocha. Check it out.” TAURUS I love that Ford’s new Taurus is getting great reviews. I have just two quibbles. First, instead of 18mpg city / 28 mpg highway, I’d prefer a car that does twice as well, even if there aren’t 263 horses pulling it. Second, why are some of these cool safety options options? Adaptive Cruise Control: it maintains a set speed, but also keeps a driver-defined distance from vehicles ahead, and will use active braking when necessary to slow the Taurus to maintain that distance. Collision Warning: audible and visual alerts warn a distracted driver about a potential frontal collision and pre-arms the brakes to provide full power when the driver hits the brake pedal. Blind Spot Monitoring: Keeps an electronic eye on a driver’s blind spots and warns drivers using an orange icon in the mirror and on the digital IP readout. Cross Traffic Alert: Helps drivers detects oncoming traffic approaching the vehicle from the side while reversing out of a parking space. MORE SLIME George Mokray: “[Given your recent interest in slime], you might want to take a look at PetroAlgae (bulletin board symbol PALG). They have a combined fuel and food algae system that is beginning to get some press. If you do take a look, let me know what you think as I am considering investing a nickel.” ☞ I don’t know nearly enough to assess their prospects – which I hope are good – let alone guess whether it could possibly be worth its current $1.3 billion valuation – which I doubt. Certainly it would have been a better buy a few months ago at 25 cents than fifty times higher today at $13. GLOBAL WARMING = LESS PRODUCTIVITY Yes, yes, moving most of the world’s cities inland is going to be expensive . . . but here’s the other thing: we tend to get less done when it’s hot. NPR seems to be surprised by this, as if it weren’t completely obvious why tropical, torpid, sluggish, lethargic, lazy-hazy economies have underperformed brisk ones. But the study NPR reports on takes an interesting twist: it compares output of the same countries based on how hot their year was. It turns out that economic output even within the same country goes down when the temperature goes up. But did we really need graduate degrees to figure this one out?
Oona July 22, 2009March 15, 2017 UMA, ABBA Why is this video relevant, you ask? Have I entered therapy? (No.) Have we just lost Anne Bancroft? (No, four years ago.) It’s relevant because Charles and I have a brand new eight-pound first cousin twice removed named Oona! And this matters to you not just because the Anne Bancroft clip could make you smile but because this link will help you understand – as it finally did me – just what a “first cousin twice removed,” and all the rest of that nomenclature, is. PRGX Chris Brown of Aristides Capital (who suggested the CRTX more-than-double three months ago) writes: “A large investor in PRGX has changed the status of their stake from passive to active. In my experience, for a company this cheap (forward free cash flow yield probably something close to mid-teens), when an activist investor first gets involved, the risk-reward scenario is very favorable. I bought some for the fund a couple of days ago. I think there’s a good chance it doubles over the next 12 months; the risk would be that their underlying business just really falls apart – last quarter sucked, but I don’t think that necessarily represents a trend.” I bought a bunch myself. MOO! Here’s video of an enlightened mega-dairy. Fascinating to see the productivity of it, combined with the humanity. I asked my PETA pal, Dan Mathews, for comment, and he said: “It doesn’t look horribly run; just the message that everyone should drink milk three times a day is bad. We’re the only species that drinks milk after infancy and the only animals to drink other animals’ milk.* It’s fatty and unhealthful unless you’re a baby, and of course dairy cows have dozens of calves who are pulled away and milked electronically and become horribly depressed after losing so many of their young. Here’s our site about it.” ☞ The cows in the video do not seem depressed. Then again, neither did a friend of mine who . . . well, we won’t go there. My point is that when someone comes out with a soy- or tofu-based dairy product that tastes good, I’m there. PETA makes some strong points. In the meantime, I’m getting my nutrition from bananas, blueberries, and Diet Coke. * We are also the only species that cooks with curry, sautees shrimp, or refrigerates our food. So what? – A.T. “GRATUITOUS CRUELTY” What if the Government deported your loved one? From Metro Weekly. HEALTH CARE $ EXPLAINED The bottom line of this report: the House bill actually is revenue neutral. The reason it seems to come up short is because of the way it straightforwardly includes money that heretofore Congress has fudged.
Trillions July 21, 2009March 15, 2017 HURRY UP AND BUY A HOME? If you haven’t owned one in three years, you are considered a “first-time homebuyer” for purposes of an $8,000 grant on any home (or condo) you close on by the end of November . . . so long as you don’t sell it within three years (if you do, you have to give the $8,000 back) and so long as your income is modest (click here for details). Clearly, this is no reason alone to buy a home, or to rush to overpay for one. But if that $269,000 dream home could now be yours for $135,000 (it’s in foreclosure), and you can get a truly affordable fixed-rate mortgage – and can actually close by November 30 – well, don’t dawdle and wait to close in December. Every $8,000 helps. DEBT LEVELS Mark Klein (registered Republican): “I voted against Bush in 2000 because of his ridiculous tax cut ideas. I sent you money in 2004. In 2008 I believed Obama would be fiscally responsible, and I realize he is inheriting major problems. But a trillion dollar deficit? A TWO trillion dollar deficit?? I think that the last eight years have ruined the country permanently anyway, but running deficits like this isn’t even trying. Obama is an intelligent and perceptive man (a nice change) but my enthusiasm is rapidly dwindling.” ☞ Look at the deficits we ran in WWII – tripling the debt as a proportion of the GDP, from 40% of GDP in 1940 (after a decade of Depression and public works projects) to 121% by 1946. But we had to do it, no? How could we not win World War II? And 35 years later, as Ronald Reagan was taking office, we had reduced our National Debt ratio all the way back down to 30%. Today we have more or less the same situation. Once we get the economy redirected – building useful things like a smart electric grid, not blowing things up – we will be able to begin the process of getting the ratio back down. This never would have happened if Gore had been allowed to serve. But there is no alternative to fighting this “war” – we simply can’t lose it. Mark Klein: “We have already lost it. We can never pay off our existing debt, even if we run a balanced budget from here on out. At some point we will have to default (or just print up the bills to pay it off, which amounts to the same thing). I thought the Republicans were almost obsolete (technically I am still registered as one) but running deficits like these could open a door for them to have a major rebound in 2012.” ☞ No need to pay off the debt unless we plan to close the country and go out of business. It’s the ratio that matters. That’s why it’s criminal what Bush did. But now we have no choice. And if we do reorient the economy properly . . . “The rebuilt American economy must be more export-oriented and less consumption-oriented,” Larry Summers said Friday, “more environmentally oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented, more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population.” . . . and if we ultimately we can grow the economy at, say, 5% (nominally, including inflation) and the debt at, say, 3%, then after 35 years we’d have gotten the ratio into much healthier territory – as we did in the 35 years after WWII. Back then it fell from 121% of GDP to 30% – until Reagan/Bush/Bush took over and began wrecking our finances. This time, in this example, with the GDP growing 2% faster than the debt, it would go from 120%, say (if the debt hits $18 trillion in three years on what by then is a $15 trillion economy), down to 60% 35 years later (at what would be a $50 trillion debt against an $83 trillion economy). And if we somehow got the numbers to 5.5% and 2.5% instead – with the economy growing 3% faster than the debt – then after 35 years we’d be at $43 trillion in debt on a $97 trillion economy, or a not too bad 44% ratio. Still, there’s no question Bush et al put us into a HUGE hole. Inflation may indeed result in de facto “default.” But that brings its own set of humongous problems, so I hope not. Rather, slow but steady and deliberate are the way to go, both personally (spend less, save more; plan a later, more modest retirement) and as a nation. If we’re lucky, astounding technological progress will keep life exciting and make us richer . . . not (at least for the foreseeable future), in the amount of material and energy we consume, but in other ways we can scarcely imagine, as 20 years ago no one imagined Google or iPods or TiVo or Skype. (If we’re really lucky and enough of that innovation emanates from America – certainly no given – our economic growth rate could be even a little higher, which would shrink the debt ratio faster still.) MY ONLY FOREIGN CURRENCY: FXC And if you think WE have a problem, just take a read through John Mauldin’s latest newsletter. It’s enough to give any bull (on anything, anywhere) pause. I have long argued it’s unwise to keep one’s investment cash entirely in US dollars – if one is fortunate enough to have investment cash (as opposed to, say, six months’ or a year’s “rainy day” cash). Well, after reading that newsletter, I feel less dumb that the only foreign currency I am diversified with is the Canadian dollar (via the exchange-traded fund FXC). Tomorrow: Uma, Oona, Moo, and More
Six Months Convert Your IRA? July 20, 2009March 15, 2017 SIX MONTHS That’s what it’s been since Inauguration. Huge problems remain (see, for example, tomorrow’s column). But an economic situation that could have become catastrophically bad did not. Our standing in the world is dramatically improved. We are going full speed ahead on stem cell research. Women have been assured equal pay for equal work. African-Americans have been inspired to put dreams ahead of excuses. LGBT Americans have been re-welcomed into the American family. A Latina joins the Supreme Court. Our Education Secretary is pulling out the stops to encourage innovation. Universal health insurance is on the horizon. Fuel efficiency standards have been hiked. Science has returned to the White House. If every successive six months is as constructive, we just might make it. PARS FOR THE CORPSE Well, not the corpse, actually; the irritable bowel. (Remember the Seinfeld episode where Jerry says, “Hellooooooo!” to his girlfriend’s stomach? And she gets irritable? Irritable bowel syndrome has nothing to do with that.) PARS is the symbol of a struggling little company currently valued at $16 million – 29 cents a share – that’s been working on this problem and may report results of a clinical trial in the next couple of months. If the report is good, as he thinks they will be, my pharma guru thinks the stock will go to anywhere from $2 to $4. If bad, to zero. He is generally – but not always! – right, so this is another of those highly speculative bets one should make only with money one can truly afford to lose, because one truly might. 95 MPG Tom Anthony: “Just modifying the shape of a 1992 Honda Civic for $400 of materials increases its gas mileage to 95 miles per gallon. This car can now go over 800 miles on one tank of gas.” GOOD SLIME I have a hard time picturing a million acres of these algae tanks – they are starting with 24 acres as a test. And even on that scale, we’d be producing just 6 billion gallons of ethanol a year, which believe it or not is the equivalent of just a couple of weeks’ domestic gasoline consumption. Then again, the economics and environmental implications of “Algenol” are intriguing . . . and the great thing about acres is that there are 640 of them to the square mile, so what we’re talking about here is an area about 40 miles by 40 miles, less than half of one percent the size of Texas. BAD SLIME As reported here, it seems the American Conservative Union offered to take FedEx’s side on some pending labor legislation – at a charge of $2 million – but, when rebuffed, took the other side of the issue instead. Barry Goldwater spins in his grave. CONVERT YOUR IRA? Ed Shoben: “Did you see this article in Saturday’s Times? It suggested that the tax-free withdrawal provisions of the Roth IRA might be altered in the future. I had always thought such changes were highly unlikely.” ☞ January 1, 2010, the income restrictions for converting a traditional IRA to a Roth disappear. I’m likely to do it, at least partially, myself. I doubt Congress will ever go back on its word and make Roth IRA distributions (or, for that matter, tax-free-bond interest) taxable. I think the most likely tax scenario, not mentioned by the Times: Years from now, tax-free Roth IRA distributions may be included in calculating various “means tested” benefits (like what you pay for Medicare) and in calculating allowable income tax exemptions and deductions. That would be like a tax . . . but I would be surprised if it were done in such a way as to eliminate the value of the Roth altogether. Another (to me less likely) risk: Perhaps – in the very distant future – the income tax will be phased out in favor of a consumption tax. That would have the effect of eliminating the tax advantage of the Roth IRA (and municipal bonds). All income would be tax free, so you’d feel a fool to have paid the tax in 2010 to convert. But I don’t see it happening. WALTER CRONKITE A voice of reason, decency, dignity, calm, and compassion. Hear It Now on a recording that should interest anyone but that resonates especially for anyone who lived through the Sixties. (Scroll down a few inches to preview.)