Friday, November 28, 2008

Reflections on Value

The situation with General Motors can provide an illuminating case study of what the value of a corporation actually is for stockholders. That corporation has existed in one form or another for 100 years. Suppose one held his shares the entire time. What did stockholder receive for the equity investment in common stock ? That only tangible value received is the dividends paid.

What did stock buybacks do for him ? Nothing. Stock buybacks subsidize the sellers of the company's stock at the expense of the long term holders.

This downturn shows that all stock buyback plans are a bit of a scam. Now, just when stocks prices are very low, the companies are cutting back on stock buybacks. And many banks are issuing new shares at very low prices after buying back stock for years at much higher prices.

Dividends benefit long term investors. Stock buybacks benefit traders, hedge funds and speculators at the expense of investors.

What should a company do with its excess cash flows in good times ? That is quite easy. Pay down all short term debt due within 10 years or less. Raise its dividend to a level payable even in poor environment After all, with less debt, more cash flow can be used to pay dividends. Also, overfund the pension fund to give it a cushion for downturns.

In good times a company should have paid down all its short and intermediate term debt and funded all long term assets with a conservative mixture of long term bonds and solid equity. Then it can survive a severe downturn and have resources to make favorable investments then at low prices.

CFOs need a refresher course in corporate finance.

Word of the Day

"Rowel" - noun and verb [$10] - a Mencken word
Rowel means (noun) a spiked revolving disc at the end of a spur; 2. (historical) a circular piece of leather, etc. with a hole in the center inserted between a horse's flesh and skin to discharge an exudate; (verb) 1. to urge with a rowel; 2. (historical) to insert a rowel in.
Quote From "The Impossible H. L. Mencken", page 591 from his Scopes Trial coverage referring to the Scopes jury: "... a trial before a jury of men who have been roweled and hammered by those opponents for years ..."
Sentence: The very highly paid "managers" of US corporations are about to be given a hammering by politicians roweled by an angry public seeking retribution, who in turn were roweled by those managers who cut the pay and benefits of the common man while paying themselves colossal sums for "good management" now seen as a lie and scam.

Wednesday, November 26, 2008


Here I reprint the annual Thanksgiving editorials from The Wall Street Journal, that every year seem to have meaning even though the same editorials have been printed annually since 1961.



The Desolate Wilderness

Here beginneth the chronicle of those memorable circumstances of the year 1620, as recorded by Nathaniel Morton, keeper of the records of Plymouth Colony, based on the account of William Bradford, sometime governor thereof:

So they left that goodly and pleasant city of Leyden, which had been their resting-place for above eleven years, but they knew that they were pilgrims and strangers here below, and looked not much on these things, but lifted up their eyes to Heaven, their dearest country, where God hath prepared for them a city (Heb. XI, 16), and therein quieted their spirits.

When they came to Delfs-Haven they found the ship and all things ready, and such of their friends as could not come with them followed after them, and sundry came from Amsterdam to see them shipt, and to take their leaves of them. One night was spent with little sleep with the most, but with friendly entertainment and Christian discourse, and other real expressions of true Christian love.

The next day they went on board, and their friends with them, where truly doleful was the sight of that sad and mournful parting, to hear what sighs and sobs and prayers did sound amongst them; what tears did gush from every eye, and pithy speeches pierced each other's heart, that sundry of the Dutch strangers that stood on the Key as spectators could not refrain from tears. But the tide (which stays for no man) calling them away, that were thus loath to depart, their Reverend Pastor, falling down on his knees, and they all with him, with watery cheeks commended them with the most fervent prayers unto the Lord and His blessing; and then with mutual embraces and many tears they took their leaves one of another, which proved to be the last leave to many of them.

Being now passed the vast ocean, and a sea of troubles before them in expectations, they had now no friends to welcome them, no inns to entertain or refresh them, no houses, or much less towns, to repair unto to seek for succour; and for the season it was winter, and they that know the winters of the country know them to be sharp and violent, subject to cruel and fierce storms, dangerous to travel to known places, much more to search unknown coasts.

Besides, what could they see but a hideous and desolate wilderness, full of wilde beasts and wilde men? and what multitudes of them there were, they then knew not: for which way soever they turned their eyes (save upward to Heaven) they could have but little solace or content in respect of any outward object; for summer being ended, all things stand in appearance with a weatherbeaten face, and the whole country, full of woods and thickets, represented a wild and savage hew.

If they looked behind them, there was a mighty ocean which they had passed, and was now as a main bar or gulph to separate them from all the civil parts of the world.

This editorial has appeared annually since 1961.

And the Fair Land

Any one whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful.

This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.

And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.

So the visitor returns thankful for much of what he has seen, and, in spite of everything, an optimist about what his country might be. Yet the visitor, if he is to make an honest report, must also note the air of unease that hangs everywhere.

For the traveler, as travelers have been always, is as much questioned as questioning. And for all the abundance he sees, he finds the questions put to him ask where men may repair for succor from the troubles that beset them.

His countrymen cannot forget the savage face of war. Too often they have been asked to fight in strange and distant places, for no clear purpose they could see and for no accomplishment they can measure. Their spirits are not quieted by the thought that the good and pleasant bounty that surrounds them can be destroyed in an instant by a single bomb. Yet they find no escape, for their survival and comfort now depend on unpredictable strangers in far-off corners of the globe.

How can they turn from melancholy when at home they see young arrayed against old, black against white, neighbor against neighbor, so that they stand in peril of social discord. Or not despair when they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life. Or when, in the face of these challenges, they turn for leadership to men in high places -- only to find those men as frail as any others.

So sometimes the traveler is asked whence will come their succor. What is to preserve their abundance, or even their civility? How can they pass on to their children a nation as strong and free as the one they inherited from their forefathers? How is their country to endure these cruel storms that beset it from without and from within?

Of course the stranger cannot quiet their spirits. For it is true that everywhere men turn their eyes today much of the world has a truly wild and savage hue. No man, if he be truthful, can say that the specter of war is banished. Nor can he say that when men or communities are put upon their own resources they are sure of solace; nor be sure that men of diverse kinds and diverse views can live peaceably together in a time of troubles.

But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere -- in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness.

We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.

And we might remind ourselves also, that if those men setting out from Delftshaven had been daunted by the troubles they saw around them, then we could not this autumn be thankful for a fair land.

This editorial has appeared annually since 1961.

Word of The Day

"Sacerdotal" - noun [$10] and "Sacerdotion" - noun [$10]
Sacerdotal means 1. of the priests or the priestly office; priestly; 2. (of as doctrine) ascribing sacrificial functions and supernatural powers to ordained priests, claiming excessive authority for the priesthood. Sacerdotion means the institution of the church and priests; compare to the imperium - the Emperor - in the Byzantine state.
Sentence: Hearing this morning another technical trader talking about yet another "retest" of the lows, I thought that as a group they must be a kind of stock market sacerdotal institution - a sacerdotion - as for them the real economy does not matter at all. Of course, both perception and reality matter; but over a long term, only reality matters. That can be a long time, though, viz. over a year.

Tuesday, November 25, 2008

Ruling Class Looting ...

The list of techniques the ruling classes have used for 15 years to raid and loot companies puts any blackout rioter to shame.

Let me count the ways:

1. Golden parachutes. Today's WSJ story about Wachovia executives collecting after running the bank into the ground is a simple proof.
2. Stock options. Every single stock option issued for "performance" and "incentive" is proved to be a lie, as they merely reward poor behavior such as stock buybacks.
3. Insane pay for CEOs, etc. ... approved by their buddies on the compensation committee.
4. Private equity ... is merely as way to loot in private, sucking good assets out of companies and paying themselves big dividends and high fees. See the WSJ story about Mervyn's today.
5. Financial firm pay .. ignores the use of the firms capital and its risk. Traders get huge pay for risking the firms money to make "profits", which are not properly charged a fair cost of capital. Of course, it's a "heads they win, tails the stockholders lose game"
6. Hedge funds. Ditto. That scam is now laid bare.
7. CFOs ... many are obviously incompetent and overpaid. They financed their companies using commercial paper and now must pay huge rates to refund it into long term bonds. Financing long term assets with long term debt is Finance 101, as I learned it 25 years ago. I guess they flunked or cheated in that course.
8. Class action lawsuits ... enrich lawyers turned pirates and do nothing for consumers or stockholders.
9. Stock buybacks ... nearly single share of stock bought back for the past 10-15 years is proven to have been a very poor use of corporate funds. The management prefers stock buybacks as those prop up the value of their stock options.
10. Thinking ... Does anyone have a tenth ?


That glorious, efficient, rational and liquid market show itself well yesterday [ that's sarcasm ! ], putting in another wild move.

The bears might re-attack soon. Some recent Thanksgiving holidays have given them easy targets in low volume on the Friday after Thanksgiving.


Today I can do a bit of re-allocation in Krypto Fund, but stil must wait until late next week for most of it. I am tied up by the interplay of tax rules for wash sales and mutual fund exchange rules. I wonder if I should open a brokerage account in my main retirement accounts to enable me to use ETFs to sidestep those rules ? Thinking ...

I am thinking of investing some Alpha Fund money into a package of small, beaten up stocks the might go up 5 or 10x in a new bull market. That will require some selection. Just thinking for now.

Word of the Day

"Copyhold" - noun [$100]
Copyhold means 1. (formerly) a type of ownership of land in England, evidenced by a copy of the manor roll establishing title; 2. an estate held under such ownership.
Sentence: Stockholders need to stop being mere copyholders and start act as real owners exercising their powers to approve stocks options plans, director and other corporate actions. And they should lobby for new laws for secret voting in proxies, rights to elect the compensation committee directly, and to nominate directors themselves.

Monday, November 24, 2008

A Monday in a Holiday Week

Should be calm, right ?

Hahahaha .... surely you fantasize !

European markets are up about 5% today as they catch up to the late Friday PM rally in New York.

This morning's WSJ had a story about the crisis at Morgan Stanly in September. The hedge funds, credit default swaps and rumors combined to cause the panic. Hedge funds and even the Street itself would buy credit default swaps and short the stock. They say they were "hedging".. Sure.

That credit default swap "market" really needs to be shut down. There really is no natural insurer of credit in size, except one who actually buys the debt for cash.

All exotic derivatives - derivatives on indices of thinly traded exotic securities - need to be eliminated. That includes derivatives on volatility. No derivative that is not traded in a central exchange should be permitted.

Hedge funds need a massive dose of world-wide regulation to stop them from being the financial Vikings - raid, rape, pillage in the world markets.

Short ETFs should be banned. They are just a loophole from stock borrowing rules via market maker exceptions. Stock borrowing rules should apply to market makers including ETFs.

Overall, the markets need to return to reality, and away from casino gambling in "notional" products.


I ran across an interesting usage in my French lesson yesterday:

"Le sauve-qui-peut" comes from the verb, 'sauver', meaning to rescue, save. Le sauver-qui-peut means the panic, stampede, mad rush.

Hmmm ... so le sauver-qui-peut de riches means panic/stampede of the rich.

French is fun.


I await the expiration of mutual fund transfer limits so I can re-balance Krypto Fund.

For Alpha Fund, I am thinking about putting together a package of single digit / battered stocks to buy that might give me a 10x return over a year or two. Just thinking for now. No rush.

Word of the Day

"Bodkin" - noun [$10] used in Hamlet's Soliloquy by Shakespeare
Bodkin means 1. a blunt, thick needle with a large used esp. for drawing tape etc. through a hem; 2. a long pin for fastening hair; 3. a small pointed instrument for piercing cloth, removing a piece of type for correction, etc.
Sentence: Aftermarket analysis of events in this crisis is showing that mobs of hedge funds gang up on targets to each stick a bodkin into its body, hoping to hide in the crowd.

Sunday, November 23, 2008

Great News ...

Ohio State 42, Michigan 7. :))

COLUMBUS, Ohio (AP) — Ohio State has never dominated Michigan the way it does right now.

In the rivalry’s most lopsided result in 40 years, the Buckeyes won their fifth straight over that hated school up north for the first time, ending a dreadful first season for Wolverines coach Rich Rodriguez.“I’ve been here for one of them,” Rodriguez said. “That’s the only one I can really comment on. They have one in a row on us from what I see.”Ohio State (10-2, 7-1) used five big plays to win by the biggest margin in the rivalry since Woody Hayes was prowling and growling on the sidelines in a 50-14 rout of Michigan in 1968.

Friday, November 21, 2008

The Panic Continues ... II ( or is that LX ? )

More of the same, as the liquidation train wreck goes on.

Congress has shown itself incapable of doing anything rational in a timely manner. so this slog will likely continue now into December or when the new Congress is installed in the first week of January or maybe even until Barry takes office.

This drop seems like a replay of the late September fall when Congress first could not act quickly on the TARP. This time it's their inability to provide the auto industry a bit of relief. When one remembers that they can waste $25-50 billion on earmark every year, their inability to provide some relief to help prevent turmoil that could endanger huge numbers of good paying jobs is quite stunning.

US Treasury bonds are at record low yields in recent times, as I suspect all that money flowing to buy fixed rate life annuities is going to buy long dated Treasuries. Why should the insurance companies take risk on those ? They'll pay a low rate and invest in Treasuries for now.

At this point, perhaps Congress should just consider providing the auto industry with $100 billion of "debtor in possession" financing so their looming bankruptcy will be an orderly reorganization, not a liquidation. That is super-senior, so the unemployed taxpayer might not "lose money" ... his job, Congress seems willing to let go to the wind.

By the way, is a bit of "inflation" really so bad ?


The bloody morning drop worried me with more insane swings in fine stocks like RIG, so I sold the oils and some miners on the minor bounce. I had written that when the bears keep knocking - kicking - on that support level, they would likely get through. And they did.

Alpha Fund now just 50% long, holding only FCX and the small shippers DRYS (ultra-risky), EXM and GNK. I bought some more of all of those yesterday and might buy more. Those stocks, IFF they work out, have huge upside.

I am waiting for some deadlines to pass so I can do a re-allocation in Krypto Fund.

The markets are like a wild brawl - or shoot-out - of drunken gangsters. Watch out, don't get hit. Protect Yourself at All Times. Big profits await the survivors.

Word of the Day

"Ennui" - noun [$10] This is an old card from my file - I can see that my handwriting - perhaps from 35-40 years ago. But since this morning I learned the French words from which it derives , I thought to use it today.
Ennui means a feeling of weariness and dissatisfaction.
Sentence: The constant wildness of the markets have been ongoing so long that "investors" must now feel ennui and certainly resignation of a long wait for recovery.

Thursday, November 20, 2008

The Panic Continues ...

The Panic of the Rich continues.

I suspect the common man is panicking, too. Anecdotally, I was speaking to my old insurance agent in NYC, who caters to quite a gilt-edged clientele (much more than me). He told me that stunning numbers of them had, or were, going to all cash and buying fixed rate, life annuities in huge amounts.

Yesterday was no doubt more than tax loss selling, but it's clearly there, too.
From my 100 year wall chart of stock prices and economic indicators, the great bear market of 1973-1975 might be a good model for this bear market. Roughly, the broad averages were down about 45% from the prior year's high. The selling continued into the end of the year, then a powerful rally occurred in 1975.

A friend sent me an interesting histogram showing annual returns of the S&P from 1825 to 2007. The worst year of all was 1931, an outlier with a drop in the range of -50 to -40% Year to date, 2008 falls in this exclusive club.

To me, it seems like the bears and panic-mongers want to push for new lows. Knocking so hard on the support levels for so long usually breaks through. If there are enough of them, they can do it.


Doing nothing. I can't even re-balance Krypto Fund due to tax loss and fund exchange restrictions. Quite frustrating. I might put more money into my Alpha Fund before year end or in early 2009.

Word of the Day

"Monism" - noun [$10]
Monism means 1. any theory denying the duality of matter and mind; 2. (philosophical & theological) the doctrine that only one supreme exists; 3. a metaphysical system in which reality is viewed as unified whole.
Sentence: A propos the stock markets, one could characterise both pure fundamental and technical analysts and adherents as believers in a form of monism: denying the duality of perception and reality. Today, clearly perception rules, as it does in extremes of fear and greed. But at some time, a panic will burn out as the fuel is consumed. The lurch to reality will then begin.

Wednesday, November 19, 2008

What to Do ?

I was asked yesterday by a loquacious commentor what Barry - aka Obama - should do for a stimulus plan. As this writer is NOT a purist - pharisaic - libertarian, but favors maximum freedom for the common man with strong limits on the ruling classes, you should not be surprised that I favor a large stimulus bill, properly used.

Barry should propose a $1 trillion economic stimulus that would be spent over two years - $500 billion per year.

The money should go to the following productive investments:

1. Generalized infrastructure - roads, bridges, railroads, ports, airports, air traffic control, high speed rail between major cities within 300 miles of each other, nationwide fiber optic Internet, wireless Internet in major cities, etc.

2. Purchase foreclosed homes and rent them to lower income people under a rent-to-own contract as long as they maintain the home and actually live there for ten years. This contract could be assignable with consent of government with suitable anti-speculation rules.

Barry should also request massive global regulation on hedge funds and all aspects of global hot money. Investors in hedge funds should be required to invest for a minimum of three years - complete, strict lock-up. Hedge fund managers should be taxed on all management income as ordinary income. Of course, massive regulation of all derivatives should also be required.

Current dividend and capital gains tax rates should be kept, as they really just help lesson the double taxation of corporate income.

Also, I DO favor some kind of auto industry aid, however distasteful for that failed management and labor clique. When one buys a car, one expects the company will be around to provide service, parts, etc., and a re-sale on the trade in. An auto industry bankruptcy might seriously affect that perception with fearsome unintended consequences. In addition, the chain of bankruptcies throughout the supply chain can be enormous as payments are disrupted. This unknown is not needed now. For $25-$50 billion in aid, it's worth avoiding.

Congress wastes that much on worthless earmarks every year.


More tax loss selling is and will occur, but there do seem to be "real" nibblers buying these dips.

I have more tax loss selling to do. This is really saving me a lot of money. The timing difference between realized gains and unrealized losses can be substantial if one invests for a longer time period. I mostly re-invest in something else immediately, but do wait a bit for some, as I have other wash sale rules to carefully watch.

PS: Also, doe sanyone else notice how much of this trouble is now located in Europe ? I wonder when The Ostrich, aka ECB chief Trichet, will cut rates to a realistic level. ECB and Bank of Engalnd should cut rates to 1%.

Word of the Day

"Sadduce" - noun [$10] or "Sadducee" - this word contrasts "Pharisaic"
Sadduce means a member of a Jewish sect or party at the time of Christ that denied the resurrection of the dead, the existence of spirits, and the obligation of the traditional oral law.
Sentence: Perhaps Bunkerman is more like a sadducaic libertarian, as he opposes the strict pharisaic - purist - interpretation and favors practical limits on the rich and powerful to prevent them from oppressing the common man, re-creating an aristocracy and permitting their antics from harming the global economy. And he also denies the existence of the god or demigod of the "market" as correct interpreter or diviner of the future of the world.

Tuesday, November 18, 2008

Tax Loss Selling

The markets are likely to be very heavy until the end of the year as tax loss selling will be substantial. I did some of that yesterday and have more to do. Why pay taxes on realized profits if one has unrealized losses to offset them, at least partially ? That is real money that can be saved. For me, I can see my January 15 estimated tax payment cut substantially, as based on current results, I've overpaid my taxes so far this year.

One can switch mutual funds to take losses, or sell one stock & buy a similar one, or just sell and regroup. I expect people all over the world are thinking about this.

I still have a lot of gains that I booked early this year to offset as much as possible.


Les Bourses mondiales sont plombées. In English, that is "The world markets are leaden."

Hmmm ... I wonder how to say, "doing nothing" in French ? That verb for "do" has a lot of idioms in French. Hehe, it has interesting idioms in American English, too.

Word of the Day

"Mere" - noun (in this usage) [$10] archaic, poetic [I am not using the common adjective, mere, here]
Mere (in this usage) means a lake or pond.
Sentence: Reminiscent of that famous headline as New York City sought Federal help in the major 1973-1975 US recession, which read "Ford to NY - Drop Dead", we have, or can at least infer, "Bush to Detroit - Go Jump in the Mere".

Monday, November 17, 2008

More Short Selling Fraud

Every rock that one picks up in the area of short selling uncovers another ugly bug, viz., more fraud. The failure to deliver stocks, bonds and loans sold short is an on-going scandal. The fraud occurs in the dealer community and in the hedge fund community. The SEC seems clueless. Perhaps that agency should just be folded into a department at the Fed along with the CFTC. Neither seems capable of acting in the interests of the markets and the common man. Both are in the pockets of the dealers and the hedge funds in conniving to create loopholes for illegal and fraudulent activity.

FT online has a long article [Nov. 10] about how dealers sell short loans that they cannot or will not delivery in a timely basis. That's just fraud. They are effectively "printing" new loans to sell short and make money. Meanwhile the value of the loans drop due to the pressure of new creation.

This behavior is equivalent to the Gould Ring's using the printing press to print new shares of Erie Railroad to sell short on the NYSE in one of the Erie wars. At one time the ink was so fresh it rubbed off on the clearing agent's hands on the floor, creating a panic.

But the SEC seems willing to permit this fraud.

And another article that I read over the weekend shows how the SEC's "market maker" loophole is being used to avoid the purported "hard" 3-day delivery rule. That was predicted here. There should be absolutely no market maker loopholes. No loopholes, period.

But does the Fed do better ? Fails to deliver in the repo market are an ongoing scandal.

And what is the SEC doing ? It's connivinng to continue the fraud.

A friend sent me an article that seems to indicate the SEC is simply trying to come up with a fig leaf to deflect public criticism. Ideas of a huge "circuit breaker" seems gaining momentum at the SEC- but of course the large limit on a down move before it would be triggered shows that this is just a scam. Here are the relevant quotes:

"It would be restricted for some kind of panic situation," he said. The idea was to rarely, if ever, need to halt short selling. "

"A circuit-breaker rule covering short sales could include exemptions for firms, order types or trading activity such as market making, Ratterman said. Enforcement of the ban would rest either with the exchanges or the brokers, Ratterman added. "

The SEC is knave central.

Let's go back to the old rule: “He who sells what isn’t his’n, must buy it back or go to prison.” attributed to the infamous bear raider Daniel Drew (1797-1879).

Hard delivery rules - no exceptions.


G20 meeting over - nothing happened this time, but actually I expect some action next spring as the details can be worked out. Some restrictions on global hot money - aka hedge funds - is needed.

I see India is taking action to provide trade finance. That is an area that governmental action is needed fast in many places in the world.

I bought some more FCX in my Alpha Fund in the pullback Friday. I have a full position in that now.

I'm working out how the best take some tax losses. I have a lot of gains and I'd like to minimize the tax bill from those. This is real money that I pay every quarter, so it's worthwhile to take the losses. I can use both short term losses and long term losses as I have some large gains in both categories that can be offset, at least partially.

PS: In case anyone is wondering how I can have gains after my WB and C debacles, I booked quite large gains in the gold & silver sales in the Spring as well as in sales of the oils when the oil prices was so high, and the miners and a large profit on AAPL sales around 200.

Word of the Day

"Crime" - transitive verb (!) for this usage [$10 or $100 depending on your dictionary]
Crime means (verb - British Military, etc.) means to charge with or convict of an offense.
Sentence: When will the markets have an regulator willing to crime any short seller who fails to delivery the promised securites sold short ?

Friday, November 14, 2008

Turnaround and TGIF

Yesterday's market action was intriguing. The midday drop was scary, but the turnaround dramatic. My interpretation is that the beefers tried to push the market down to create fear and to probe for new sellers to scare out at lower prices. As stocks trade like commodities nowadays, that old commodity tactic of pushing a price through a logical place for stops occurs in stocks now, too.

So the beefers tried a bear raid, but found no new sellers and probably a few "real" buyers came in, too. After that, it was time to cover the shorts and I suspect some beefers with sideline cash came in as the "re-test" held.

That's it. Don't read "fundamental" interpretation by that demi-god, the "market" into the move.


Doing nothing. I was tempted to buy more FCX as under $22 was my price area, but decided I have enough. I don't want to get too long in this wild market.

PS: I supose this is bad luck, but decided to add a bit to FCX today on the pullback. I did some research on the stock early this AM in response to a question from a friend and felt better myself. I have room for a bit more, either later today or whenever I get a good price.

Word of the Day

"Dead-house" or "Deadhouse" - noun [ $100]
Deadhouse means a morgue.
Sentence: Based on the lack of response to their begging for handout, Chrysler seems headed for the deadhouse. GM and Ford may follow soon.

Thursday, November 13, 2008

TARP is working so far

With all the hyperventilating and angst about the TARP, perhaps one should look at some facts before becoming awash in opinion.

What was the objective of the plan ? To save the banking system. What are the facts now ?

Source: WSJ paper edition for Wednesday November 12, 2008.
1. One month LIBOR is 1.48%.
2. Nonfinancial commercial paper for 180 days yields 2.35%.
3. Bankers acceptances (used in foreign trade finance) for 90 days yield 2.53%.

Obviously the initial phase of Paulson's effort has worked.

The principal problems now exist further down the lender food chain, viz. certain consumer loans and and corporate bonds.


More hedge fund liquidations. I have no idea when that will end as the Panic of the Rich continues.

Can someone tell me why it is "news" that some economies are in a recession ? Have we not been hearing this angst for almost nine months ?

By the way, industrial output in China was up 8% in October.

Korea offers $16 billion in trade finance. This is good.


Mrs. B did a small bit of buying yesterday and is contemplating more. I am waiting to add to my long term favorites. If AAPL goes much lower, I'll have to re-buy it later this month when the wash sale window opens.

Word of the Day

"Swan" - verb, intransitive [$10 or $100 depending on your dictionary] British colloquial, usually followed by 'about', 'off', etc.)
Swan means (in this usage) to move or go aimlessly or casually with a superior air.
Sentence: As pure libertarians swan about mouthing their theories about "markets" never being wrong, facts pile up daily that markets are wrong quite often. Anyone who read those classics such as "Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay and "Wisdom of Crowds" by James Surowiecki should know that.

Wednesday, November 12, 2008

Bits and Trends

Retail sales in China are up 22% in October - I guess that's year over year. Hmmm ... quite interesting. Perhaps China have developed considerable internal domestic demand and doesn't rely as much as one might have thought on exports.

A problem Japan has had for many years is that its economy excessively relies on exports and domestic demand is too low. Demographics partly forces that, but government policies there exacerbate it.

American Express to ask for TARP aid. Huh ? What the heck has that management been doing ? I've never liked the management of American Express. I fear there is a bug under that rock.

I think the Mexico story from yesterday about how they have hedged a very large amount of oil tells us why oil is still weak. Hedging by producer nations that need the money. Hmmm ...


Yesterday I re-bought some CCJ as the wash sale tax window is long gone. Their earnings were OK and uranium really is the only effective power source that does not produce carbon dioxide. I don't believe that global warming is caused by humans, but enough people do and I'd like to profit from their stupidity. 1/2 position for now.

I also added a bit to DRYS, EXM and GNK. These stocks are ultra risky as the chance does exist the banks won't show some flexibility in loan to value covenants. But in my experience, as long as the companies produce cash flow on the loans, the banks will, and should, forebear. These companies do not have excessive debt and did a good job locking in long term charters with good credits for enough of the fleet to cover the bank debt. Dilution is a risk, as is whether large shareholders are margined on their stock. I do not have positions that are too large in those, and will add a bit me at good prices.

Late yesterday an astute commentor skeptically asked for my 'plan". Overall my plan is to continue to buy some stocks I like at good prices. I like GOOG but cannot buy it until late in the month due to the 30 day wash sale window. I will maintain a reserve, either in the Alpha Fund itself or in the bank account from which I can easily shift $ to it. "Protect yourself at all times."

Why do I care about tax losses ? Since I plan to hold these stocks a long time in the future to get large, long term gains. I don't want to lock up valuable tax losses for years. And I can use those losses this year as I still have very large capital gains to offset - both short term and long term. This save me real money every quarterly estimated tax payment day.

Word of the Day

"Assay" - noun and verb [many usages, this usage is a $100 one from an H. L. Mencken quote]
Assay means (after meanings 1-7) 8. (metallurgy) determination of the amount of metal, especially gold or silver, in an ore, alloy, etc.; 9. a substance undergoing analysis or trial; 10. a detailed report of the findings in assaying a substance; 11. (archaic) examination, trial, attempt, essay.
(A) (from "the Impossible H. L. Mencken", page 207) "For seldom have these eyes encountered a document by an American politician which there was a larger assay of common sense."
(B) The assay of common sense provided by Babblevsion, Blabberg and in general the American press compares unfavorably to the assay of true gold in fool's gold.

Tuesday, November 11, 2008

Armistice Day - Veterans Day

Today is the 90th anniversary of the end of World War I. Reading Le Monde this morning, it is quite clear that today is a much larger event in France & Britain than in the US. Numerous major public commemorations include the leaders of both nations and issues of old injustices are raised. The history of World War I in both Europe and the US has much to teach modern man. If you ever get a chance, watch the DVDs that show the history of World War I. Much good footage exists and the events are far enough in the past that true history can be seen, without the influence of politics.

In the US, one element that is missed is that many personal and political liberties were crushed as the US entered World War I. Freedom of speech and the press was massive curtailed. People were fired, jailed or deported for expressing dissent. Supreme Court decisions legitimized that oppression. So while the propaganda machine touted a war to "Make the World Safe for Democracy", at home the same machine was crushing personal freedom. This is certainly not well known.

Those old Supreme Court decisions were not overturned until the 1950s and 1960s.


The significance of the China stimulus was brushed aside. That plan was real news and a quite bullish event.

American Express to become a bank. Sighhhh ...

I guess finance will now return to the old ways. CFOs will again match liabilities with assets as the god of the markets is now obviously not always around to make money rain from the sky.

Many ship building contracts are being cancelled. So over time that will make current ships more valuable. If the shipping companies can survive current conditions, they will be worth much more ... IFF the world survives..


Doing nothing. I have money to invest, but am waiting as I practice "time diversification".

Word of the Day

"Vidette" - noun [$10] = "vedette"
Vidette means 1. a small naval launch used for scouting; 2. a mounted sentry in advance of the outposts of an army.
Sentence: Hiding in the bunkers, I wonder if investors will miss noticing the videttes of the next great bull market ?

Monday, November 10, 2008

Waiting ...

The hot air in DC and the dens of the press is oven-like. But what is the point or use in speculating or even discussing what Obama might do, or whom he might appoint ? Why not just wait and see what he actually does ?

Here's some real news: China announces $586 billion stimulus plan. That's real money. Stock futures are up on the news worldwide.

WSJ has a story that jobs in many parts of China are hard to find. That means trouble for that authoritarian / communist government. So they had to act.

I read that five large beefer managers are called before Congress on Thursday. Good. I hope they are skewered. Hedge funds are a fundamental, root cause of much of the problems the world faces. Trillions of $ speculating in trading schemes instead of making real investments caused massive stress and dislocations.

AIG bailout is being re-written. From the looks of it, the troubles in the credit default swap "market" are quite intense. Obviously, that entire casino needs eviscerated. Writers of credit default swaps should be required to put % collateral in Treasuries in isolated subsidiaries and regulated as insurance companies. Anything less is fraud and or mere gambling.

Barron's had an article about the recent rush to "alternative" investments by college endowments and pension funds. We now see most of those "investments" were just speculation in commodity futures - not real assets at all - and hedge funds. Buying timber, farmland and venture capital are real investments. Hedge funds, commodity funds, private equity and that ilk are just leveraged speculations.

Everyone now agrees the LEH bankruptcy was a huge mistake. Some world leaders blame the US for letting it happen. Hindsight is so clear. But at the time, the "moral hazard" police were quite strident. Politically, I don't see how the US could have done anything else. The fallout from BSC was quite bad.

The LEH failure did bring to light hitherto unknown or unappreciated financial interconnections and leverage, such as from "rehypothecation".


Doing nothing. I will buy more of my stocks IFF they drop to buy points. By the way, IFF means "if and only if".

I've deferred re-balancing Krypto Fund as I am contemplating some transfers and exchanges that will let me take a valuable tax loss on some ETFs held in a taxable account. This will save me real money and not affect my overall asset allocations.

Tax loss selling for the rest of this year will be heavy. But I wonder if the money will just be shifted around. I plan to just shift the money around.

Word of the Day

"Conceit" - noun [$10]
Conceit means 1. personal vanity, pride; 2. (literary) a. a far fetched comparison, especially as a stylistic affectation; a convoluted or unlikely metaphor; b. a fanciful notion.
Sentence: All the information conveyed by one person speaking directly to another is subsumed in the Anglophone world under their conceit, "personal chemistry". [adapted from a thought in "Travels with Herodotus" a very fine book by R. Kapuscinsky, cf. page 185 top.

Friday, November 7, 2008

TGIF and more

Hmmm I guess yesterday's French sentence can be mostly re-used.

Hier, les Bourses replongent.

Translation - "yesterday, the markets plunged again." That French verb, "replonger" might be the label for this market, as it means "to plunge again."

WSJ has a story about more and more liquidations of hedge funds and redemptions. Perhaps more of this is coming. Beefers are the "root" cause of all the problems of this economy and market. Colossal sums invested by the greedy and dumb rich in speculative funds instead of new growth businesses led to the housing bubble, commodity bubble and all this insane volatility as they are liquidated.

You ask, how did hedge funds cause the housing bubble ? Who do you think bought the subordinated classes of all those subprime CDOs ? Without those buyers, the junk mortgages could not have been securitized and hence never created.

Sarkozy of France has suggested some regulations or restrictions on hedge funds. I hope other world leaders listen.

The jobs number will likely be quite bad.


Doing nothing. The DRYS secondary has crushed my shipping stocks. Ugh... I guess the lenders are pushing these companies to raise equity as a cushion. To me, they are risky, but quite valuable companies IFF they survive. Time will tell.

Word of the Day

"Viand" - noun [$10] formal
Viand means 1. an article of food; 2. (in plural) provisions, victuals.
Sentence: Will the future look back on today's financial turmoil to see the caricature of a former hedge fund manager in a tuxedo seeking viands on the streets of New York ?

Thursday, November 6, 2008

Les Bourses replongent ce matin.

That's French for "the markets are plunging again this morning." To find practical current terms in French to describe the stock market actions, I turned to Le Monde at because just simply translating American idioms might not have made sense. But I read this morning that French does use terms like "red" aka "rouge" and "green" aka "vert" to characterize gains and losses.

Did I mention that I am learning French ? I've been doing this from about six weeks now and have made fine progress.

Why ?

Simple, I need more culture and often good writers include some French phrases without translation. And the French language has innumerable works of great literature, unlike Spanish which has had little for four hundred years since Cervantes wrote Don Quixote. And one even comes across French in fine TV shows like the old "The Avengers" series with Diana Rigg as Mrs. Emma Peel. Last evening while watching some shows from that series [I bought the entire series on DVD], I understood the French that John Steed spoke.

And a bonus, research shows that learning a language helps one improve and retain memory skills as one ages. And I am aging. After 40 years of cramming science and finance into half of my brain, the verbal, literature and language side is "relatively" empty. After a session of French, I can actually feel that my head is "pumped" like a muscle after lifting weights. So this does work to "exercise" one's mind.

My guess is that since language skills were certainly a critical ability in the development and evolution of human beings from apes, to exercise and develop one's mind fully really requires learning languages.

Learning more words and usages in one's native language is one way to that. But I think learning a foreign language is another, complementary way.

By the way, English borrowed so many words from French that learning French vocabulary gets a huge boost. And so far, I think much of the grammar is a bit similar, too. I had learned some Latin and Russian in the past. To me, French is far easier and also far more rewarding.

PS: I see that web site for Le Figaro has helpful writing about stocks in French, too. See


What will the ECB to today ? And the Bank of England ? Both central banks have base rates far too high for conditions. They need to cut rates in large steps.

PS: Bank of England cuts 150 bps from 3% to 1.5% ! Good move. Will "The Ostriche" awaken ?

PPS: I see the Sgeve Leisman on Babblevision reads this blog. He just said that there never was any inflation ... just a commodity bubble.


None. Two shippers (DRYS and EXM) posted fine earnings. Both benefit from having a majority of ships under long term contracts at good rates.

Word of the Day

"Argosy" - noun [$10] poetic
Argosy means a large merchant ship, originally especially one from Dubrovnik (aka Ragusa) or Venice.
Sentence: Every voyage of an argosy in world trade among nations requires financing the goods being transported for the duration of the voyage until delivery. This is a critical corner of credit that is having problems in recent weeks according to recent articles in FT and WSJ. Governments looking to help cure the credit crisis need to focus some resources and / or verbal suasion here.

Wednesday, November 5, 2008

What Now ?

Obama wins. Now we are to get "change". I wonder what that means ? The biggest problem Obama will face is that he has no specific mandate to do anything except raise taxes on high income people. Other than that, he didn't specify what "change" he wanted. That's going to cause him problems building a governing consensus in Congress, even with his majorities in both houses.

Obama won by a rather small margin - just 5% in the popular vote. The nature of the Electoral College system provides a decisive result for small margins. The margin of victory in Ohio was about 4% - 200,000 votes. W won it by about 100,000 votes in 2004. In Florida, the margin of victory was 2% - 200,000 votes there, too. If those two states swung for McCain and a couple smaller ones, too, the result would be different. Obama won, but not by enough for much mandate for sweeping "change".

And expectations are very, very high due to his vague, but sweeping, rhetoric. Well, he will the press on his side for awhile. I suppose we'll soon be hearing of his canonization as a saint or his elevation to demi-god. The press likes to do that when their man wins.

On Blabberg I heard parts of a remarkably hostile and aggressive speech by Russian President Medvedev. They are clearly going to push for more world power. Trouble to come ...


My guess is that optimistic European buying drove up prices yesterday as they are ecstatic on Obama's election. The afternoon followthru was probably caused by expectations of a very large stimulus package that the Democrats will surely push.


Doing nothing.

Word of the Day

"Homunculus" - noun [$10]; I saw this word reading Goethe's "Faust", part II.
Homunculus means a little man, a manikin.
Sentence: The coming deification of Obama by his worshippers in the press and the Olympian expectations he has created with vague promises make his probable decent to being merely human quite risky. Will the path of that decent take him straight the status of homunculus in the eyes of the public and DC ruling classes ?

Tuesday, November 4, 2008

Election Day

A few years ago in an analysis of American political choices, a writer concluded that American voters tend to choose the person whom they think will best deal with the most important problems the nation is facing. So in 1980, voters elected Ronald Reagan to deal with both the Soviet aggression and expansionism as evidenced in the Afghan war, and the economic sclerosis that was permeating and stifling the nation through high taxes and excessive regulations.

Ronald Reagan proceeded to perform magnificently, creating the base for the boom of the last two decades of the 20th century and the conditions for freeing billions of people from oppressive Leninist communism.

So today the public must choose again in a time of serious economic problems and an insidious terrorist threat.

In 1864, the public chose well in wartime, re-electing Lincoln. So good decisions in times of crisis are possible. A problem today is the pervasive propaganda war in the press has prevented serious discussion of issues. People today really have no idea what Obama stands for except the vacuous notion of "change". So they read into his platitudes whatever they want to hear.

On the other hand, John McCain is an honest man who knows how to make decisions and lead in times of stress. And he favors freedom. And sensible reform. So to me, he's the obvious choice.


Doing nothing. DRYS reported good earnings and solid cash flows are locked in for several years. The stock popped, but is still quite depressed. Of course if the world's economy ends and we return to a barter system, it will surely suffer. So it's quite risky. My play in the shippers is EXM, DRYS and GNK. These are all very depressed in stock prices, but have reasonable debt levels and substantial contracts locked in at favorable rates. All are high risk, but have very high potential returns.

Quote of the Week

From "The Impossible H. L. Mencken", page 597 re the Scopes trial.
"The sole commentary of the sardonic Darrow consisted of bringing down a metaphorical custard pie upon the occiput [*Word of the Day] of the learned jurist."

Word of the Day

"Occiput" - noun [$10]
Occiput means the back of the head.
Sentence: In six months, will American voters be patting themselves on the back for making a fine choice for President, or rapping their occiput as they puke, realizing what a foolish vote they cast ? Time wll tell.

Monday, November 3, 2008

A New Month

After those fine breakfasts of fried eggs, Spam and Valveeta this weekend, I realized how I felt about the markets after the events of the past six weeks. I felt just like I did after the Crash of 1987 - a bit stunned and even more disgusted with the markets and the panic. My guess is that huge numbers of "investors" have similar feelings. Hiding in cash was the wrong move then. Is it different this time ?

Economically, the time periods are quite different. This was mostly a panic of the rich, but the underlying economic problems were twofold: (I) a gross overvaluation and overbuilding of housing primarily in CA, FL, NV, AZ and a few places like DC, and (II) an oil and commodity bubble caused by pension fund and hedge fund speculation. Both events caused real economic shocks that in normal times would have, and were, causing a slow growth period. Toss in the panic of the rich and foolish pharisaic libertarian Republicans and ... voilĂ  ... a harsh bear market, credit crisis and recession ensue.

What is left to fix ? The price of residential real estate in CA, FL, NV, AZ is getting close to true values based on incomes of the residents. Oil prices are back to longer term trend values. To fix is whatever damage was caused by the six week credit panic and the momentum and expansion of that damage. Perceptions are damaged, too.

Perceptions can change quickly. Damage caused from the credit panic can be quickly cured with extensions of credit. The cures and cash are really being pumped rapidly into the economy. The Fed rate cuts help anyone with floating rate loans, such as Prime Rate home equity loans. And the lower oil prices save people money at every fill-up.

I think this malaise will quickly dissipate as the reality of the damage is that it's not as bad as the talk nor is it permanent. But of course, I'm an optimist.


Doing nothing. Alpha Fund had a good week and is about 150% long.

Word of the Day

"Monad" - noun [$10]; also monadic (adj.) and for sense 2. monadism (n) = monadology (n).
Monad means the number one; a unit; 2. (philosophy) any ultimate unit of being (e. g. a soul, an atom, a person, god); 3. (biological) a simple organism, e. g. one assumed as the first in a genealogy of living beings.
Monadism = Monadology means 1. the doctrine of monads as the ultimate units of being; 2. (sometimes upper case 'M') the philosophy of Leibnitz.
Sentence: The monad of the US Presidential election is the electoral vote, which was created by the framers of the Constitution as a compromise among the larger and smaller states to balance population with regions.

Sunday, November 2, 2008

Fried Eggs & Spam II

A successful experiment always makes me feel good.

Last week in the comments on my "Fried Eggs and Spam" post, I theorized that putting a slice of Valveeta cheese onto the eggs might really taste good.  This weekend I had fried eggs and Spam and the slice of Valveeta on both days.  There is no doubt that adding the slice of Valveeta makes a significant improvement.  

Very, very tasty !