Sunday, March 17, 2013

Matt Ridley: Burning fossil fuels is greening the planet

Matt Ridley, author of the The Rational Optimist, talks about a curious global trend that is just starting to receive attention. Over the past three decades, our planet has actually gotten greener. Reason? Matt Ridley explains that it’s because of the burning of fossil fuels! It’s an amazing, astonishing discovery, but one that’s incredibly unwelcome for the environmentalists. The optimist could even say this phenomenon is the earth regulating itself.

Remembering Silent Cal: The President Who Shrank Government

Can anyone imagine actually shrinking government these days? Just listen to the howls and the predictions of impending doom when even a minuscule cut in the rate of yearly growth in government spending is proposed.

Saturday, March 16, 2013

Quote of the Day: Peter Lynch

The basic conflict between corporate directors and shareholders over dividends is similar to the conflict between children and their parents over trust funds. The children prefer a quick distribution, and the parents prefer to control the money for the children's greater benefit.

One strong argument in favor of companies that pay dividends is that companies that don't pay dividends have a sorry history of blowing the money on a string of stupid diworseifications. I've seen this happen enouth times to begin to believe in the bladder theory of corporate finance, as propounded by Hugh Liedtke of Pennzoil; The more cash that builds up in the treasury, the greater the pressure to piss it away.

~ Peter Lynch, from One Up on Wall Street

Thursday, March 14, 2013

Monday, March 11, 2013

What's a MAV?

Quote of the Day: Jim Rogers

Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.

In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.

If you go back in history, you'll see what happened to the Germans when they wiped out their savings class in the 1920s. It didn’t lead to good things down the road for Germany. It didn’t lead to good things for Italy, which did the same thing. There were plenty of countries where it wiped out the people who saved and invested for their future. It’s usually a serious, political reaction, desperation in some cases, and looking for a savior and easy answers is usually what happens when you destroy the people who save and invest for the future.

~ Jim Rogers, from Peak Prosperity Interview, 3/9/2013

Grouch: Savers have been punished since the Fed's Quantitative Easing program began. Bank deposits, Certificates of Deposit, Money Market accounts and even investment grade bonds aren't even keeping up with inflation and taxes while the Fed continues its risk-on, asset inflation policy. All market-based incentives now lead rational investors to borrow at these cheap rates, instead of save and commit their capital to riskier projects in pursuit of return.

An Update on My Turnaround Stocks

First, a warning. Turnaround investing isn't for everyone. Only do it if you have a strong stomach, and can take the volatility and potential losses in pursuit of alpha. Some of these situations are dogs that will always remain dogs, but occasionally you'll hit a home run.

Around the beginning of 2012, I initiated a couple of "turnaround" positions in stocks that seemed cheap based upon their assets and earning potential-- Bank of America and Cedar Realty Trust. They performed well throughout the year. Then near the end of 2012 I purchased a couple of more turnarounds. The results are below:

Bank of America - this one was a no-brainer--- the bank everyone loves to hate.... what could be better to drive down the price to ridiculously cheap levels. The bank was essentially backstopped by the US Government so there was no chance of it going out of business, and there was no way Brian Moynihan could could be as dumb and reckless with shareholder capital as Ken Lewis. This one is going into the $20s in the next 3 years even if the yield curve steepens.

Cedar Realty Trust - this was another no-brainer that I should have picked up for $3.50 a share instead of $4.25 (shame on me) when it was clearly selling below the value of its assets. New CEO Bruce Schanzer has completed divesting the company of non-core assets accumulated by previous management, and is now working to strengthen the balance sheet, and put the company back on the path to FFO growth before increasing its dividend. Wouldn't surprise me to see this one trading trading in th $8-9 range in a couple of years, or to be merged into a larger REIT.

Hewlett Package - another no-brainer..... after 10+ years of stupid management dramatically overpaying for acquisitions on the hope and a prayer that they would reignite growth in the company, I decided to jump into this one when they announced their $8.8B dollar write down of the Automony acquisition. I chalk the writedown up to the company failing to do its due diligence. Shame on them, but an opportunity for investors. I bought this stock on the over-reaction to the writedown and in the belief that PCs and printers are still a profitable albeit under-appreciated business. I also bought on the faith that Meg Whitman would bring some much needed stability and strategic direction to the company. I expect this stock to be back in the low 30s in 2 - 3 years.

Chesapeake Energy - this is the riskiest stock of the turnarounds. It is largely dependent on the price of natural gas to help cure its debt problems. Good news is that lightning rod CEO Aubrey McClendon is retiring, and with a more independent board of directors, hopefully, they will not let the new CEO use the company as his own personal piggy bank. I expect this stock to be in the low 30s sometime in the next 3 years, but it could also fall to the single digits should the price of natural gas fall.

Two that Got Away - opportunities that I missed this past year were AIG and MBIA. Some financials are very difficult to evaluate, but it was clear AIG was another situation backstopped by the Feds so it wasn't going to fail.

Sunday, March 10, 2013

Climate Change and Desertification

“Desertification is a fancy word for land that is turning to desert,” begins Allan Savory in this quietly powerful talk. And terrifyingly, it’s happening to about two-thirds of the world’s grasslands, accelerating climate change and causing traditional grazing societies to descend into social chaos. Savory has devoted his life to stopping it. He now believes — and his work so far shows — that a surprising factor can protect grasslands and even reclaim degraded land that was once desert.

The conventional wisdom these days is usually more about political correctness than problem solving.

Summarizing My Feelings on Hugo Chavez

Few have single handed done so much to destroy the economy of nation and ultimately hurt the very people they set out to help. He will be praised endlessly by those who seek to do the same to their own country's economies, but the people of Venezuela will suffer for decades as those who follow clean up the mess he created.

A Primer on the Falkland Islands from the British Point of View

Saturday, March 9, 2013

Flying Over America

5 Sequester Facts

We all know the sky didn't fall on this past Monday, but Reason TV takes the hype out of Armageddon:

1. The Cuts Are Tiny!

The actual cuts in fiscal year 2013 are only $44 billion, according to the Congressional Budget Office (CBO). The rest don’t even take place until 2014 or later. Whether you use $44 billion or $85 billion we’re talking about 1 or 2 percent of total government spending.

2. Spending is Still Going Up!

Even with the sequester, the federal government is expected to spend more this year than it did last year. The government spent $3.5 trillion in 2012 and i expected to spend $3.6 trillion in 2013 (see Summary Table 1).

3. The Pentagon Won't Starve!

The largest chunk of cuts will come out of the defense budget, which has doubled over the past decade. The Pentagon will still have about $500 billion at its disposal, not counting war-related and emergency appropriations.

4. You Can't Cut Nonexistent Programs!

The White House’s Office of Management and Budget says the sequester will cut a whopping $2 million from the $20 million budget for the National Drug Intelligence Center. That sounds pretty bad - until you realize the Drug Intelligence Center closed its door in June 2012.

5. It Was All Obama's Idea!

The whole damn sequester was the Obama administration’s idea. As the Washington Post’s Bob Woodward has reported, despite Obama’s denials to the contrary, “the automatic spending cuts were initiated by the White House” as part of the deal to raise the debt limit back in August 2011.

Gun Control Works

Wednesday, March 6, 2013

Banned in DC

The word “FREEDOM” is among the list of banned vanity license plate slogans for Washington D.C., according a government file obtained by a Freedom of Information Request filed by the transparency website

Monday, March 4, 2013

Quote of the Day: Detroit

Detroit’s downward spiral has been legendary. Once the fourth largest city in the nation, and home to its largest industry, Detroit’s population has been cut in half, from 1.5 million in 1970, to less than 700,000 in 2012. Median household income is $27,862 compared to the state median of $48,669. The poverty level is 36.2 percent compared to a statewide level of 15.7. The murder rate is 11 times that of New York City, and the unemployment rate is above 18 percent, more than double the national average. Detroit Public Schools (DPS) have been under emergency management since 2008. In late February, the state review board revealed that the city faces a short-term cash $327 million budget deficit and an estimated $14 billion in long-term debt, primarily driven by unfunded pension and retirement health care obligations.

As a result, the city can’t provide basic services. The Detroit Fire Department is so short of critical resources, rotating ”brownouts” of fire companies are required. Forty percent of the city’s street lights are broken. For the past two years, the Bing administration has slowly adopted a city “triage” system, best described by the Detroit Free Press. “Infrastructure improvements, demolition activity, outdoor maintenance and development incentives will henceforth be concentrated in a relatively small number of neighborhoods that boast the high numbers of owner-occupied homes and little evidence of residential and commercial blight,” it reports.

To accord with this plan, the city’s 139 square miles have been broken down into four categories by Detroit’s Planning and Development Department: “steady,” as in little blight and a high number of owner-occupied homes; ”transitional,” as in a neighborhood on its way up or down; “varied” as in some streets are stable and others are not; and ”distressed” as in large amounts of blight, and few amenities, such as grocery stores.

Detroit residents have responded in kind. A staggering 47 percent of the owners of Detroit’s 305,000 properties didn’t pay their property taxes in 2012. Homeowner Fred Phillips illuminated the frustration many of those residents feel. ”Why pay taxes?” he asks. “Why should I send them taxes when they aren’t supplying services? It is sickening….Every time I see the tax bill come, I think about the times we called and nobody came.”

Yet it’s even worse than that. Detroit has some of the highest big city property taxes in the nation, and property assessments remain overly inflated, amounting to as much as ten times the market price of the property, according to recent research compiled by two Michigan professors.

This has led to another phenomenon. Property owners are allowing themselves to be foreclosed upon, and then re-buying the same property at a reduced price, legally eliminating their outstanding debt in the process. Six hundred properties were repurchased in this manner in 2012, triple the number that occurred in 2010.

In short, Detroit is a city on the brink of ruination.

~ Arnold Ahlert

The Sequester Apocalypse is Upon Us

Mother of all horrors---- the sequester apocalypse is upon us and all sorts of havoc is hitting me personally.  I woke up this morning and my car won't start because all the gas had mysteriously disappeared from the gas tank.  My cupboards were bare even though I went to the grocery store on Sunday, and the dog had no food and had to scavenge the neighborhood for food.  Even my bank accounts were drained all because the politicians didn't get the money to spend that wanted even though they stamped their feet and demanded.  The sequester apocalypse has arrived and all sorts of bad things are starting to happen around the country....... oh, wait a minute, my mistake.... thecar does start, my cupboards are fully stocked, the cable TV still works, the dog is fat and happy...... what am I missing?

 Politicians, being politicians, and deriving most of the power from other people's money they've voted to confiscate to fuel their spending addiction, will only cut in ways most painful for their constituents (even though there is at least 10% waste, fraud and abuse at most agencies) so that there will be an outcry from the people to restore the funding.  This trick has been played for years at the local, state and federal levels when spending cuts (or the growth in spending is cut in this case) are implemented.  Don't fall for it.  The government is in dire need of spending cuts and some restraints on its abuse of taxpayers.  This is a good first step.

Bring on the locusts

Sunday, March 3, 2013

Quote of the Day: C.S. Lewis

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.

~ C.S. Lewis

John Bogle on Wealthtrack

Is the US becoming Europe?