That $1,000 Bonus? It Was Really $190 March 14, 2018March 14, 2018 If you own FANH or PRKR, meet me at the end. But first: Writes Paul Waldman in the Washington Post: Shocker: Democrats’ predictions about the GOP tax cut are coming true . . . [M]ost of the news media treated [the argument over who would benefit from the tax cut] in the standard he said/she said manner: Republicans say this, Democrats say that, and the truth lies in some secret location we may never actually reach. Well, it has been only two months since President Trump signed the bill into law, and we’re already learning what anyone with any sense knew at the time: Everything Democrats predicted is turning out to be right. Let’s look at this report in the New York Times, which describes how stock buybacks are reaching record levels . . . While the Times does note that some businesses are raising salaries, the piece concludes that “much” of the savings from the tax cuts is going to these buybacks, with this big-picture effect: Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price. But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans. This is exactly what Democrats warned would happen. How could Democrats have been so clairvoyant? Do they own a time machine? Well, no. They applied logic, looked at data and understood history. Republicans, on the other hand, were spinning out a ludicrous fantasy with no basis whatsoever. . . . But what about those bonuses that companies announced and that Trump kept touting? It’s true that some companies did give workers one-time bonuses. But it was essentially a PR move. Take Walmart, for instance. It made a splashy announcement that it would be giving bonuses of up to $1,000 to workers, which sounded great. But then it turned out that you’d only get that much if you’d been working there for 20 years, and the average worker would get around $190. Which is better than nothing, but it isn’t exactly going to transform your life. And as ThinkProgress noted, the total value of Walmart’s bonuses was $400 million, which seems like a lot until you learn that over 10 years the value of the tax cut to the corporation will be $18 billion. In other words, about 2 percent of its tax cut is going to workers, at least in the short run. How many times do we have to play this game? When a new policy debate emerges, Democrats try to make an argument that has some connection to reality, while Republicans make absurd claims in the knowledge that even if they get debunked in the occasional “news analysis” piece, on the whole they’ll be treated with complete seriousness, no matter how ridiculous they are. And there’s more. Read it. Some of us bought FANH at $5.40 and — after a years’ long wait — enjoyed its run to a recent high of $33.81. Yesterday it abruptly dropped five bucks on the release of their quarterly financials, so I checked in with someone smarter than me. (This did not require as much searching as I would have liked.) He said the reported earnings looked great and that the market may have mis-reacted to the sharply lower revenues. That decline, he said, resulted from an intentional backing off from an unprofitable part of their business. So — if he’s right — no cause to panic. Indeed, after the close I even bought back at $27.20 a few of the shares I had sold around $32. But not many, because I hate buying something for $27 I could earlier have bought for $5.40. Which is why I managed to avoid buying Berkshire Hathaway some years ago at $955 (it closed at $314,000 yesterday). You’ll not find me buying a stock that’s already quintupled, even if it means missing the three-hundred-fold appreciation that might follow. There’s zero reason to think FANH is the next Berkshire Hathaway. But I wouldn’t rush to sell just because the price dropped. Meanwhile, I noted yesterday that PRKR bounced back a little on the strength (I assume) of a favorable venue ruling. So I checked in on that one, too. First off, the company has a burn rate (I’m told) of about $750,000 a month. A lot for you or me, but not so terribly much, in context, for PRKR. The venue ruling was for a lawsuit in Orlando — which could eventually bear fruit, but is not the one we’re focused on. We’re focused on a lawsuit in Germany that my friend says seeks $800 million and that could be resolved next month. (These suits have been going on for eight years.) Two others in Germany were found in our favor but are tied up in a review process. And the one in Orlando might eventually bear fruit as well. The good news is that we’re suing Apple, Qualcomm, Intel, Samsung, and LG (I think), each of whom could pony up $100 million without skipping lunch. The bad news is: they’re rich enough to keep fighting until the end of time. PRKR claims to have invented the CDMA technology that’s in most cell phones (not to be confused with MDMA, the drug that’s on many dance floors), and they’d like a small licensing fee on each one, please. So our bet is that one of these lawsuits will settle for a fraction of what the company demands . . . in which case the company (trading today at a $17 million market capitalization) might find itself sitting on a couple of hundred million dollars in cash. Or more. Or less. Or nothing. Completely incapable of prudence or restraint in situations like this, I bought more.
Overdrive March 13, 2018March 18, 2018 Tanya Slye: “I thought you might be interested to know about a great app called Overdrive. It’s free, and links to your library card making it incredibly easy to borrow ebooks and audiobooks from your smart phone without having to actually go to your library! I switched off of Audible and have found it to be easy to use best of all completely free!” Likewise: Hoopla. Check out the Epic app, too, “the leading digital library for kids,” if you have any — it’s rated 4.8 out of five stars. (Other favorites? Search the app store for “free audio books” and you get several highly-rated choices.) Have you ever seen ABC’s The Middle? I hadn’t but Season 9, Episode 14 is about personal finance (sort of) and one of you spotted young Axl reading the latest edition of my book at the 20-minute mark. See it? That’s my book!!! Blink and you’ll miss it (and he does toss it away as useless) but I am now a fan of the show for life. Very funny. PRKR, our moon-shot speculation from earlier this year, drifted from $1.10 down to 80 cents but bounced halfway back yesterday on a favorable “venue” ruling in its patent suit against Qualcomm and Apple. Be prepared to lose it all; but imagine the impact of, say, a $200 million judgment on a company currently valued at $18 million.
Credit Where It’s Due March 12, 2018March 10, 2018 But first . . . P.: “I tried to buy more BOREF at $4.90 Friday but Fidelity is refusing to accept opening trades since they’ve stopped reporting financials. What’s going on?” The company says they prefer to concentrate all available funds on the task at hand — bringing WheelTug to market — rather than pay to report the way they used to. They “meet all their corporate requirements” and post their financials on-line. The stock remains a terrific speculation in my view (perhaps colored by my owning a gazillion shares). At $4.90, it’s valued at $25 million (or you could buy this apartment), about where it was six years ago . . . before its subsidiary, WheelTug, had more than 20 airlines signed up with 1,042 planes in queue; before the FAA had signed off on WheelTug’s certification plan; before it had 140 patents pending or issued. In 2014, with the stock at $16.50, I estimated its fair value at between $2.79 and $338. The analysis still holds — and depends entirely on the assumptions you plug into it. (I had placed the odds of failure between 90% and 60%. Now, I like to think, they’re lower.) Only buy shares with money you can truly afford to lose; and by placing a “limit order,” lest you pay more than you meant to. Ameritrade and others do still accept orders. And now . . . It would be great if Trump can denuke North Korea. When Obama did this with Iran, he had an MIT nuclear physicist running his Energy Department, to assure that the technical aspects of the deal were airtight. Trump has Rick Perry. Trump believes the Iran deal was horrible. In fact: It’s working. And took thousands of hours to get right. And runs 159 pages compared with the 4-page deal with North Korea in 1994 that failed. Trump further believes he will be able to pull off a North Korea deal that holds up over the years, as the Iran deal has but the previous North Korea deal did not. If he can, it would be wonderful and he would deserve credit. My worry is that he will take credit even if he makes a very bad deal — as he took credit for “the largest Electoral College victory since Ronald Reagan” (which it was not) . . . the largest Inaugural crowd in history (which it was not) . . . the largest tax cut in history (which it was not — but which was, according to Reagan budget director David Stockman and most other economists, a massively irresponsible tax cut at exactly the wrong time in the business cycle, endangering our children with yet more debt and starving us of the funds needed to revitalize our uncompetitive crumbling infrastructure). This seems to be his M.O. Things were horrible under Obama. Things are amazing under him. Under Obama, unemployment was “28%, 29%, as high as 35%.” But now? “Our program is working far beyond our wildest expectations,” he told last week’s Latino Coalition Legislative Summit. Not just working. Or working beyond expectations. Or working far beyond expectations. No — working far beyond our wildest expectations. He went on to say, as evidence of this, “We’ve created nearly 3 million jobs since the election. Think of that. Three million jobs. If I would have said that prior to the election, nobody would have believed it. (Applause.) Right? They would not have believed it.” In fact, he inherited an economy that had produced 75 consecutive months of private sector job growth and — with the help of a massively irresponsible tax cut to juice the economy further — kept it going at about the same pace. (Slightly fewer jobs were created in Trump’s first year than in Obama’s last.) Obama rescued the world from the brink of the global depression his Republican predecessor had handed him. He brought unemployment down from a peak of 10% to under 5% (chart here). That was horrible. With Trump, the economy, has finally begun to recover; everybody has “great health care at a tiny fraction of the cost”; the middle class is rolling in money from a tax bill Trump selflessly accepted, though it would “cost him a fortune.” And Mexico is paying for a beautiful wall that’s finally staunched the flood of rapists and murderers. In short, we are winning so much — except maybe against Putin — we’ve begun to grow tired of winning. It is a beautiful thing. That I can tell you. Believe me.
How To Win The Lottery March 9, 2018March 8, 2018 Someone considerably smarter than me thinks RSPP ($40 a share) could get bought out at $60 in the next couple of years — but hopes not, because he thinks it’s worth more. No guarantees, of course, but I bought what for me is a good chunk. And now . . . This won’t help you win the lottery, but they sure did. Consistently. It’s a great weekend read. (Thanks, Brian!) Have a great weekend.
Unintended Consequences March 8, 2018March 7, 2018 You may know centrist political scientist Norman Ornstein from his books or frequent TV appearances. He and Al Franken and their families used to attend Renaissance Weekend, where they developed a routine: “I’m Norm,” Norm sang. “I’m Al!” Al sang. “Together” — they both sang — “we’re NormAl!” It went downhill from there. So I got to know them — I am a huge fan — and their terrific kids. With that cheery setup, I offer this gut-punch from yesterday’s Times. Ever since the school shooting in Parkland, Fla., law enforcement and other officials have been calling for changes in the Baker Act, a Florida law that allows involuntary commitment for 72 hours of people who are an imminent danger to themselves or others. If the Baker Act had been easier to deploy, they think, Nikolas Cruz, the accused shooter, would have been taken and treated before his horrible act. . . . I know something about the Baker Act. About halfway through my son Matthew’s decade-long struggle with serious mental illness, my wife and I invoked the Baker Act against him. This kind, brilliant, thoughtful young man, who experienced the sudden onset of mental illness at age 24, was living in a small condominium we owned near Sarasota, Fla. One day . . . It’s a short, real-life horror story that could have happened to anyone. I see zero downside in siding with Ronald Reagan and Antonin Scalia when it comes to keeping military-grade weapons out of civilian hands.* Or in banning bump stocks or high-capacity magazines. Or in imposing effective universal background checks. Or in allowing states and municipalities the freedom to require proficiency tests and licensing, should they choose to, as they do with automobiles. Or in appropriating more money, not less, to treat mental illness. Where is the risk is any of that? Where is the downside? But as Norm makes heart-wrenchingly clear, other aspects of our response need to be carefully thought through.
Why Is This Man Still President? March 6, 2018 You will recall Trump’s characterization of Democrats who did not applaud sections of his State of the Union address as treasonous. “Can we call that treason? Why not,” he said. Take a minute to watch Representative Jeffries’ response, if you’ve not already seen it. We know the Republican platform was altered with respect to Ukraine — the only thing the Trump team weighed in on (and the only piece of the platform Russia cared about). We watched Trump call out to Russia, “if you’re listening,” for its help defeating Hillary. And from Jane Mayer’s must-read piece in the New Yorker, it appears Putin nixed Romney as our Secretary of State (but approved Tillerson, who has yet to use the money Congress appropriated to fight Russia’s ongoing attack). Take another minute as Tom Steyer asks: why is he still president? And six more minutes to watch Rachel’s take. In all, eight minutes well spent. We are under attack. We are losing. Our commander-in-chief refuses to defend the Constitution to which he took an oath. Most Republicans in Congress are at least publicly okay with that. It’s time for them to step up.
We Been Scammed! March 5, 2018March 3, 2018 Every time your brother-in-law touts the Republican tax cut, please forward this column. It’s what I’ve been trying to say for months now, but Krugman says it better. (And has a Nobel Prize.) It begins: So you go out for dinner with a wealthy acquaintance. “I’ll take care of everything,” he says, and orders you a hamburger. Then he orders himself an expensive steak and a bottle of wine, which he doesn’t share. And when the waiter comes with the check, he points at you and says, “Charge it to his credit card.” Now you understand the essence of the Trump tax cut, signed into law a little over two months ago. But you really need to read it all. And so does your charming, handsome, well-intentioned . . . but, I would gently argue, misled . . . brother-in-law.
A Letter From Warren Buffett March 1, 2018 Question: If you ingest probiotics and antibiotics at the same time, will you explode? Discuss. And now . . . Thirty-five years ago, Fortune paid me $1,500 to review Warren Buffett’s annual shareholder letters. At the time, they had developed a cult following. Today, they make national news. It was an easy assignment. His writing is so clear, wry and insightful, all I had to do was string together some excerpts. I concluded with words to the effect of, “At $300, Berkshire Hathaway’s stocks seems to be a little ahead of itself. But I might well buy some on the next dip.” I wrote much the same thing when it got to $3,000, then $30,000. (Today: $300,000.) Had I taken my $1,500 fee and bought 5 shares of the $300 stock, I would today be 35 years older (that part worked out), and $1.5 million richer (oh, well). At least, that’s the way I remember it and have been telling this story for decades. Having just now reread the piece, it seems Berkshire stock wasn’t $300, it was $955 — so I missed only a 300-fold gain. And, no, I did not conclude the piece with a comment about buying some on the next pull-back. It’s interesting, if not a little scary, to see how one’s memory can play tricks. But I digress. The point is: Warren’s latest letter is out, yours to read here. If you want more, just change the year in this URL — berkshirehathaway.com/letters/2017ltr.pdf — to any other year back to 2003. (For 1965-2002, you’ll have to search further.) The big headline this year? The Republicans’ “middle class” tax cut enriched Berkshire Hathaway shareholders by $29 billion. Even when you’re rich, every little bit helps. The extra $1.5 trillion over ten years — borrowed from your children and grandchildren at exactly the wrong time in the business cycle, allegedly to help you — may indeed add a few bucks to your take-home pay . . . I hope it does. But those few bucks were included to keep you from noticing or caring too much that the bulk of the money was borrowed to enrich those at the very tippy top, like the Trumps and the Kushners. And the Mnuchins and Wilbur Rosses and Peter Thiels and DeVoses (and, of course, the Waltons, who alone control as much wealth as the bottom 139 million Americans combined). Have a great weekend.