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?


Under the frame of “know thy adversary,” here’s a little background on the Koch brothers, who are reshaping your country in their favor.


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.


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.


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.


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