Nein, Nein, Nein October 17, 2011March 25, 2012 The fatuousness of Herman Cain’s presentation on yesterday’s “Meet the Press” — and the notion that he now leads, however fleetingly, the Republican pack — have left me temporarily speechless. Please come back tomorrow.
Nine Cheers for the New York Times October 14, 2011March 25, 2017 The first three for this: Editorial No Jobs Bill, and No Ideas It was all predicted, but the unanimous decision by Senate Republicans on Tuesday to filibuster and thus kill President Obama’s jobs bill was still a breathtaking act of economic vandalism. There are 14 million people out of work, wages are falling, poverty is rising, and a second recession may be blowing in, but not a single Republican would even allow debate on a sound plan to cut middle-class taxes and increase public-works spending. The bill the Republicans shot down is not a panacea, but independent economists say it would have a significant and swift effect on the current stagnation. Macroeconomic Advisers, whose forecasts are often used by the Federal Reserve, said it could raise economic growth by 1.25 percentage points and create 1.3 million jobs in 2012. Moody’s Analytics estimated new growth at 2 percentage points and 1.9 million jobs. Those economists say that Republican ideas for increasing growth would have no measurable effects in the next year. The Republicans offer no actual economic plans, only tired slogans about cutting regulations and spending, and ending health care reform. The party seems content to run out the clock on Mr. Obama’s term while doing very little. On Tuesday, Mr. Obama’s campaign manager, Jim Messina, accused Republicans of trying to “suffocate the economy” in hopes that the pain would work to their political advantage. They are doing little to refute that charge. Their lack of serious ideas was on full display in both the Senate and the presidential debate on Tuesday night in New Hampshire. The debate was ostensibly about the economy, but when the freshest and most-talked-about idea is Herman Cain’s ridiculous “9-9-9” tax plan, it is clear that the economy they were debating is not the one Americans are forced to live in. Mr. Cain — whose rise in the polls says everything you need to know about the amateur-hour decline of his party — wants to replace all federal taxes with a 9 percent levy on corporate income, personal income and sales. As Bruce Bartlett, an economist who has worked in Republican administrations, recently wrote in The Times, it is a formula designed to cut taxes for the rich and increase them for the poor, raising the deficit and doing nothing for growth. The other candidates were no less vacuous. Mitt Romney offered an ash heap of used ideas, saying he would push a balanced-budget amendment, cut back on regulations, and go chest to chest with China on trade. Rick Perry, when he could be stirred to speak, vowed to somehow put 1.2 million people to work in the energy industry, as if the whole country were Texas and drills could pop up on every block. Republican candidates fear the Tea Party too much to acknowledge that economists are solidly behind government intervention to awaken growth. The jobs bill rejected by Republican leaders will now be reintroduced piece by piece, and Republicans are not likely to go along with much more than an extension of the payroll tax cut (which is opposed by Mr. Romney). But at least the record is increasingly clear who is advocating real ideas and who is selling an empty vessel. ☞ Yesterday I linked to the Roubini piece, which takes more than a few minutes to read. So today, the Cliff’s Notes edition, or in this case the Joe Nocera edition – one of the best financial columnists around. Again, from the New York Times: This Time, It Really Is Different By Joe Nocera Published: October 10, 2011 The title of the white paper is, admittedly, a mouthful: “The Way Forward: Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness.” It was commissioned by the New America Foundation, which hoped that it might “re-center the political debate to better reflect the country’s deep economic problems,” according to Sherle Schwenninger, the director of the foundation’s Economic Growth Program. Its authors are Daniel Alpert, a managing partner of Westwood Capital; Robert Hockett, a professor of financial law at Cornell and a consultant to the New York Federal Reserve; and Nouriel Roubini, who is, well, Nouriel Roubini, whose consistently bearish views have been consistently right. It is scheduled to be released on Wednesday. I don’t know that anything at this point could re-center the political debate, so unyielding are the two parties. But as Congress prepares to take steps, through the deliberations of the already deadlocked supercommittee, that will likely further wound our ailing economy, “The Way Forward” ought to at least give our politicians pause. Its analysis of our problems is sobering. Its proposed solutions are far more ambitious than anything being talked about in Washington. And its prognosis, if we continue on the current path, is grim. “Unless we take dramatic steps, it will be Japan all over again,” says Alpert. “Continuous deflation, no economic growth, in and out of recessions. And high unemployment.” Adds Hockett: “It will be like the economic version of chronic fatigue syndrome. A low-grade fever all the time.” The paper’s central premise is something I’ve been hearing from Alpert for more than a year now: this time, it really is different. What he and his co-authors mean by that is that the bursting of the debt bubble three years ago was not just a severe example of the ups and downs that are an inevitable part of American capitalism. Rather, it was the ultimate consequence of the modern global economy. Chief among the changes that have taken place is the integration of China, Russia, India and other countries into the global economic mainstream. The developed world once had maybe 500 million workers. Today, say the authors, we’ve added another two billion people to the global work force. That change alone has had a great deal to do with the stagnant wages, income inequality and the oversupply of labor in America that was masked by rising home prices and access to credit. The bursting of the bubble exposed how much the American economy depended on cheap credit. Now that the curtain has been pulled back, cheap credit alone can’t fix our problems. The country is in a deflationary cycle that is very difficult to get out of: as wages decrease (or more workers become unemployed), people become afraid to spend. Assets like homes drop in value. Businesses react by lowering prices and laying off yet more workers — which only triggers a new round of deflation. The only thing that doesn’t change is the unsustainably high debt that was accrued during the bubble. How can we break this cycle? Like most mainstream economists, Alpert, Hockett and Roubini roll their eyes at the calls for immediate government deficit reduction, which led to the creation of the supercommittee. Reducing government spending in the short term will only make things worse. Instead, they believe that this is perhaps the best time in recent history for the government to take on a sustained infrastructure program, lasting from five to seven years, to create jobs and demand. “Labor costs will never be lower,” says Hockett. “Equipment costs will never be lower. The cost of capital will never be lower. Why wait?” Their plan calls for $1.2 trillion in spending — not all by the government, but all overseen by government — that would add 5.2 million jobs each year of the program. Alpert says that current ideas, like tax cuts, meant to stimulate the economy indirectly, just won’t work for a problem as big the one we are facing. Indeed, so far, they haven’t. Their second solution involves restructuring the mortgage debt that is crushing so many Americans. It is a complex proposal that involves, for some homeowners, a bridge loan, for others, a reduction in mortgage principal, and, for others still, a plan that allows them to rent the homes they live in with the prospect of buying them back one day. Finally, they call for a “global rebalancing,” which includes a radical change in the current dysfunctional relationship between creditor and debtor nations, and even a new global currency that would be administered by the International Monetary Fund. It is impossible to do justice to “The Way Forward” in this space. It is rich in supporting data, deeply nuanced, with as clear-eyed a view of our economic predicament as I’ve ever read. Though it is not exactly beach reading, by academic standards it is quite accessible. You can find it at [here]. You should read it — even if your congressman doesn’t. ☞ Hey, everybody: subscribe to the New York Times. With home delivery or digitally. FRANK AND PAULA I don’t want the week to end without saying goodbye to Paula Ettelbrick, long a leader in the fight for LGBT equality; and Frank Kameny, who had the courage to picket the White House for gay rights – in 1965, for crying out loud, when virtually nobody talked of such things, let alone in public, with signs. And who, even earlier, had had the courage to sue the government and take his case to the Supreme Court in 1961. Can you imagine? As someone who, a dozen years later, and four years after the Stonewall riot, lacked the courage to use his own name when writing about such things, I barely can. I saw Paula August 13 at a fundraiser for the Stonewall Community Foundation. I knew she was in the late stages of her illness, but there she was, clear-eyed, clear-throated, and clear-headed as ever, thanking 49 folks who had just swum 4 miles across from Long Island to Fire Island to raise money for Stonewall’s good works, and inspiring us – with a smile – to keep on keeping on. She died last Friday. Whenever I saw Frank – whenever anyone saw Frank – he made a point of pitching his signature phrase: “gay is good.” Modeled on, “black is beautiful.” Increasingly, even though the phrase hasn’t necessarily caught on, the concept has. Gay is good. Frank Kameny was not nearly as well known as he should have been, but upon his death his photo made the front page of . . . yes . . . the New York Times.
911 October 13, 2011March 25, 2017 $1.2 TRILLION PLAN TO SAVE THE ENTIRE WORLD Here. And it starts with infrastructure. How complicated is this, really? A million construction workers out of work, 158,000 bridges and 35,000 schools of modernize – not to mention all the other stuff that needs doing. What are we waiting for? The Senate Republicans vote unanimously to kill the President’s jobs bill. The House Republicans are taking up abortion today (yet again) – jobs can wait. INFRASTRUCTURE That Roubini paper is a handful. But this next item is a sit-back-and-be-entertained/enlightened/enraged 7 minutes: Rachel Maddow Tuesday reporting on the Occupiers not allowed on a Boston bridge – lest it collapse – and a panel of business heavyweights calling for investment in infrastructure but the Republicans unanimously blocking it. Try to find the 7 minutes to watch. MITT EMBRACES TED KENNEDY’S HEALTH CARE VISION Here. Not now, of course. YOUR FILE Based on the information I have on file for you, here’s what I know: If you take the age you turned or will turn this year (you omitted it when you signed up for this page), add 100 if you are pre-pubescent (and kudos to you, little man, for your interest in money and politics), add the number of muffins in a baker’s dozen, subtract the number of great grandparents you have or had (even if you never knew them) – are you getting all this? following the instructions carefully? – add the two-digit year you were born, reverse the order of the result (so, e.g., 479 becomes 974), add 300, and then dial that number from any phone if you ever need emergency services, help will be quickly on its way.
Failing Forests October 12, 2011March 25, 2017 THE MOUNTAINTOP Opening on Broadway Thursday with Samuel L. Jackson and Angela Bassett, this play about Martin Luther King, Jr. by the remarkable young Katori Hall is not what I expected – I don’t want to give it away by telling you more – and not to be missed. WE’RE LOSING OUR PLANET The forests are dying. “Experts are scrambling to understand the situation,” reports the New York Times, “and to predict how serious it may become. Scientists say the future habitability of the Earth might well depend on the answer. For, while a majority of the world’s people now live in cities, they depend more than ever on forests, in a way that few of them understand.” I know: the last thing most of us need to start the day is more concerning news. But wouldn’t it be nice to be remembered as the generation that came to grips with its problems in time to preserve the habitability of the planet and save humanity?
Denying Dorothy Cooper Her Vote She's 96 October 11, 2011March 25, 2017 WHICH MITT Do you ever wonder which Mitt Romney will show up? Visit WhichMitt.com and take the quiz. Quick and stark. DENYING DOROTHY COOPER HER VOTE The right-wing hopes to disenfranchise 5 million poor people and students next year – people like 96-year-old Dorothy Cooper – to gain a lock on all three branches of government. It is a stunning story. Watch. If they succeed, say good-bye to the Supreme Court for the next 25 years, should liberal Justice Ruth Bader Ginsburg – 78 and a survivor of both colon and pancreatic cancer – retire and be replaced by a young conservative. Have I mentioned that Robert Bork co-chairs Mitt Romney’s advisory panel on such things as Supreme Court Justice nominations? (Yes, in fact, I have.) “Robert Bork’s America,” Ted Kennedy took to the Senate floor to say at the time Judge Bork was nominated, “is a land in which women would be forced into back-alley abortions, blacks would sit at segregated lunch counters, rogue police could break down citizens’ doors in midnight raids, schoolchildren could not be taught about evolution, writers and artists could be censored at the whim of the Government, and the doors of the Federal courts would be shut on the fingers of millions of citizens.” Dorothy Cooper doesn’t want to see that kind of America, and the Koch brothers, Karl Rove, Clarence Thomas, et al, don’t want her to be able to vote. THE MYTH OF VOTER FRAUD How dare the other side disenfranchise millions of citizens based on a myth that those at the top, at least, know is a myth. Have they no shame? Have they, at long last, no shame? Here it is, from yesterday’s Times: It has been a record year for new legislation designed to make it harder for Democrats to vote — 19 laws and two executive actions in 14 states dominated by Republicans, according to a new study by the Brennan Center for Justice. As a result, more than five million eligible voters will have a harder time participating in the 2012 election. Of course the Republicans passing these laws never acknowledge their real purpose, which is to turn away from the polls people who are more likely to vote Democratic, particularly the young, the poor, the elderly and minorities. They insist that laws requiring government identification cards to vote are only to protect the sanctity of the ballot from unscrupulous voters. Cutting back on early voting, which has been popular among working people who often cannot afford to take off from their jobs on Election Day, will save money, they claim. None of these explanations are true. There is almost no voting fraud in America. And none of the lawmakers who claim there is have ever been able to document any but the most isolated cases. The only reason Republicans are passing these laws is to give themselves a political edge by suppressing Democratic votes. The most widespread hurdle has been the demand for photo identification at the polls, a departure from the longstanding practice of using voters’ signatures or household identification like a utility bill. Seven states this year have passed laws requiring strict photo ID to vote, and similar measures were introduced in 27 other states. More than 21 million citizens — 11 percent of the population — do not have government ID cards. Many of them are poor, or elderly, or black and Hispanic and could have a hard time navigating the bureaucracy to get a card. In Kansas, the secretary of state, Kris Kobach (who also wrote Arizona’s notorious anti-immigrant law), pushed for an ID law on the basis of a list of 221 reported instances of voter fraud in Kansas since 1997. Even if that were true, it would be an infinitesimal percentage of the votes cast during that period, but it is not true. When The Wichita Eagle looked into the local cases on the list, the newspaper found that almost all were honest mistakes: a parent trying to vote for a student away at college, or signatures on mail-in ballots that didn’t precisely match those on file. In one case of supposed “fraud,” a confused non-citizen was asked at the motor vehicles bureau whether she wanted to fill out a voter registration form, and did so not realizing she was ineligible to vote. Some of the desperate Republican attempts to keep college students from voting are almost comical in their transparent partisanship. No college ID card in Wisconsin meets the state’s new stringent requirements (as lawmakers knew full well), so the elections board proposed that colleges add stickers to the cards with expiration dates and signatures. Republican lawmakers protested that the stickers would lead to — yes, voter fraud. Other states are beginning to require documentary proof of citizenship to vote, or are finding other ways to make it harder to register. Some are cutting back on programs allowing early voting, or imposing new restrictions on absentee ballots, alarmed that early voting was popular among black voters supporting Barack Obama in 2008. In all cases, they are abusing the trust placed in them by twisting democracy’s machinery to partisan ends.
Maybe the Bahaman Stock Market Is Closed Today October 10, 2011March 25, 2017 Has Wall Street no respect for Christopher Columbus? The man took an insane risk, endured tremendous hardship, and discovered the Bahamas. And he didn’t get Aquaventure or his fourth night free. But if the stock market’s open, this site is open. I’ll spare you politics for a day, but offer two updates: BOREF I have not ordered this book, because the hardcover is $4,295 and the e-book costs $3,995 to download. I doubt the Borealis team has ordered it either. But they’re excited: Look at the author’s conclusions (which we share): 1: The motors being used now are for enthusiasts and are unsuitable for the competitive mass market. 2: AC Induction (asynchronous) motors will dominate for larger vehicles down the road – for the reasons we have given (cooling being a key one). And then he lists *one* advanced asynchronous motor technology: 2.3.1. Advanced asynchronous motor variant – Chorus Motors and we get a second mention: 2.4.4. In wheel motors for aircraft. ☞ I have no idea if this means all that Borealis hopes it does, or anything much at all. But Borealis does own Chorus and – based on what little I know of livestock – it’s better than a kick in the head. DVAX Guru: “Friday, they reported the data from diabetic patients in their hepatitis B vaccine trial. It is the first time data from diabetic patients has been studied prospectively. Their vaccine was dramatically superior to the currently approved vaccine at all time points. In particular, at the prespecified time point of comparison – 12 weeks with just one booster shot for DVAX and 32 weeks with two booster shots for the currently-approved vaccine – DVAX showed protection in 79% versus 11% in the currently approved vaccine group!” So it was much more effective and reached its effectiveness level much faster. “The diabetic issue is important because later this month, the CDC convenes to vote on whether to require that all diabetics be vaccinated for Hep B. The committee made such a proposal in June, but did not take it to a formal vote. The formal vote comes later this month and is almost certain to be ‘yes.’ Today’s data show DVAX to be the clear choice. DVAX’s only problem appears to be that it is a small cap stock in a bear market. I continue to expect significant appreciation over the next year as it gets approved and launched. Separately, DVAX recently received money from Astra Zeneca to move ahead on a program to treat asthma and has partnerships with Glaxo and Novartis, also in early human trials, showing that there is a nice pipeline behind its leading product for Hep B.” ☞ With hindsight, it would have been nicer to pay Friday’s $1.83 for DVAX, say, than $2.77. But as I previously reported, Guru says he agrees with this $8 valuation, so I sit pat.
Swapping DVDs October 7, 2011March 25, 2017 STEVE JOBS AGAIN He narrates this 60-second spot that could hardly be more fitting. THE OCCUPIERS AGAIN I ended yesterday’s comment about the Occupiers with: “Crowds make me nervous. Simple answers to complex problems make me nervous. But enough is enough.” I’d like to add anger – anger makes me nervous. Anger, even when fully justified, doesn’t always lead to the best thinking or the best outcomes. One of the good things about what I’ve seen of the peaceful protests so far is that they don’t seem to be about anger so much as determination – a recognition that things are broken and need to be fixed. So as I said yesterday, it’s about time. I’m not an activist, and I’m sure not brave. But how on Earth were there not left-of-center activists protesting on the steps of the Supreme Court day and night, rain and shine, from the day of the shameful Bush v. Gore decision to the day, more than eight years later, Bush left office? With signs reading, “Thieves!” Not so much to accomplish something specific – the Court would not reverse itself after reading those placards – but still. You know that if the situation had been reversed, the protesters would have been there. And where were the activists when President Bush and his surrogates told everyone that “by far the vast majority” of the benefits of his tax cuts would go to people at the “bottom” of the economic ladder? With signs saying, “You Lie!” (Not during the State of the Union, certainly. But 24/7, for years, outside the White House?) Where were they as the public option was being blocked, Elizabeth Warren was being blocked, the debt ceiling “crisis” was being manufactured – it’s a very long list. So it’s about time. As I suggested yesterday, the Tea Partiers are the unwitting agents of Karl Rove and the Kochs, working to squeeze ever more juice from the middle class and poor. If you didn’t have a chance to watch that Karl Rove clip, please try to watch at least up to the part where Rachel shows you the actual context out of which it is pulled. Stunning in its dishonesty. And there will be hundreds of millions of dollars more such ads coming our way over the next 13 months, compliments of the Rove / Koch / Clarence Thomas / Sarah Palin / Rush Limbaugh extended family. All that said, crowds do make me nervous, and now that there’s this first statement from the Occupiers. I find lots in it not to fully support. For example, the very first of the specific enumerated grievances against our corporate overlords: “They have taken our houses through an illegal foreclosure process, despite not having the original mortgage.” Well, sort of. But are those who willingly took out mortgages saying they didn’t take out those mortgages? Or that the fair and honorable thing to do, if the mortgagees can’t locate the paperwork, is to welsh on the loans? Or . . . “They have perpetuated inequality and discrimination in the workplace based on age, the color of one’s skin, sex, gender identity and sexual orientation.” Well, some have. But many work pretty hard at doing this right (last month Walmart added transgender provisions to its employee nondiscrimination policy). I know: moderate, qualified statements do not a rousing declaration make. But still. Or . . . “They have held students hostage with tens of thousands of dollars of debt on education, which is itself a human right.” Well, again – I mean, where does one even start to qualify a statement like that? Other than perhaps to highlight the terrific way President Obama has improved the student loan system (against, as always, Republican opposition to helping anyone but the rich). Does every human have a right to a college education? If so, what sort of education must it be and how do we pay for it? Must this education involve a leafy physical campus or could it be web-based at a fraction of the cost? Did the students themselves have any responsibility in taking out those loans? Did the parents, in guaranteeing them? And on and on. But the fact remains that these peaceful demonstrations are great. Let’s just hope their energy is channeled constructively. If they are, Barack Obama just might win reelection with enough coat tails to take back Congress – so there’d be at least some prayer of getting on with the business of solving our problems and rebuilding the middle class. (Though, realistically, even a Senate Republican minority, if determined to do so, would still be able to bring the country to its knees.) TRADING BOOKS, CDS AND DVDS Larry Francis (whose email tag-line is: “A bus station is where a bus stops. A train station is where a train stops. On my desk, I have a work station.”): “Two unrelated things for your consideration. First, paperbackswap.com lets members (free membership) swap over a million books for the price of media mail (usually about $2.41). Hardback books and audio books are fine, too. The more books you list and swap, the more credits you get to swap for more books – or for CDs and DVDs on SwapaCD.com and SwapaDVD.com. There are more neat features, but that’s a taste. . . . Second, science and health have again lost to Tea Party politics here in Florida. Pinellas County (St. Petersburg, Clearwater) just voted to stop fluorodating drinking water, despite the pleas of dentists and doctors. The taxpayers will save a few dollars on chemicals, but lose a lot to dental health bills. Today’s St Pete Times explains that this is a Tea Party agenda item. Apparently, they see it as their local step in overturning ObamaCare.”
Karl Rove Exposed October 6, 2011March 25, 2017 R.I.P. I met Steve Jobs once. For a short while, we were neighbors. What a phenomenal contribution he made to the world and to my own life. Talk about a great American! OCCUPY So the Tea Party folks demonstrate to keep people from having health care, to lay off teachers and police and firefighters, bust unions, keep poor people from voting, and – most important – protect tax breaks for millionaires and billionaires. Pretty neat trick how the billionaires more or less organized and financed their movement and, by harnessing their justifiable fears and concerns, gulled them into doing it. (See Karl Rove, below, for an example.) Now come the “Occupiers,” or whatever they will be called, who share many of the same fears and concerns – and a few of the same bogeymen – but seem by and large to be taking the other side of these issues. Maybe we should put construction workers back to work rebuilding our schools and bridges. Maybe we should pass the American Jobs Act “right away” to help the middle class. Maybe it should be paid for by Warren Buffett and other wealthy folks who are paying taxes at a lower rate than their secretaries. Maybe Paul Krugman knows more about economics – and has the average guy’s interest more sincerely at heart – than Sarah Palin. Well, it’s about time. Crowds make me nervous. Simple answers to complex problems make me nervous. But enough is enough. KARL ROVE EXPOSED If you don’t have the full 13 minutes to watch this, please try to watch at least up to the part where Rachel shows you the actual context out of which Karl Rove pulled the clip designed to deceive you. It is stunning in its dishonesty. And there will be hundreds of millions of dollars more such ads coming our way over the next 13 months, compliments of the Rove / Koch / Clarence Thomas / Sarah Palin / Rush Limbaugh extended family. And if you think it’s odd to include Clarence Thomas (and his wife) in that family . . . THE KOCH CLARENCE THOMAS CONNECTION Here. FCSC AGAIN Here’s a report that may prove wildly too optimistic, but that makes more or less the same case Guru did yesterday. SMBC AGAIN Yesterday’s item was updated mid-day to be clearer and to include a caveat. If this kind of stuff interests you, go back and read the improved version.
Gross and Buffett October 5, 2011March 25, 2017 BILL GROSS The smartest bond investor in the world, Bill Gross, seems to be on more or less the same page as the smartest equities investor in the world, Warren Buffett. Both are consummate capitalists, deeply appreciative of free markets, invisible hands and the rest, yet both must sound to the Koch Brothers and Rush Limbaugh like communists. They dare to suggest that the game has become too stacked in favor of the wealthy. Here’s Gross: . . . Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road . . . The United States in particular requires an enhanced safety net of benefits for the unemployed unless and until it can produce enough jobs to return to our prior economic model which suggested opportunity for all who were willing to grab for the brass ring – a ring that is now tarnished if not unavailable for the grasping. ☞ Why do so many Republicans look to Sarah Palin and Joe the Plumber for economic wisdom? Given the choice between entrusting their life savings to a fund run by Buffett and Gross or one run by Palin and the Plumber, would they really choose the latter? So why do they choose the latter when it comes to forming their economic world view? THE KOCHS Under the frame of “know thy adversary,” here’s a little background on the Koch brothers, who are reshaping your country in their favor. FUNDRAISING EXPENSES Chuck McLean: “You say, ‘Look at the nonprofits that spend 35% of your contribution on the cost of the fundraiser itself…’ One needs to be careful here. Special events are often a loss leader that charities use to acquire a donor whose next contribution will be obtained very efficiently. It is usually a mistake to judge the efficacy of a charity’s overall fundraising program based on one instance of it rather than taken as a whole.” ☞ That’s true. But a lot of nonprofit fundraising is expensive – direct mail, for starters. And when nonprofits categorize their expenses, an effort is often made (within reasonable legal limits) to characterize as much expense as possible as “education” rather than fundraising – communicating with donors to inform them on the issues and so on – which some might argue understates the true cost of fundraising. But let’s say a nonprofit’s cost of generating revenues is 10% or 20%. The government’s cost of “fundraising” – namely, running the IRS to collect the dough – is more like half a percent of the revenue collected. So however badly you may think they are spent, net of fundraising costs, 99.5% of your tax dollars are at least available to be spent, compared with just 90% or 80% of your non-profit sector contribution dollars. My point yesterday was that it’s a myth government is always less efficient than private enterprise or nonprofits. There are legitimate roles for all three; many good results from all three; and a need, in all three, to be continually rooting out as much waste, inefficiency, fraud, and incompetence as possible. FCSC They had a conference call yesterday to discuss the launch of Laviv, their skin product, and Guru reports: “At this point they have trained 40 doctors in LA, NY, San Diego. They will have a big presence at the American Society of Dermatological Surgeons, Nov 3-6, and there will be several publications by the end of the year. They have been featured in Vogue, Marie Claire, and Allure. The received the Allure ‘product of the year’ award. They expect the final price to be between $2000 and $3000 per course of therapy, but they are currently offering a discount to encourage use. They are look to have ‘lifetime’ customers, who will bank their own skin cells and use them multiple times for various conditions. They expect to start their second acne trial in the reasonable near future and would be addressing a potential $5 billion market. They are also launching this product in China in 2012. The product potential is large, multiple indications, multiple markets. However, they are setting expectations low and not giving specific guidance. The key is to make sure that the initial doctors and patients are satisfied with the process (as we would expect from the Phase III trials), rather than maximizing the number of patients who use the product in the first year. The long term potential could be enormous.” ☞ Or not – I think if I’ve proved anything to you over the years it’s that you should only make speculations like this with money you can truly afford to lose, because you may. But those of us who bought at $1, here (and watched it touch $1.60 briefly), or at .71 cents, here, may still want to hold on as it bounces around the half dollar mark. I plan to, tough only with (all together now) money I can truly afford to lose. SMBC Aristides’ Chris Brown: “If one likes GLDD, which averages about 7% return on equity, at 12.5x earnings, as noted yesterday, then he should love SMBC, which averages at least 12% return on equity, and trades at just 8 times earnings. That’s a lot better value. Small community banks with high credit quality are not going away. They may get a lot stronger given how many large banks have robosigned, filled up their balance sheets with bad assets, and are now angering customers with more stupid fees. Having said all that, I should mention that the company has only 6.5% tangible common equity to assets (largely as a result of a terrific FDIC-assisted deal they did), and they probably want to get that up to close to 8% over time, so they have made an SEC filing to raise capital at some point. I doubt management will allow the company to sell stock below $20, but it’s always a possibility. Management is very invested in the company, and is smart. So if they do raise capital at low prices, it will be out of conservatism on their part. If they do have a secondary offering, I expect it to be very popular, and for the stock to do well afterwards. If they don’t do a secondary, it will not take them long to earn their way up to 8% tangible common equity – just two years. After that, unless a bank with nearby geography presents a good opportunity to acquire it at a good price, the next logical step would be a dividend hike.” ☞ Full disclosure: I own SMBC both through Aristides and on my own.
Bathtubs October 4, 2011March 25, 2017 Rough day in the market. And while more rough days may lie ahead, what Warren Buffett counseled Friday, as related yesterday, was not to let the turmoil lead you to sell in panic if the underlying asset you own is sound. For example – and this is my example, not his – our dredging company, GLDD, announced $180 million in new orders yesterday. And the stock fell a little along with the rest of the market. GLDD sells at about 12.5 times earnings, which means that if it were a savings account, you’d be paying $12.50 for each dollar of interest – an 8% yield, which is pretty good these days. Only a quarter of the earnings are paid out in cash dividends, with the rest reinvested, but that’s not necessarily a bad thing. Over time, earnings might grow – both to keep pace with inflation (what savings account does that?) and perhaps even in real terms. The dividend might even rise over time. Is there risk in a stock like this? Certainly. For starters, if enough people want to sell it and no one wants to buy it, the price at which it changes hands could drop virtually to zero. But you’ll still own what you did before: a share in a solid dredging company. And as the stock price dropped, it’s little 8-cent dividend, currently just 2% of the share price, would come to represent an ever higher return on the share price. So why would it drop virtually to zero? There’s the risk our waterways will somehow stop needing to be dredged or that our beaches will somehow stop needing to be nourished. Or that the government entities that tend to fund such projects will go broke. And as with any company, there’s the risk the company will be badly managed (which could lead to losses and the end of that little dividend). So don’t put all your money into GLDD. My point is simply that the sun will come out tomorrow, silt will continue to be deposited in waterways upon which commerce depends, and people owning beachfront homes and businesses will likely spend whatever it takes to maintain their beaches. So, with any luck, ‘this too shall pass.’ Same with our speculative drug stocks. (Or our ridiculous Borealis, which seems to be getting ever closer to actually, possibly, conceivably, making a motor airlines will lease.) It’s possible the government will start negotiating drug prices, and be so heavy-handed that even if our little speculations DO prove to have effective new drugs, they will earn disappointing profits. Then again, people are likely to continue getting sick and continue to want to pay whatever they have to to get well – and nothing about what’s going on in Europe and in the financial markets is likely to affect that. So if you haven’t had ‘money you could truly afford to lose,’ you should feel great – you didn’t lose a dime yesterday! And if you do own some speculations – or even something pretty solid like GLDD – the fact that your shares have gotten hammered is not in and of itself a reason to sell them. SOLYNDRA AGAIN As reported here by the New York Times, emails show serious misgivings within the Administration about the Solyndra loan guarantee – though no undue influence by campaign contributors. Here’s the thing: businesses make poor judgments, venture capitalists make poor judgments, nonprofits make poor judgments, investors make poor judgments, and yes, government bureaucrats make poor judgments. No all the time, but all too frequently. Look at New Coke. Look at the Edsel. Look at IBM giving Microsoft ownership of its PC operating system. Look at Boeing three years late with the 787. Look at Enron. Look at Lehman Brothers or much of the rest of Wall Street. Look at the myriad of high-priced acquisitions that bomb. Look at our entire auto industry that, for lack of foresight, ceded the lead in energy efficient technologies to the Japanese. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But no one would suggest we try to shrink private enterprise to the point it can be drowned in a bathtub. Look at the nonprofits that spend 35% of your contribution on the cost of the fundraiser itself (the dinner, the invitations, the flowers, the sound system, the party planner) and then a chunk of the remaining 65% on administrative salaries and overhead and then whatever is left on well-intentioned projects that may produce negligible results. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But no one would suggest we try to shrink the nonprofit world to the point it can be drowned in a bathtub. (And few would suggest we ban fundraising dinners or revoke the government subsidies that nonprofits enjoy via their exemption from sales tax and the deductibility of contributions.) And, yes, look at the phenomenal waste incurred invading Iraq unnecessarily (for starters) and toppling Sadam Hussein in perhaps the most expensive way imaginable (Qaddafi was removed in Libya for perhaps a trillion dollars less, and Al-Awlaki for less still). Look at the billions upon billions of unaccounted for cash. And at enormous expenditures on weapons systems the military doesn’t even want. And $16 muffins (even if they turn out to be $14.73-a-head per diems for all refreshments at a conference). And bridges to nowhere. And people scamming Medicare and Medicaid – as, in the private sector, they scam private insurers with staged accidents, phony whiplash claims, and arson. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But here it’s different: millions do believe that government itself is the problem. They seize on anything it screws up to make the case. They say they would like to see it shrunk to the point it can be drowned in a bathtub. Why have millions come to this view? In part at least it’s because billionaires who want to pay less tax and be free of safety and environmental regulations . . . free of paying a minimum wage . . . free of having to disclose the ingredients in their products or restrained in their deceptive lending practices . . . have funded a decades-long campaign to persuade them of it. It is entirely their right to fund these campaigns to try to lower their taxes and operate free from regulation. And only an idiot fails to appreciate that taxes and regulation, if too extreme, can be counterproductive. But were not the Clinton years (to take a recent real-world example) superior to the Bush years that preceded or followed? Even, emphatically, for the rich, but also – importantly – for everyone else? Despite the Clinton tax hikes, minimum wage hikes, and regulation? Is it really a mistake to try to compete with the Chinese, who are dumping $30 billion of taxpayer money, into subsidizing alternative energy technology? Was it a mistake to fund DARPA, which gave us the Internet? To fund NASA, which produced so many spin-off technologies? To fund the GI Bill or, now, Pell grants? Why are our opponents so sure it was a mistake to hire a Nobel Prize winning physicist to lead the energy department and to help encourage private ventures – even knowing that many of them would fail? Why would they prefer a pick like George W. Bush’s first Energy Secretary who, as a Senator, had voted to abolish the Energy Department? And that gets to what I think is the bottom line. The ‘solution’ to inefficiencies and disappointments in government, in business, and in the nonprofit world is NOT to try to shrink any one of them to the point that it can be drowned in a bathtub. The solution is continually to try to attract the best people and encourage them to make their best efforts to do a great job. Not just by paying a fortune to the guy who presided over the launch of New Coke, or by paying the guy who brought Merrill Lynch to its knees a $160 million severance package – though certainly our captains of industry work hard and should be paid well (although I would argue, not that well). But also by valuing the work of everyone else, including well-intentioned public servants, even though they will not do everything perfectly, either. In the case of Solyndra, our public servants made a bad bet, just as venture capitalists and mutual fund managers do every day. Just as you and I will have done if Borealis never does get those damn planes running around the tarmac like golf carts. If the government was defrauded by Solyndra, the fraud should be prosecuted. But note that this would be fraud on the part of the private sector. I would argue that would be no reason to shrink the private sector or the government to the size either can be drowned in a bathtub. And no reason to give billionaires the lowest tax rates in modern history when we are running a huge deficit. Or to delay repairing our infrastructure and investing in our future. Or to eliminate the agency tasked with protecting our environment. And yet that is what the billionaires hope they can use the Solyndra failure to help engineer: a Republican takeover of the White House and Congress, which in turn would likely give them a 25-year lock on the Supreme Court, which would lead to more decisions like Bush v. Gore and Citizens United, which would make it easier to tilt the election process further in the favor of the billionaires by (for example) upholding election laws designed to make it harder for poor people and young people to vote . . . and tighter and tighter gets the vise. This bathtub, by the way, is the colorful image coined by Grover Norquist (whom I met once when he endorsed the tort reform plan I put on the California ballot). ‘I don’t want to abolish government,’ he famously quipped; ‘I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.’ It’s an extreme, short-sighted vision, and one all but a few Republicans in the House and Senate have signed onto.