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Archive for April, 2009

Inflation and Growth: The data don’t lie

April 29, 2009 Comments off

This morning’s GDP data had dismal negative AND positive numbers. The dismal negative number was -6.1% real growth. The dismal positive number was 2.9% inflation.

This table [click here] illustrates the phenomenon. The top line of numbers is inflation. The bottom line of numbers is growth. Inflation continues to dwarf real growth.

Rocky’s conclusion: Printing money creates inflation not growth. The Fed’s current trajectory will ensure a dangerously high inflation rate once the economy heals (whenever that occurs). US Postage Forever Stamps, TIPS, commodities and other investments that protect real purchasing power continue to be an essential part of any portfolio.

Please don’t kiss me: I’ve got swine flu

April 27, 2009 2 comments

gas-mask There’s a great Rita Hayworth song, “Please Don’t Kiss Me” from the 1947 movie, “Lady From Shanghai.” Even though this is a Swine Flu Panic (and not an Asian Flu panic), the song is still apt.

It’s a slow news day for the Financial Crisis. Market participants have found a new source of angst to separate investors from their money with the Swine Flu Panic of 2009.

1) Bloomberg news 2009-04-27: “CDC RECOMMENDS THAT PEOPLE DON’T KISS AS A GREETING……”
[Rocky is scheduled to meet Aunt Gertrude for dinner tonight. He’s delighted that he finally can dodge her overly intimate greeting. However, physical contact from shaking hands seems a more likely source of virus transmission than a dry cheek kiss.]

2) Bloomberg news 2009-04-27: “Hog and pork-belly futures plunged the exchange limit in Chicago on speculation that pork demand will shrink with global spread of swine flu in humans.”
[One CANNOT contract swine flu from pork in the supermarket. Additionally, pork belly contracts are FROZEN pork bellies. Interested readers should rent the Eddie Murphy move Trading Places for more details.]

3) Glaxo stock is up 8% because it’s a manufacturer of anti-viral drugs.
[Rocky owns Glaxo stock, because it’s a good company at an attractive valuation. However, folks who buy Glaxo today solely because of Swine Flu may be as disappointed as folks who bought Pfizer when they announced the release of Viagra. (Pfizer is down about 70% from that announcement).

It’s important to remember that in a typical year, flu unfortunately causes 36,000 deaths in the USA. The odds of a pandemic are low. The odds of making money trading based on swine flu headlines are even lower.

Track Swine Flu Cases on Google Maps: Click Here.

Glass houses, stones & the NY Times

April 24, 2009 3 comments

nytimes1New York Times editorials pull no punches in criticizing executive pay.

However, if one studies the Times’ own executive compensation, one gets a whiff of hypocrisy.

According to the NYT Proxy Statement, Janet Robinson, President/CEO received 2008 compensation of $5,578,451, a 35% increase from 2007. Her pay increased during a period of continued industry contraction, including employee layoffs, and stock price underperformance.

Robinson also owns only 1,020,441 shares of stock — currently worth less than her annual compensation.

Rocky doesn’t own NYT stock, and has no opinion whether Ms. Robinson deserved a 35% raise. If he were a shareholder, he would study the issue more carefully — and if it’s as outrageous as it superficially appears, he would vote against the Board’s re-election.

More importantly, he believes that “people who live in glass houses shouldn’t throw stones.”

An Eco-friendly toothbrush: for the mouth and wallet

April 21, 2009 10 comments

liquidsqueeze DISCOVER THE ONE STOCK THIS YEAR THAT COULD RISE 500% OR MORE!” screamed the headline in “World of Investment (circulation 2,500,000)” which arrived unsolicited in Rocky’s mail.

No it’s not Citibank (up 462% from the March low).

Rather, it’s an unprofitable penny stock called United Treatment (symbol=UTRM) that claims a patent for a “revolutionary” toothbrush … which requires no water or toothpaste. The company shamelessly trumpets: “A toothbrush that needs no water will not only change the way we brush our teeth, it will illuminate minds with the knowledge that water is our most precious natural resource.”

Ignoring the fact that the stock promoters killed countless trees to mail 2,500,000 brochures, could it be that Liquid Squeeze Brush may be the better mousetrap that Al Gore has been waiting for?

“This new tooth brush has three primary advantages over existing and traditional toothbrushes:
1) Liquid SqueezeBrush is a self-contained brushing appliance holding “liquid” dentrifice, in its squeezable and refillable handle.
2) Water and toothpaste are no longer required to brush, allowing the user to brush virtually anywhere, at anytime.
3) Liquid SqueezeBrush requires no water to brush. Up to seven gallons of water run down the sink while brushing if the faucet is left running. Liquid Squeezebrush is a self-contained, use anywhere, water conserving toothbrush.”

Rocky was just a tad bit skeptical:
1) The average person spends about 30 seconds brushing their teeth — which means that the company’s seven gallon estimate implies a 14 gallon per minute flow rate. That’s a fire hose. Not a bathroom sink.

2) Already, people who publically deploy toothpicks are annoying and unsanitary. Rocky dreads a new wave of people on planes and subways who brush (and floss) while listening to their Ipods.

3) Forgetting about merits of the product, there are no merits to the stock. UTRM (which had a 52-week high of $8.00 on 1/28/09 and a 52-week low of $0.15 just five days later), was formerly known as HP Capital Corp until it filed for Bankruptcy. Before that it was known as Araldica Wineries. Management may have swigged a bit too much Strawberry Ripple, as ownership of the Squeezebrush patent is reportedly in dispute too.

4) A Google Search of Edward Tracy (the supposed chairman of UTRM, “United Treatment Centers”) disconcertingly returns a link to a Methadone Maintenance Center. And no mention of his being the “next” Steve Jobs.

The brochure concludes: “You’ll be kicking yourself for missing out on a potential 500% profit. This new industry product is just too difficult to predict how large and how fast it will grow. But rest assured, it WILL grow! UTRM is a fantastic investment now. It could easily soar to $2, $5, $10, $20 or more in a very short timeframe.”

Rocky never provides investment advice. But he’d sooner invest in no-flush toilet paper than in UTRM. (Which probably means the stock really will go up 10,0000% tomorrow.)

Lehman Brothers and Saddam Hussein

April 15, 2009 1 comment

falloutsheltersignlargeIn 2002, Warren Buffett called derivatives, “Financial weapons of mass destruction.”

It turns out that Lehman Brothers had actual weapons of mass destruction on their self-destructive balance sheet: They went long, and took physical delivery of 500,000 pounds of uranium yellowcake. Click here for the story. The quantity is “slightly” less than the amount needed to make one nuclear bomb, according to Gennady Pshakin, a Russian nonproliferation expert.

In contrast, Saddam Hussein’s stockpile had 550 metric tons of yellowcake. (This helps explain why Dick Fuld was pilloried, whereas Saddam was hanged.)

Question:What is a derivative security backed by an actual weapon of mass destruction?
Answer: A CDO-Squared.

[Disclosure: Rocky just checked the Fed’s website. Yellowcake is NOT acceptable collateral under the TALF program. However, if one holds a vial of enriched uranium for a few hours, no margin “haircuts” will be required either.]

Hot dogs and bad puns

April 7, 2009 8 comments

dog-in-oven

“Man charged with baking ex-girlfriend’s dog,” read the Chicago Sun-Times headline.

The story says that a 31-year-old Green Bay man accused of killing his ex-girlfriend’s dog in an oven, has been arrested in Michigan.

“Green Bay investigators say the man broke into his ex-girlfriend’s home and put her 5-month-old Pekingese-poodle mix in the oven. Prosecutors plan to charge the man with felony counts of animal mistreatment and burglary. The woman has said she came home to a smoky house and found her pet dead in the hot oven.”

Rocky, a dog- and barbeque-lover, coincidentally notes that the Chicago Sun-Times recently filed for bankruptcy. He also recognizes that this story gives rise to irresistable puns and jokes in “poor taste”:

1) Hot dogs, anyone?
2) The ex- is no genius. The expression is “The Rabbit Died,” or “There’s a BUN in the oven!”
3) Peking-ese Duck for dinner?
4) If the boyfriend was in a hurry, why didn’t he use the microwave?
5) Pass the A-1 sauce. Its bark was worse than its bite.
6) The boyfriend cooked a Pekingese-poodle “mix.” He couldn’t even follow the recipe from “scratch.”

The Humane Society has offered a reward of up to $2,500 for information leading to a conviction. A cynical person might even suggest that the dog owner “cooked up” the whole story.

Counting one’s blessings

April 1, 2009 6 comments

A Nice Gentleman sat next to Rocky on a recent airplane flight.  Rocky shares Nice Gentleman’s saga as an example of both Murphy’s Law and a remarkable perserverance of the spirit.

The Bad News: Nice Gentleman’s family was heavily invested in the Madoff Funds.  His daughter’s college fund was wiped out, along with his retirement savings.
The Good News: He was sanguine, recognizing that he had taken out many dividends over the years, and would have lost just as much money in more traditional investments (after tax benefits).

The Bad News:Nice Gentleman was enroute to Florida — to visit his aging mother, who had early stage Alzheimers Disease. 
The Good News: During his last visit, he hid his mother’s car keys. Demonstrating that “she’s still with it”, she called the car dealer and had a new set of keys made.

The Bad News:Nice Gentleman was laid off from his job of more than 10 years last week.
The Good News:He already has a job prospect, and may decline his former employer’s severance package, because it contains a non-compete agreement.

The Bad News:The same day that Nice Gentleman was fired, he was walking his small dog (a cockapoo) in a park.  The tiny dog was attacked by a german shepard who picked up the little fellow in his mouth, and started shaking it like a rag doll.
The Good News: Nice Gentleman rescued his dog — rushed to the Vet — and, after surgery, saved the little guy’s life.

Rocky was ambivalent about Nice Gentleman’s tale: Rocky was unsure whether to feel sympathy for Nice Gentleman’s misfortune, or to envy Nice Gentleman’s improbably upbeat mood and optimism.