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Monday, February 28, 2011

The feds issue a drilling permit for the Gulf

This afternoon, the White House announced that a drilling permit had been issued for one well in the Gulf of Mexico. That's correct -- ONE WELL!!! The amazing thing is that the White House thinks that people will somehow now be fooled into believing that drilling is again moving forward. What garbage. It used to be that a drilling permit was issued by the feds within two weeks at the longest. This was the first permit issued in a year. A federal court has held the government in contempt for refusing to issue five other permits sought by one company up to nine months ago. the drilling industry has died and we are supposed to get excited over one permit. Oil prices are soaring and we are supposed to be relieved because one permit has been issued. The security of the USA has been dramatically reduced but we are supposed to give thanks to the great Obama for issuing a permit for one well.

Well, (pun intended) excuse me for not getting too happy over obama finally issuing a permit for one lonely well. The world oil industry is teetering on the brink of disaster and Obama wants praise for issuing one measly permit. If the oil industry crashes, so does the entire world economy, but Obama is like a two year old who wants us to scream "Hooray" for everything he does. Sorry, but he is going to have to look elsewhere for praise. I actually pay attention to what he has done. I could never praise anyone for undermining the security of this country.

CNN now trying to blame Bush for Libya???

I had the misfortune to be one of the twelve Americans who actually watched Wolff Blitzer in the Situation Room this afternoon. Okay, there were probably thousands of people whose planes had been delayed who were also watching, but I was refering to those who were watching by choice. I was amazed to hear Blitzer do a lengthy segment on how the removal of Libya from the State Department's list of coutries that sponsor terror in 2003 (under Bush of course) was a reason why there were problems today in Libya. Even for CNN, the report made no sense, and that is truly saying something major. Blitzer reported that in 2003, the USA removed Libya from the state sponsors of terror in exchange for Libya giving up its nuclear weapons program and paying reparations to the families of the victims of the Lockerbie bombing. Blitzer said, however, that Libya may have fooled the USA into believing that it had a nuclear weapons program, so Libya really did not give up much. It was comical. Blitzer did not say that Libya had no weapons program, only that it may not have had one. Blitzer, of course, did not try to explain where the fissile material and other items turned over by Libya came from. Maybe it too was imaginery. In any event, CNN then intimated that by taking Libya off the State Department list, it let Gaddafi stay in power until today.

Oh where to begin? A report not based upon facts -- that might be a good place to start. Or maybe I should start with a conclusion that had no logical base -- Libya was on the State Department list for decades before 2003 and Gaddafi was still there.

The truth is that CNN has heard all of the criticism leveled at president Obama and his handling of the revolts in Libya, Egypt and Tunisia. Here was a chance to blame some of the problems on George W Bush. My guess is that if this report gets no traction, CNN may discover that in 1804 the USA sent the Marines to Tripoli to defeat the Babary pirates and that the battle over two hundred years ago actually explains why Obama was stuck with the course of action that he followed. Of course, I recognize that such a story would make no sense, but that never stopped Blitzer and CNN before.

Wisconsin Senate Democrats Have to come Back

Today is the last day that the Senate Democrats in Wisconsin can stay away from the legislature without doing real harm to the state. Part of the budget process in Wisconsin involves refinancing a big chunk of the state's debt, a move which will save the taxpayers $165 million per year. According to all of the reports, tomorrow is the last day on which the legislature could approve the refinancing in order to allow the necessary steps to be taken. Failure to approve by tomorrow will result in the date for calling the bonds to pass by without action. I cannot believe that the Democrats of the Wisconsin Senate would stay out of the state and let the taxpayers suffer to the tune of $165 million per year. That would be a blow from which the Democrat party would suffer fo many years to come.

GasFrac -- an update about the NY Times article

As most of you know, there was a lengthy piece in the New York Times over the weekend slamming the use of hydraulic fracturing for well completion. Since the article offered no solutions to the supposed problems discusses other than halting drilling (the expected result from a paper like the Times), I decided to make sure that the reporter was aware of the LPG method of completion used by GasFrac, since this method solves each of the problems raised in the article. Accordingly, I sent the following e-mail to the reporter:

"How could you write an article about hydraulic fracturing without mentioning the alternative: completion using liquefied propane gas. This process is used by a company called GasFrac Energy from Canada. The LPG turns back to gas underground, so it comes out with the natural gas being sought and can be reused. There is no water used in the process. There is no water or chemicals dumped into the water supply. There is no way for water left in the shale to somehow leach into the local groundwater. For what it is worth, the quantity of gas released by the GasFrac process is also greater than the amount from hydraulic fracturing since no water is left in the ground to block gas from escaping.

The GasFrac process has been used on hundreds of wells in Canada and the USA with great success. Your readers should be told about it."

So far, there has been no response. I will keep you informed if I receive one.

The Republican nomination for 2012

While the media has been engaged in a torrent of discussion about who the GOP will nominate in 2012 to oppose Obama, the potential candidates have thankfully kept themselves out of the race thus far. There is nothing that will happen in the next three months that will determine the outcome of the nomination contest (at least nothing that the candidates will do). At this point in 2007, Giuliani was the clear frontrunner and McCain was just about washed up. While the race might have gone better for the GOP in 2008 if that had been the final result, the point was that no one but the political class was paying any attention to it. Right now, it would do a big disservice to the country to have the various news shows devoting even more time to the horse race aspects of the 2012 campaign. There are critical issues that have to be addressed by the country, items that far outstrip the fundraising prowess of one candidate or the other in importance.

Hopefully, the candidates will be able to stay out of the official race for a while longer. I realize that by June, the pull to announce will be irresistible, but for the sake of the country, the only announcements I want to hear until then should come from those who have decided that they will not run.

The Oscars

I could not let the morning go by without writing about last night's Academy Award show. I would have written last night, but the show was so boring that I was not sufficiently awake to do so. Here are the highlights of the Oscarcast:

The fifth grade chorus of a Staten Island NY elementary school sang "Over the Rainbow". Clearly, it was the best moment of the evening. It meant the show was over.

The victory by "The King's Speech" as best picture and Colin Firth as best actor. That film was one of the only movies last year that had any real substance. Congrats!

Sunday, February 27, 2011

Will people be upset over budget cuts?

I watched an interesting panel discussion on FNS today about whether or not the American people would "freak out" over the budget cuts being proposed by the Republicans. Not surprisingly, the panel was split with Democrats saying "yes", and Republicans saying "no." So long as the true nature of the spending reductions ets through the haze of the media, however, there is little question that the public would go along with them.

First, the "draconian" cuts lamented by the Democrats do not even take the federal spending levels back to those of 2008, a year when most people already thought that spending was out of control. In other words, spending will go from extraordinarily lavish levels to just plain lavish levels.

Second, big chunks of the cuts are for things that have no real constituency. Just how many people will care if the budget of the IRS is cut? Will there be an uproar if the EPA has to exist on a budget only 15% bigger than it had two years ago (to do the same job)? Is there really great support for agricultural subsidies at a point when nearly all farm products are selling at prices much higher than at any time in recent years? (Sure, the farmers directly affected want the subsidies to continue, but who else does?) Who is concerned if the department of Energy has to cut its budget by 35%? Indeed, who can name one thing that the Department of Energy has accomplished in the last two years? Let me rephrase that: who can name one GOOD thing that the Department of Energy has accomplished in the last two years? (We all know that Energy was involved in dealing with the BP well blowout and handled it in the most incompetent possible manner.) Let me just say "Commerce Department" and wait for the howls of the folks who are the ardent supporters of that organization.

I could go on, but the point is clear. No one is talking about cutting the Defense Department funding for the war in Afghanistan. No one is talking about cutting funding for Social Security or Medicare. No one is talking about cutting any of the real safety net for the poor. If ten thousand federal employees lose their jobs, it is just a blip on an unemployment picture in which millions remain unemployed. Those federal employees are a rounding error at best.

In short, other than those who will directly suffer from the cuts (and that is mostly a few federal employees), there is simply no one who is going to get upset about returning the level of federal spending closer to reality. Everyone knows that the choice is between cutting back now or going bankrupt later.

The stock for March -- GasFrac Energy Services

My Stock pick for March is an old favorite of mine: GasFrac Energy Services (Symbol GFS:CA in Canada or GSFVF on the Pink Sheets in the USA). I first recommended GasFrac last October when the stock was selling at $7.07. Since that time, it has risen over 70% and closed Friday at $12.68 (US) and $12.40 in Canada. Normally, I would not make a stock with that type of history a stock of the month, but recent events have given new life to the stock, a trend which will continue in my opinion.

GasFrac engages in the completion of natural gas and oil wells in shale formations. Rather than using the typical water based process that gives hydraulic fracturing its name, GasFrac uses its own completion process based upon injection of liquefied propane gas (LPG). As a result, no water is needed for the well which means that no water has to be cleaned up after use. Because the LPG turns back into a gas once it has been injected into the ground, it is removed easily from the well for sale or reuse. Water based fracking leaves about half of the water in the ground, and this results in lower final production and potential contamination of the gas or oil as it is extracted. There is also concern that the water left in the ground could contaminate local groundwater supplies. while this concern borders on the nonsensical, it is a problem faced by E&P companies nevertheless. So the Gasfrac process results in the avoidance of all the environmental problems of hydraulic fracking, it produces more gas or oil, it lowers cleanup costs, and it gives fracking a "green" patina. Overall, the Gasfrac process is more economical than conventional hydraulic fracking even though it cost more up front.

So why is GasFrac a good buy now? The answer comes from President Obama and Muammar Gaddafi. President Obama has put in place a drilling moratorium for off shore oil wells which, in turn, has led to lower US oil production, higher oil prices and higher gasoline prices. Gaddafi and the Libyan uprising have led to a halt of most exports from Libya and much higher oil prices. The potential for more unrest in the Arab world is another source of possible further rise in oil prices. As oil prices rise, the demand for action by the US to cut the need for foreign oil also grows. It is highly unlikely that Obama will remove his ban on off shore drilling; he has already been ignoring a court order to do just that. so what remains? The answer is easy, a switch to natural gas.

At the moment, natural gas is much less expensive than oil. the proper word to use for gas is inexpensive. If gasoline is now at $3.50 per gallon, the comparable amount of nat gas would cost 75 cents. There is technology existing for buses, trucks and autos to be posered by natural gas. There are also over 5 million homes that could easily switch from oil to natural gas for heating fuel and about 5% of the power generating facilities in the country that could do the same. Simply put, as the price differential between oil and gas gets larger, the push towards gas will get stronger and stronger. Eventually even the government will have to notice and take steps to assist the switch.

So, that is good for gas, but why buy GasFrac? Here's the reason: there is a large group of people out there in America who hate all fossil fuels. They believe that fossil fuels pollute and will not last. They are trying as much as possible to cut back on the production of such energy sources even though it hurts the US economy. Right now, the big attack by these eco-folks against natural gas is focused on hydraulic completion. They spread information that hydraulic completion contaminates the ground water and uses up most of the local water supply. Because the current administration is beholden to the eco-folks, these charges are under investigation by the EPA. It may well be that in a year or two the EPA will issue regulations that cripple the ability of companies to complete wells with the hydraulic method. In a state like New York which has enormous reserves of natural gas, all use of hydraulic completion has in effect been banned with the result that tens of thousands of jobs that could have gone to New York are instead being created elsewhere. For the eco-folks in NY, a perceived threat to the environment is more important than jobs for the unemployed. Just yesterday, the New York Times carried a lengthy article that claimed that the waste water from hydraulic completion was causing radioactive contamination of water from radon gas.

Since GasFrac is the solution to the perceived environmental threat, it is a process that any E&P company has to investigate if it is acting with any prudence at all. That investigation should include hiring GasFrac to complete some wells for the company. If, as should be the case, that completion effort results in lower total costs than completion using water, GasFrac should win a big group of new customers.

GasFrac has prepared itself for a big surge of orders. Over the last year, it has doubled the amount of work that it can take on by investing in a large amount of new equipment. The full impact of the new equipment will not be felt in the current quarter since there was a shutdown for about two weeks over a safety issue that was resolved. By next quarter, however, the company should have the full impact of the new equipment. In my opinion, there will also be a big push by E&P companies to try out the GasFrac process and then to move towards using it on all wells.

Disclosure: I remain long GasFrac stock which has been the case since I first recommended it last October. I may even add more to my holdings.

ABC slants it again

this morning i looked at the headline story on the Drudge Report which linked to an ABC report about an upcoming speech by Speaker of the House John Boehner. It was truly annoying. the essence of the report was there, but the little asides and snide remarks made clear that ABC sided with the Democrats against the Republicans. My favorite in this category came when they got to the part of Boehner's speech where he is to say that congress has a morl duty to deal with entitlement reform, since to fail to do so will leave an impossible mess for our children and grandchildren. The reporter was quick to point out in an aside that the Republicans had made sure to avoid dealing with entitlement reform until now. Let's take a step back and think about that remark. The Republicans have been in control of the House for seven weeks. During that time, they focused on repeal of Obamacare, their sindgle biggest promise of the campaign. They also focused on the spending for the remainder of 2011, something that should have been completed by the last Congress but which the Democrats decided not to deal with. Now that the Republicans are about to come forward with their version of the budget for 2012, it is the time for them to take action on entitlements, and it is the first time to do that. so ABC is criticizing the Republicans for not doing something during the seven weeks that they are now turning to do. ABC is criticizing them for doing things in the order which was required due to the inaction of the previous Democrat Congress. Indeed, ABC is completely silent about the failure of the last Congress to even consider the issue of entitlement reform. Nancy Pelosi is famous for saying that there is nothing wrong with Social Security or Medicare.

Obama, for his part, tried to take 500 billion dollars away from Medicare to fund Obamacare. It was supposed to come from waste and fraud reductions. For a year after obamacare passed, I have waited to see one announcement about the waste and fraud in Medicare that has been found. So far, there has not been one cent discovered. In other words, that $500 billion is just a fantasy used to claim that Obamacare would save money. The claim is completely and knowingly dishonest.

So ABC never mentions the long term failure of the Democrats, but it is there claiming that the Republicans have done something wrong by waiting for seven weeks to start dealing with the 2012 budget. Do they really think people miss this stuff? I guess so.

Saturday, February 26, 2011

What is Obama's Problem on Libya?

President Obama was quoted today in a written statement from the White House as telling German Chancellor Angela Merkel that Gaddafi has to go in Libya. That's it, nothing more. No appearance by the president announcing support by the US for the protesters who are being slaughtered. No call by the President for concerted international effort to support Gaddafi's ouster. Nothing at all like the reaction that Obama had to Hosni Mubarak in Egypt even though Gaddafi is killing thousands of his own people, something Mubarak never did.

It is strange that the Libyan ambassador to the UN has forcefully called for Gaddafi's ouster. The representative of Gaddafi's government who was appointed by Gaddafi is taking a much stronger stand against Gaddafi than the president of the United States.

I guess the proper question to ask is what the hell is Obama's problem on Libya? Okay, for a while, the press covered up Obama's weak response by pointing out that there were Americans in Libya and Obama did not want to endanger them. That excuse went out the window yesterday; the embassy staff and nearly all of the remaining Americans were evacuated from Libya. Not even the leftist press would have the nerve to argue that Obama could not speak out because there were a few Americans left in Libya. It just seems as if Obama does not have it in him to do the right thing. I wonder if he even realizes that it is the right thing to do.

The Government shutdown -- an Update

There is not going to be a government shutdown when funding runs out next week. Instead there will be a continuing resolution to fund the government for two more weeks on the terms proposed by the GOP. Here's why: the Republicans are proposing a $4 billion cut to the budget as the price for a two week extension of spending. That is a cut that keeps them on track for their total target for spending cuts. Normally, one might think that the Democrats would oppose this, but they cannot. The Democrats are boxed in. The nature of the $4 billion cut proposed by the Republicans has finally made its way into the press. According to the New York Times, the $4 billion is composed of earmarks that still remained in the budget together with certain programs that even president Obama propsed to cut. There is no way that the Democrats will shut down the government in order to preserve some earmarks or programs that even Obama wants to drop.

Let's hope that during the two weeks that follow, the Democrats in the senate actually come up with their own plan or, better yet, sign on to the House plan (admittedly unlikely). For the last year, the Senate Democrats have done nothing to bring sense to the budget. It's not that they took bad steps; they just ignored the issue entirely. Now they cannot. In two more weeks, the GOP can come forward with another $4 billion cut for still two more weeks. There are enough items to get another $4 billion that the Democrats will not be able to oppose. Indeed, that could probably be done a third time. Imagine how it will look to the public if the Senate Democrats make a big point of opposing the cuts on the fourth two week extension. They will look foolish and opportunistic. In my opinion, the GOP strategy is quite good.

Friday, February 25, 2011

It's funny

The is a big noise today on sites like about the question that was asked to Representative Broun of Georgia two days ago at a town hall meeting. Some nut job in the sudience asked who was going to shoot Obama. Broun says that he did not dignify the quesiton with a response, but the lefty blogosphere claims that Broun said that the was frustration with the president but that there was an election next year to deal with that. Broun says that the statement was his response to the next question which also complained about Obama. What no one disputes is that Broun immediately had his staff report the quesiton to the Secret Service. Nevertheless, I have seen multiple stories today about how outrageous this was. These include stories by the AP, Reuters and Hearst.

Of course, two days ago, a Democrat Congressman from Massachusetts was not responding to a question when he told his union audience that they needed to "get bloody in the streets." that was an original idea from our friendly Democrat. No one covered that story other than Fox News that I could find.

It is truly amazing and actually funny to see the difference in treatment here. Without a doubt, any rational person would find it worse for a congressman to incite a crowd to political violence than for a congressman to report a threatening statement from a crowd member to the secret service without a full public condemnation of the statement. I guess no one could accuse the media of being rational or even close to rational.

Maybe this should be "false history month"

This afternoon I saw an article about the celebration of Motown at the white House last night. Normally, I would just skip such an article, but the picture caught my attention; it just did not look right. I enlarged the picture and learned that it was Nick Jonas "channeling his inner Motown sound". Huh? Nick Jonas and a Motown gala is like Glenn Beck at George Soros' birthday party. It's like Peanut butter and pickle sandwiches. It's like oil and water. They just do not mix.

I suspect that the Motown celebration was part of black history month. why have a white teenage pop singer there as the symbol of the genre? I know that in the scheme of things in DC, this is not even close to being important. But come on!!! If the white House can't even figure out who should be there to celebrate Motown, how will they ever figure out what to do with Libya or how to bring about economic growth?

Range Resources, an Update

Range Resources (symbol RRC) is a stock I have written about previously. I chose it as the stock for November when it was about $39 per share and I reiterated my purchase recommendation three weeks ago when the stock was in the high 40's. Over the last three weeks, RRC has done quite well, rising another ten percent during that time.

Despite the rise in the stock, it is still a good long term investment for all of the reasons contained in my post of February 4th. Even so, it is time to take some of the profits on this stock. I suggest one of two possible actions: 1)sell a quarter of your holdings and take the profit. (If you got in at $39 when I recommended RRC, you made about 35% in 4 months, an annualized return in excess of 100%.) 2) The second slternative is to write covered calls for part of your holdings. I recommend writing the June 57.5 calls for about a third of your holdings. These calls will bring in $3.20 per contract as of the present moment and they will still leave you with the possibility of another $3.25 rise in the stock price. If RRC declines a bit as some of the craziness goes out of the energy markets (if it does), the calls will decline and you can close the positions while still holding the RRC stock.

Disclosure: I have sizeable positions in RRC which include both put and call options.

Obama is letting any hope of energy independence get away from us.

The is a business story out by Reuters this morning which states that the off shore drilling industry is expecting a marked upturn this year as a result of a major increase in drilling off of Brazil. The Brazilian oil giant Petrobras is expected to hire 6-8 rigs for its new fields off the Brazilian coast. For most people, this is a minor story that affects a few companies that do drilling and, of course, Petrobras. The truth is, however, that this is a major story.

There is quite a limited number of drill rigs in the world capable of drilling wells in the sea floor below a mile of water. As of a year ago, many of these rigs were at work in the Gulf of Mexico bringing in hundreds of millions of barrels of US oil that provided a significant portion of the annual output of the US oil industry. When Obama declared his illegal moratorium on off shore drilling, these rigs were put out of work. Oh, Obama structured his moratorium so that the rigs could finish the wells that they were in the process of drilling, but then all came to a top. Many of these rigs cost over 100 million dollars, so they cannot stand idle without the owners suffering catastrophic losses. As a result, once it became clear that obama was not going to let drilling in the Gulf resume at any time soon, the rig owners began looking for new locations at which to drill. That is why this Brazil story is so important. If eight of the rigs are towed to Brazil so that they can be used for drilling, the move is a permanent one. The oil field off of Brazil is large enough to support these rigs for the foreseeable future. That means that even if Obama obeys the order of the federal court and begins to issue drilling permits again, the rigs needed for the drilling will be few and far between. Obama's refusal to obey the court order will have effectively destroyed the drilling industry. That means that it will also have destroyed about 40,000 jobs in the USA, and there will be no way to get them back. In short, rather than moving us toward economic development and away from reliance on imported oil, Obama will have done the exact reverse. And all this will be in order to make people forget about the incompetent way in which Obama handled the BP well blow out. Politics will triumph over the needs of the USA. Don't we deserve a president who puts the needs of the country first?

Thursday, February 24, 2011

A Government Shutdown -- It is up to the Democrats

In a rather savvy move, the House Republicans have offered a two week extension of the funding for the federal government on the condition that there will be $4 billion of spending cuts. With total spending coming to in excess of 1.3 trillion dollars, it is hard to imagine that the Democrats can balk at a cut of 4 billion. It is cutting about a quarter of a cent out of each dollar spent. Nevertheless, the initial response from the Democrats has been to reject the GOP proposal. If anyone ever needed proof that the Democrats have no intention to cut any spending, this is it.

Never ending Humor -- Jonathan Chait and the electoral math

In an unintentionally funny piece today in the New Republic, Jonathan Chait discusses why Ohio is not needed for the Obama re-election effort since the president can base his efforts instead on Virginia, North Carolina and Colorado (together with the states that went for the Democrats in the last three elections.) To me, this discussion has about as much relevance as would a discussion at the Pentagon about horse cavalry tactics. Chait is clearly fighting the last war.

Let's put this in perspective. The states that gave Obama his margin in 2008 have swung hard towards the GOP and away from the Democrats. These include Wisconsin, Ohio, Pennsylvania,Indiana Virginia, Florida, North Carolina, Michigan and New Hampshire. Each of these states now has a Republican governor and legislature. Together, they controlled a total of 138 electoral votes in 2008. If one adds the six electoral votes that will switch to the GOP due to redistricting following the 2010 census, that is a swing of 146 votes, or more than half the number need to win the presidency. Indeed, if these states get added to McCain's 173 electoral votes, the total of 319 means that Obama loses. Indeed, even if Obama wins one or two of these states the GOP would still win.

Of course, this assumes that Obama can still win in Chris Christie's new Jersey as well as in Nevada, Colorado and New Mexico, something that is far from clear.

The truth is that the earthquake that put Pennsylvania, Michigan and Wisconsin firmly into the GOP camp in 2010 is more than enough to deny re-election to Obama. Chait and the Democrats can continue to fight the old battles all they like. If they choose not to fight on the new issues of runaway spending, dealing with unemployment and Obamacare, the campaign may be much like the one in 2010: the Democrats will have no relevant issues and nothing to say.

It is truly funny to see someone as political as Chait acting so oblivious to political reality. Look, I do not know what the electorate will think in 2012. It is just too far away to know. One thing is certain, however, the paradigm that governed during the Bush years is gone.

DOMA and Obama

Yesterday, Attorney General Eric Holder announced that the president has decided that the Defense of Marriage Act or "DOMA" as it is known cannot be defended as constitutional. Accordingly, the federal government will no longer attempt to defend the law in court. To put it mildly, WHAT THE HELL IS OBAMA DOING??

Under the American system of government, the determination as to whether or not a law is constitutional is not made by the president. Sure, the president could veto a bill passed by congress on the ground that he believes it to be unconstitutional. Once the bill becomes law, however, the president has a sworn duty to try to uphold the validity of that law. That duty does not disappear even if the president does not like the law and even if the president thinks the law is unconstitutional. The determination of constitutionality is made by the Supreme Court.

What would happen were the next president to say that he considered obamacare to be unconstitutional so that it would no longer be defended. Maybe the next president could decide that the Supreme Court erred in ruling that there is a constitutional right to abortion, so that law from prior to Roe v. Wade on the subject of abortion would be enforced. Maybe the president could decide that the amendment allowing 18 year olds to vote was actually unconstitutional so that he could bar those folks from voting.

The point is simple: the president cannot just decide on his own that a validly passed law is no longer constitutional. He cannot decide not to enforce the laws that he swore to uphold. Obama's actions are a disgrace.

Of course, there is the second question about DOMA: with so much going on in Washington and around the world, why is Obama wasting time now on this issue? Is it more important for gays in Nebraska to say that they are "married" rather than that they have a "civil union", or could the soaring price of oil and the unrest in the Libya and the rest of the region possibly be more important? Is this time spent on DOMA part of Obama's being focused like a laser on jobs?

Just once, I would like the president to actually do the job he is supposed to be doing, or even the job he claims to be doing. If he spends the next two years doing nothing but running for re-election, we are all in deep trouble.

Hypocrisy from the left -- but is anyone surprised?

A month ago, the media was filled with discussion and debate about whether or not Sarah Palin was responsible for the attempted murder of Congressman Giffords of Arizona due to Palin's chart posted on her website seven months earlier that included Giffords' district among those with targets on them (to show which seats were being targeted for pickups by the GOP). Every show on MSNBC went on at length about the terrible rhetoric of Palin and the GOP. The main networks also covered the story seriously and pushed the view that angry rhetoric from conservatives was the cause of the attack. Of course, when it turned out that the shooter was a leftist and crazy (close to the same thing), some of the media toned down the attacks on conservatives, but others like MSNBC just continued on as if the actual facts did not matter. Even president Obama chimed in about the need for civility in his speech in Arizona.

Of course, that was a month ago. Now we have a new big news story: the disputes between public employee unions and state governments in Wisconsin, Ohio and Indiana. Let's be clear, this is an economic dispute. The issue is not freedom. The issue is not religion. The issue is not life or death. The issue is whether or not workers will have to pay for part of their healthcare and pensions and whether or not such things will remain subject to collective bargaining.

In the course of this economic dispute, the Democrats and the unions have villified the Republican governors in Wisconsin and Ohio in very nasty and uncivil language. The Wisconsin governor is "Hitler" and a "Nazi". He is to be "targeted" with union mobs showing up to menace his family. Anyone who shows the facts of the dispute is to be drowned out by shouting. Yesterday, a Democrat Congressman from Massachusetts told the union demonstrators to get "bloody". A few reporters have been attacked by the mobs.

So where is the outrage? After the call to get "bloody", I cediced to watch MSNBC to see if there was even a whiff of condemnation for this blatant call for violence. Not surprisingly, there was nothing said. Sarah Palin's seven month old chart listing target seats get blamed for encouraging a leftist who never saw the chart to attack a congressman, but a Democrat congressman who explicitly calls for violence does not even merit a mention.

Much has also been said of the differing treatment of the signs held by the union protestors compared to those of the Tea Party rallies. The media searched in vain to find racist or threatening signs at the Tea Party rallies and discussed such signs even when they could not find them. When the union protesters hold signs that threaten their opponents and use violent imagery nothing is said.

I would never expect anything else from the media. Most of it exists to promote the agenda of the Democrats. Nevertheless, it is fair to ask where Obama is. After his speech in Arizona, we have a right to expect him to condemn these actions by his allies. Given that he has found it hard to even condemn the genocide of the Libyan dictator, however, I guess we should not expect any moral courage from Obama.

Wednesday, February 23, 2011

A quick option trade -- Ford bull spread

Frequently, there are times in the option markets where relatively low risk trades can bring extremely high returns. A good example is a trade that is currently available in Ford Motor Company options. specifically, it is a bull spread in April call options. On can buy the 12 calls for $3.05 and sell the April 14 calls for $1.39. The net investment is $1.66 for each pair of options. If the stock is above $14.00 at April expiration, you will get a net of $2.00. That is an annualized return above 120%. Since Ford is currently trading at $14.92, the stock can decline by almost 7% and you still get the maximum return. So long as Ford is above $13.64 on the April expiration date, you will earn a profit on the trade.

For a stock like Ford which has retreated from its earlier highs but which continues to demonstrate great fundamental strength, this seems like a great bet.

Obviously, options carry risks with them that the underlying stocks do not as a result of their limited time duration. Nevertheless, there is a lot of opportunity to make high returns with relatively safe investments so long as one stays on the lookout for them

Disclosure: I put on the trade described above earlier today. While I have no current plans to change these positions, I may do so if the market shifts.

Ohio, Wisconsin, Indiana, and New Jersey

So here's the question: what do Ohio, Wisconsin, Indiana and New Jersey have in common?

First, they are all big states that President Obama carried in 2008.

Second, they are all states that elected Republican governors in 2009 or 2010.

Third, they are all states with major battles underway with regard to cutting state spending.

Fourth, in each state, current polling shows that the Republican position on cutting state spending is much more popular than that of the Democrats.

Fifth, if Obama loses these states in 2012, he will lose over 60 electoral votes or about 23% of the total needed to win the presidency.

In other words, the stakes are very high in these four states for the president. Obama cannot afford to lose these states in 2012; yet, he seems to be positioning himself to be on the wrong side of the spending issue in each of them. And I thought that team Obama was so good at political calculations even if it sucks at running the country.

Tuesday, February 22, 2011

Laugh Lines from Paul krugman

It has been a while since I thought that Paul Krugman spoke about facts rather than about ideological or partisan positions. Nevertheless, there are times when Krugman says things that are so bizarre that the only possible response is to laugh. In his latest column, Krugman says that the public employee unions are among the few remaining institutions that speak for the middle class and the poor. Ha, ha, ha!

The idea that the public employee unions speak for anyone other than the public employees is ridiculous. When the middle class and the poor suffer due to the recession, did the public employee unions speak for them when they pushed for raises that would mean higher taxes for the suffering middle class and poor? No! When the services provided by governments have to be cut back so that the public employees can collect generous taxpayer funded pensions and health benefits granted by politicians beholden to the unions, was that for the benefit of the middle class and the poor? No!

The truth is that the public employee unions have become enemies of the middle class and the poor. These unions compete for every dollar of government revenue that otherwise could be used to help middle class or poor Americans or to reduce taxes on them. If there were any doubt about this, take a look at the people out protesting in Madison. You have the union members out there seeking to protect themselves from paying part of their pensions and healthcare costs like everyone else. You have the professional protesters like Jesse Jackson and Al Sharpton. You also have students from the nearby University of Wisconsin who are out for a good time. There are no legions of middle class or poor out there. Indeed, there are essentially no middle class or poor in Madison. these folks well know who the unions speak for, and it is not for them.

Maybe one of them should explain this to Paul Krugman. But, of course, he would not listen.

What will it take to wake up Obama?

For the last two years, the president and his party have done all that they could to lower domestic oil production. We have seen constant charges against the oil companies that they are something akin to representatives of the devil. We hear over and over of the need to raise taxes on energy producers. Beyond the words, we have seen Obama destroy the off shore drilling industry in the name of the environment, and that happened because on well out of tens of thousands drilled over the last fifty years had a catastrophic blowout. We cannot minimize the damage done by the oil leak, but we do know that it was much, much less than originally thought. We also know that much of the problem with the well was the incompetent nature of the response from the administration. So Obama has stopped all drilling because the Obama administration looked so bad during the oil spill. The cut-off lets Obama and the Obamacrats look like they are actually doing something. Of course, since we are told that it will be at least seven years before drilling can recommence, what they are doing is stalling and nothing more. Any competent group could have come up with revised procedures and regulations that would have allowed drilling to start again within six months. Indeed, there has already been a ruling from a federal court that holds the administration in contempt for ignoring a court order that found the drilling halt to be illegal.

The big point now, however, is that oil prices are soaring on the news out of the Middle east. Libya may soon have all oil exports cut off. The same is true in Bahrain. Algerian production is at risk and so, to a lesser extent is that of the big one: Saudi Arabia. If there are any of these disruptions, oil could fall into a supply squeeze. More would be consumed each day than produced. that will drive the price higher and higher. It is very possible that the current price of oil could double.

So what would that price rise do to the USA and its economy? Nothing good! A rise of $100 per barrel of oil would suck about an extra $300 billion per year out of the US economy to send overseas. It would also pull at least double that amount out of the pockets of consumers. In short, it is a recipe for another recession, and not a mild one.

It would be a very good idea for Obama to now take steps to push domestic energy production. A decision to go back to drilling now could lead to higher production in a year or maybe less. There has already been great damage to the drilling industry, but fast action could save most of what is there. Two more years of stalling by Obama is likely to cost millions more jobs in this country.

Obama could also put on a push to help people convert from the use of oil to natural gas, a fuel that is both plentiful in the USA and much less expensive. In the last thirteen years, the portion of electricity generated from natural gas has jumped from 13% to 23%, and there is not much oil fired electricity generation to change over. Home heating, however, is another matter. Particularly in the Northeast, there are millions of homes that heat with oil. Switching these homes over would save billions each year (and reduce emissions as well). Of course, instead of an effort to foster natural gas growth, the Obamacrats have been taking actions to threaten further development of domestic gas reserves.

The current crisis may turn out to be a big nothing. No matter what happens, however, it ought to be a wake up call for Obama and the Obamacrats. If the past is any indication, however, Obama is likely to hit the snooze button when the alarm goes off.

Monday, February 21, 2011

Armanino – looking at the earnings trend

With the latest earnings from Armanino Foods of Distinction (AMNF on the Pink Sheets), the company continued its run of record revenue and earnings. I was asked, however, about the fall off in earnings from the third quarter to the fourth; they went from 1.9 cents in the third quarter to 1.6 cents in the fourth quarter of 2010. Even though this is still a record for the fourth quarter, it is a decline of over 15% from the previous quarter.

The simple answer is that in recent years Armanino’s earnings have been seasonal. Earnings in the second and third quarter are the highest for the year. The fourth quarter earnings are usually the next highest for the year with those for the first quarter earnings being the lowest. Here are the numbers by quarter for the last three years:

2008 0.3 cents 0.9 cents 0.9 cents 0.7 cents
2009 0.7 cents 1.4 cents 1.4 cents 1.2 cents
2010 1.1 cents 2 cents 1.9 cents 1.6 cents

As you can see from the chart, the decline from the third quarter to the fourth quarter was greater (on a percentage basis) in 2008 and 2009 than it was for 2010, the quarter for which the results were just reported.
In our opinion, the earnings decline from the third to the fourth quarter is exactly as expected for the stock. First quarter earnings for 2011 may be lower still. Indeed, if the first quarter 2011 earning come in higher than those of the fourth quarter of 2010, it is a good sign of a really outstanding performance for the current year.
The target and outlook for the stock remain unchanged.

Disclosure: As previously reported I have a substantial long position in the stock.

Still More Misinformation from the AP

Just this morning I wrote about an article disseminated by the AP in which someone named Ryan Foley gave out highly biased information about the events in Wisconsin. Apparently, this morning's efforts were not enough for Foley and the AP; they are back with more nonsense passed of as "reporting" this afternoon. Foley's new slant on the news is that the activity of the governor and the Republican majority in the state legislature is actually an effort to get rid of public employee unions in order to hurt the future chances of the Democrats. In other words, the dispute has nothing to do with the $3.2 billion budget deficit that Wisconsin is facing and everything to do with a sneaky political trick. After explaining how truly dastardly these actions are, Foley does have one line in which he says that the governor denies any political motivation for his plans, but Foley makes clear that no one should believe this.

It is sad to think that an idiot (and a biased idiot at that) like Foley is getting his stories sent around the world by the AP as if they were something close to reality. Maybe AP should change its name to FP for Fantasy Press and things would be a bit closer to the truth.

Wisconsin -- the AP shows its bias

In an article this morning by Ryan Foley of the AP (no, I never heard of him either), comes the pronouncement that in order for there to be compromise in Wisconsin to resolve the current standoff, three Republican state senators will have to stand up to their leadership and the governor. That's it! Nothing more! Maybe someone should tell Foley and the AP that a resolution could also come if just one Democrat state senator stands up to his leadership and the unions.

It never fails to amaze me that when there is an issue that is breaking in favor of the Republican/conservative position, the media talks about compromise and brave actions by a few "reasonable" Republicans. So the media is looking for three senators in Wisconsin just like it looked for Republicans to compromise on raising taxes in the current economic slowdown or passing cap and trade legislation in the Senate. On the other hand, when an issue is a favorite of the Democrats, there is never a call in the media for compromise. Do you remember all those articles calling on the Democrats in Congress to compromise with the Republicans on the Obamacare bill? Yeah, neither do I!

The media is transparent in its bias. No more needs be said.

Don't they ever give up

According to a report today, the world will be unrecognizable by the year 2050. Researchers at the annual meeting of the American Association for the Advancement of Science said that the population explosion will overtax the ability of the planet to feed all those humans. There will be two billion additional mouths to feed by 2050.

When I read this report, I had to chuckle. One advantage to being old is that I have been around for a long time. I remember when Paul Erlich made his big news around 1970 when he predicted that the population explosion would lead to massive world wide famine by the year 2000. According to Erlich, the population explosion would overtax the ability of the planet to feed all those humans. Of course, in the years between 1970 and 2010, worldwide food production grew much faster than the population. simply put, the threat of the population explosion turned out to be nonsense.

I guess those so-called scientists at the AAAS conference like the motto, if at first you do not succeed, try, try again. since the first predictions of famine due to population growth proved false, why not try again with a date forty years from now.

In many ways, these predictions are much like the predictions of global warming due to human activity. No one has been able to prove that it is happening. Indeed, there remains a big question if the earth is even warming. Nevertheless, it does not stop people from proclaiming it to be so and it certainly does not stop the media from writing about it endlessly.

Sunday, February 20, 2011

In Wisconsin, the Unions have lost

One never knows how events like the uproar in Wisconsin will play out, but today, we have a very good indication that the unions have lost. that indication comes in the form of a column in time magazine by uber liberal Joe Klein. Klein begins by saying "Revolutions everywhere--in the middle east, in the middle west. But there is a difference: in the middle east, the protesters are marching for democracy; in the middle west, they're protesting against it. I mean, Isn't it, well, a bit ironic that the protesters in Madison, blocking the state senate chamber, are chanting 'Freedom, Democracy, Union' while trying to prevent a vote? Isn't it ironic that the Democratic Senators have fled the democratic process?"

Klein's key sentences come later in his column. He writes: "Public employees unions are an interesting hybrid. Industrial unions are organized against the might and greed of ownership. Public employees unions are organized against the might and greed...of the public?"

If the public employee unions have lost Joe Klein, they have no real hope for victory in the court of public opinion.

Wu what a difference

The news is out that Congressman Wu of Oregon has gotten to the point where he needs psychiatric help. According to the articles, Wu's staff resigned as a group right after the November election since his behavior was so erratic that they could no longer tolerate it. And yet, Wu remains in congress. There is no call from Nancy Pelosi for her fellow Democrat to resign. What a difference from the recent resignation of a NY Republican congressman within hours after pictures of himself that he had sent to a woman that he met on line surfaced in the media. We later learned that he had been pressured by Speaker Boehner for prior misbehavior.

I certainly hope that Wu can recover from his mental illness. But don't the people in his Oregon district deserve sane representation for the next two years? True, in my opinion, many of the positions taken by the Democrats seem insane, but that is no excuse for someone with such problems to be making important national decisions. Were Wu to resign now, a special election could fill his seat in a few onths.

The Wisconsin protests

Yesterday, there were more pro-union protests in madison Wisconsin as well as counter protests in support of the plan of the governor to make public employees pay some of the costs of their health care and pensions. I have now scanned a great many articles about the "dueling" protests and have noticed one curious fact: none of the main stream media has reported on how big the two protests were. Even CBS radio reported that there were 70,000 people in the crowd, but it did not try to break down the numbers into the two camps. Since the two rallies were on opposite sides of the Capitol building, onc would normally assume that the media would be able to provide an estimate. To me, that means only one thing: the rally in support of the bill must have been bigger than expected by the liberal media. Such a crowd would not fit with the current media paradigm that what is at stake is an evil attack on the basic human rights of the unions. Somehow, the media has bought into the hype from the unions that by making them more like private sector workers who pay part of the health and pension benefits, it is the end of democracy and the beginning of fascism. Indeed, even the so-called attack on the union's right to collective bargaining only pertains to benefits. The governor wants to make sure that in the future no union of public employees can take advantage of a weak local government to force benefits back to the unsupportable levels that they are at currently. Such benefit changes would require the consent of the people of the state acting through the legislature.

Saturday, February 19, 2011

A lose-lose situation

In a move that has not been getting much press, the US vetoed a resolution in the Security Council of the UN which would have declared illegal all of the so-called settlements by Israel in the territory captured in 1967. In a move typical of the Obama Administration, the vote was preceded by Secretary of State Clinton announcing that the US views all of the Israeli settlements as illegitimate. Does anyone else think this is schizophrenic?

Here are the most important points. the vast bulk of the so-called settlements are in Jerusalem or its immediate suburbs. When an Israeli buys an old hotel near the Western Wall in the heart of the Jewish Quarter of the Old City of Jerusalem and rehabilitates the building into condominiums, it gets labelled a settlement since the Jewish quarter was conquered in 1948 by the Arab Legion and all Jews were expelled by the Jordanians. In the following years, Jordanian rule continued in the area although the area was never actually part of the Kingdom of Jordan. When the Israelis retook the area in 1967 after they were attacked by the Jordanians, the ISraelis annexed the area to the State of Israel.

Under international law, an area taken in response to an attack can be administered and controlled by the victor until the matter is resolved in a peace treaty. In the peace treaty between Jordan and Israel, the Jordanians renounced any claim to Jerusalem and the West Bank. That means one of two things: Israel has every right to do with the area what it wants since Jordan relinquished its claim, or, if you believe that there is a Palestinian claim to the area, then Israel has the right to determine what happens in Jerusalem and the West Bank until there is a peace treaty between Israel and the Palestinians that determines the fate of the area. there is no doctrin to the contrary in international law. Everything else is propaganda.

So why is it that the USA is now calling the building of homes for Jews in Jerusalem illegitimate? In my opinion, it is simply another instance of teh Obamacrats being unable to recognize or deal with the truth. the US properly vetoes the resolution that mislabels these areas settlements and brands them illegal. But in an effort to placate the Arabs, Hillary says the same thing. In one fell swoop, the USA manages to offend the Israelis and lose more of their trust by bowing to the Arabs with the Clinton statement while offfending the Arabs by vetoing the resolution. It was a typical Obama lose-lose situation.

Imagine if our president has the courage to just do what is right for once. Imagine if he would make a statement in which he announced that he had reconsidered his opposition to the settlements and determined that those in metro Jerusalem are not illegitimate. Imagine if he were to announce to the Arab world that they need to get over their desire to throw the Israelis out of that city. Imagine if obama then said that while the settlements are not illegal, they do remain an obstacle to peace so he is callng on the Israeli government to stop further expansion of settlements other than those in the Jerusalem area. My guess is that the Israelis would go along with this.

Look, there is no way that there will ever be a peace agreement in which the Israelis give up all of the so-called settlements. Nearly 300,000 Israelis (or some 5% of the population) live in these areas. Indeed, in prior negotiations with Yassir Arafat, the Palestinians recognized that the "settlements in the Jerusalem area would remain under Israeli control. Obama should start from there with a policy based upon reality and honesty, not one based upon ideology and conjecture.

As the world's only superpower, the USA should have the ability to help (or at least to not hurt) the peace process. Obama has not manged to do anything of the sort.

Where does the AP get its reporters

I've often wondered where the Associated Press finds the people who write its articles. After reading one article this morning I have narrowed down the possibilities to two 1) under a rock or 2) the planet Mars. The article I am talking about is about how the demonstrations in madison Wisconsin that attracted about 25,000 union workers and students to the state capitol is the rebirth of political activism after decades of quiet. It was written by Dinesh Ramde, who is not exactly a household word. In the entire article about the rebirth of citizen activism, Ramde fails to mention anything about the biggest burst of citizen activism seen in many years, the Tea Party. Last year Tea Party rallies that were not part of anyone's election campaign brought out many millions of voters. Indeed, on April 15th, there were more than a million at rallies nationwide. Glenn Beck drew half a million or more to his 8-28 rally in Washington. Even if Ramde wants to ignore all the activism that came from conservatives, there was also the rally held in Washington by the left that drew at least a quarter of a million people last fall. But this idiot still writes about the rebirth of activism shown in Madison.

Dinesh, let me clue you in. the rallies in Madison are not political activism. They are labor disputes. The big issue is whether or not state workers in Wisconsin will have to pay for part of their own health care and pensions like everyone else in the country. Indeed, since the amounts asked of the state workers is about half of what private work force people pay, the response is an over the top temper tantrum. The rallies are also a sign that the teachers' unions realize that their hold on power has slipped. In the old days, no government in Wisconsin would dare to have challenged the benefits of the teachers. It would have been political suicide. The union could bring out its troops (like those now in Madison) and defeated opponents. Well they tried that last fall and they lost. So now, the intimidation and threats will not work. Those in office got there despite the best efforts of the unions. So for once, the government will try to do what is fair and right rather than just what is good for the teachers union. Indeed, the very nature of the protests show that the unions know they have next to nothing to say to support their position other than "don't cross us or we will get you!" To say the least, even the union members realize that arguing that if the teachers have to pay for part of their benefits like everyone else does, the quality of teaching will suffer and hurt the kids, is nonsense. Why would anyone who teaches do worse if the cost of their healthcare changes. For most private workers, the cost of healthcare changes every year, and usually not for the better. After each of those changes does the quality of the work performed go down. No! So all that is left for the teachers is a display of rage. How dare the legislature actually make them pay for part of their benefits. That results in the current temper tantrum. Of course, all the usual suspects run to get involved, so Jesse Jackson is now on the scene arguing that this is a civil rights issue. (paying for healthcare in part is civil rights? Oh well, no one ever accused him of making sense.) Leftist students from the University of Wisconsin are also there for fun and games. Nevertheless, the crux of the dispute remains an effort by the state government to make clear that the workers work for the state and not vice versa.

Friday, February 18, 2011

Bingaman retires

Senator Jeff Bingaman of New Mexico is announcing today that he will not run for his seat again in 2012. He is the fourth senate Democrat to retire rather than face the voters in 2012. Two Republican senators have also announced their departures.

This retirement is not good news for the Democrats in their efforts to keep control of the senate in the next election. Although president Obama won New Mexico in 2008, the race could be very close there in 2012. In fact, this state has to now be rated as a toss up rather than a likely Democrat victory as a result of the retirement. since the Democrats are defending 23 seats to the Republicans' 10 in the next cycle, adding another seat to the toss up category makes it that much harder for the Democrats to hang on to control.

Why don't the Democrats like democracy?

In watching the TV coverage of the Wisconsin protests by the public employee unions and the various responses to them, I started wondering why the Democrats do not like democracy. The governor and the legislature were replaced in last November's elections in Wisconsin specifically to deal with the state's budget crisis. The voters chose the Republican party to put an end to business as usual in the state. So now, when the governor and the legislature are doing exactly what they told the voters they would do and exactly what the voters chose in rather overwhelming fashion, the response from the Democrats is to try to subvert the process. Democrats are not debating the proposed moves trying to convince the Republican legislators to change their minds. Democrats are not organizing wisconsin citizens to write to legislators or otherwise to lobby them to change their minds. No, Democrats state senators are hiding at a resort in Illinois so that there can be no quorum in the legislature to take action. And the unions which are an arm of the Democrats are threatening the families of the governor and the legislators with unruly mobs gathering outside the homes of these people.

If the Tea party protests of 2009 and 2010 had done anything like sending mobs to the homes of opponents, the national media would have treated the story as the rebirth of the Nazi party. But the silence from the major media outlets on the union protests of this sort is deafening.

In fact, the media is not just silent on the Democrats attacks on democracy and "civility", but they are distorting the coverage in order to help in those attacks. The governor of Wisconsin said that he was going to call out the national guard in the event that the public employee unions went on strike (or called in sick in a massive way) in order to make sure that the critical services of the state continued to be operational. I watched the video of his statement. Then I read four separate articles about the possibility of the National Guard being activated and each one intimated that the Guard would be used to put down the protests. This is a monstrous distortion, but it is part of the narrative of the Democrats in Wisconsin. The duly elected governor is a "dictator" who is out to break the unions. The fact that what the governor wants and the legislature is about to pass is a requirement that state employees (other than firemen and policemen) will have to contribute to their health insurance coverage and pensions at a rate less than one-half the average of private employee in the state is portrayed as an attack on the children.

So let's get this straight: requiring the teachers to pay for some of their own health care will mean that the students will not get as good an education. What total nonsense.

The true fight in Wisconsin is this: for the first time in a long time, the public employee unions in the state totally lost an election. When the results of democracy are to be put into action, the unions and their Democrat allies just cannot abide it. Just as the Democrats in congress ignored the will of the people to pass Obamacare last year, the unions and the Democrats in Wisconsin are ignoring the will of that state's electorate. Fortunately, for all of us, elections have consequences.

One afterthought: Keep in mind that once the bill finally gets passed, the unions and the Democrats will run to a sympathetic court to have the law overturned.

Thursday, February 17, 2011

The New York Times Uses Milbank Math

Yesterday, I wrote about the clearly erroneous claims made by Dana Milbank of the Washington Post with regard to the effect on employment of the reductions in spending proposed by House Republicans. Today, the New York Times is using bogus math on the same issue. In an editorial called "Out of Control in the House", the Times laments that the Republicans are promoting cuts in discretionery spending that will lead to a supposed 800,000 lost jobs. All this is due -- according to the Times -- to cutting the spending of $81 billion over the next six months.

Let's put this in context. If we assume that the Times is correct (and they are not), the worry is that 800,000 people will lose their jobs unless the federal government continues to spend money at the annual rate of $162 billion more than the GOP wants. $162 billion is enough to pay each one of these supposed 800,000 people who lose their jobs $202,500 for the year. Does that make sense to anyone? Beyond this, the source material of the Times says that cuts of this magnitude will have little or no effect on the deficit and are needless. Since the Democrats always talk about the impact of their budgets over a decade, we should do the same for these cuts. If the cuts are made and sustained for a decade, the savings will be 1.62 trillion dollars. Further, since all of that spending would be with borrowed money, there would also be enough interest paid on this spending to bring the total cost to abot $2 trillion dollars. In the world of Obama spending, that is still not enough to bring sanity back to the government spending, but it is hardly the meaningless gesture that the Times pretends it is.

The truth is that the New York Times is against any cuts in spending and will say whatever is necessary to make arguments against those cuts. It is sad that the newspaper that used to stand for truth and complete honesty now is the poster child for bias and half truths foisted on the public to support a political agenda.

Wisconsin -- the unions behaving like spoiled children

The latest from Wisconsi is that the Democrats in the State Senate have gone into hiding to prevent that chamber from voting on the bill to restrict the power of public employee unions and to increase the contribution of the state employees to pensions and health care by 8%. In exchange for passage of the bill, the governor pledged that there would be no layoffs of state workers. Without the bill, the governor has said that there will have to be about 6000 state workers laid off in order to close the budget gap.

In response to these actions by the state government, the unions have acted as if the world was coming to an end. Thousand of state workers have carried out an illegal strike. Most have gone to the state capital to chant "Freedom and Democracy!" It would be more appropriate if the chant was "we would rather you fire 6000 worker than to have us pay for 8% of our health and pension benefits!" Or maybe a better chant would be "We don't care if the state is broke and the people unemployed; we won't pay for any of out benefits!"

The truth is that the behavior of the Senate Democrats is reprehensible. Maybe someone should tell them that old favorite, "Elections have consequences and we won!" Seriously, the elections in Wisconsin last fall were fought on the issue of controlling the spending of the state by making changes like this. The people of wisconsin (remember them?) voted for a governor and legislature that promised to go beyond business as usual and to bring spending under control.

I do not think that the public employee unions are doing themselves any good. Over the top actions like picketing the homes of the governor and legislative leaders and threatening their families will not play well with the people of Wisconsin. Using tactics like going into hiding will not help the dmeocrats regain a reputation for responsibility. My guess is that the bill will pass within the next week. The effect of the childish games from the unions, however, will linger for a long time. Folks in Kenosha or Milwaukee who can barely keep afloat are not going to think kindly of the state employees who demand no cuts whatever in their benefits (which are already much better than private workers) and want taxes raised on everyone else to pay for these perks.

The Armanino Earnings—another Record Quarter

This morning, Armanino Foods of Distinction (AMNF on the Pink Sheets) released its earnings report for the fourth quarter and the year ending December 31, 2010. On the whole, the report was a very positive document. Both sales and profits set records for the fourth quarter. The same is true of the earnings and sales for the year (the second year in a row that has happened). For 2010, the company earned 6.6 cents per share, making the price/earnings multiple for the trailing twelve months just under 13. In view of the company’s growing its earnings YOY by 47% (with the majority of that growth iin the second half of the year to boot), a P/E of 13 remains particularly low.
The detail of the company’s financial performance has not yet been released. It should be made available on the company web site in a few weeks. Certain important points can be discerned from today’s press release, however.
First, most of the funds for the stock buyback remain to be expended in the future. The number of outstanding shares actually rose slightly in the quarter, an indication that very few shares were actually bought back. This provides a nice support for the stock in the coming months.
Second, margins on sales increased in a major way. Income from continuing operations before taxes, a good indicator of margins rose to 13.7% of sales in the quarter in 2010 from 11.7% of sales in the quarter in 2009. With the rise in price of commodities worldwide and of wheat in particular, there was concern that Armanino’s margins would be squeezed. Just the opposite was true. Either the company was able to pass on increased costs or the management figured out how to operate much more efficiently.
Third, Ed Pera, the company’s President and CEO is quoted as saying, “to enhance sales further we are introducing new products into both new market segments and new and existing industrial accounts. We remain cautiously optimistic about our business in 2011.” Over the years, Armanino has been known to underpromise and overperform, so Pera’s statement is good news.
The only question raised with regard to today’s report is the slowing growth of revenues. For the year, revenues rose by 9% while revenues for the fourth quarter rose by only 3.5%. It is premature, however, to determine whether or not this is the start of a trend. Given the company’s push into new accounts in an expanded geographical area, the numbers may be nothing more that the lull arising after the initial sales which stocked the new accounts.
OUTLOOK: On the whole, the earnings report is a major positive for the stock, particularly since it seems to remove the worry about rising commodities prices. I maintain my target of $1.30 for the stock. Indeed, if the stock breaks through the $1.00 barrier, there may be a rapid move to the upside as certain fund managers who are barred from purchasing stock below $1.00 may jump into the stock. If the company takes any action to return to NASDAQ from the Pink Sheets, there should also be a big bump in the price.
Disclosure: I remain long Armanino with extensive holdings in the stock.

Nir Rosen -- why put scum like that on TV

Last night Anderson Cooper put Nir Rosen on his show to discuss Rosen's Twiter messages applauding the attack on CBS reporter Lara Logan since she is, according to Logan, a war monger. For those of you who do not know, Rosen is a journalist of sorts and he was dumped from a position at NYU for his actions. Rosen claimed that he did not know what had happened to Logan when he sent the tweet, a claim that Cooper called unbelievable since Rosen linked to the two paragraph CBS statement that described exactly what had happened in the attack on Logan. Rosen claimed he did not read the CBS statement before linking to it and sending it out on Twitter.

There is no question that Rosen is slime and should be shunned. The truth, however, is that Rosen did not say anything about Logan worse than people of his ilk said about George W Bush for years during his presidency. It is nice to see, however, that even someone like anderson Cooper now recognizes that Rosen went way over the line with his comments.

My question, however, is this: if Cooper recognized that Rosen is scum, why put him on the show and give him a chance to try to wiggle out of what he said? The man applauded the sexual assault on an American woman reporter by a mob in Egypt. There is no way to explain that away. rosen and his garbage does not deserve an airing on American TV.

The New York Post on Malloy

Does the New York Post read my blog? today's Post has an editorial about governor Malloy's budget proposal that sounds like something I wrote. the Post points out that Malloy's budget will raise taxes dramatically and actually increase spending while describing the raise as a cut. The Post then thanks Malloy for helping New York keep its citizens by equalizing the tax rates of the two states. If you read my blog, that should sound familiar.

Wednesday, February 16, 2011

Dana Milbank: Why not check your facts

In today's Washington Post, Dana Milbank makes the case that the Republicans do not care that their proposed cuts to spending for the remainder of 2011 will lead to increased unemployment and possibly a return to recession. Dana -- CHECK YOUR FACTS! You got it all wrong.

Milbank says that he "checked with budget expert Scott Lilly of the Center for American Progress, and, using the usual multipliers, he calculated that the cuts - a net of $59 billion in the last half of fiscal 2011 - would lead to the loss of 650,000 government jobs, and the indirect loss of 325,000 more jobs as fewer government workers travel and buy things. That's nearly 1 million jobs - possibly enough to tip the economy back into recession."

So let's get this straight. According to the government's own Bureau of Labor Statistics, the federal government has just over 2 million employees. That means that according to Milbank, a cut of $59 billion dollars of spending will lead to the layoff of one third of all federal employees. (These figures exclude the military). Strangely, a cut of $59 billion dollars would be a spending reduction of about one and a half percent of the total federal spending. So we cut spending by 1.5% and that means laying off 33% of all federal workers.

Of course, this gives rise to the following question: How dumb is Dana Milbank or, alternatively, how dumb does he think the American people are? Milbank knows that his numbers are not even close to correct, but he uses them anyway. The editors of the Washington Post know that Milbank's numbers are not close to correct, but they use them anyway. The numbers are so far off that even were the cuts to the federal budget to come only from salaries (which is of course not true), there still would not be anything close to layoffs in the numbers that Milbank ominously announces.

Milbank should be ashamed of putting this nonsense out for the public to read. He is either incredibly lazy or just plain dishonest. Take your pick, but either way, realize that the man's articles are not worth reading.

And now comforting words directly from Mr. Delusional

Former president Jimmy Carter was asked at an event at the LBJ library in Texas his opinion of the Moslem Brotherhood in Egypt and the group's likely impact as events move forward in that country. Carter said, "I think the Muslim Brotherhood is not anything to be afraid of in the upcoming (Egyptian) political situation and the evolution I see as most likely. They will be subsumed in the overwhelming demonstration of desire for freedom and true democracy."

Let's remember some of the other great insights by Carter in the region. Carter is the one who thought that removal of the Shah in Iran would lead to a pro-Western democracy there. He also felt that speaking softly in the face of Iran taking US embassy personnel hostage was the right way to go. Wow, I forgot what insight this guy has!

The truth is that Carter is generally delusional when it comes to world events. Anyone, like Carter, who could conclude that all the North Koreans want is peace, can only be described as delusional.

I still wonder to this day how the man was ever elected president.

Governor Malloy's new tax proposals

The Connecticut economy has been stagnant for years. The state has not created new jobs over the last decade, one of the few states in America about which that can be said. The reasons for this stagnation are clear: clogged transportation arteries, high taxes, high costs and heavy regulation. Another big cause is the after effect of the departure of military bases and facilities. The one big area of growth has been the movement of banking and finance jobs out of New York and into Fairfield County. Perhaps the big draws for that move were quality of life and much lower income taxes than New York.

So what is the plan of the new governor, Dan Malloy, to close the budget gap? You guess it! Less raise income taxes so that we can give away the one advantage that has been pumping new life into the state's economy. Oh, Malloy talks about cutting costs, and he announced a plan to consolidate the state agencies into only about 60% as many as there were previously. this was a big talkinig point for Malloy during the recent campaign. Of course, during the campaign, Malloy would never say what this move would say; in fact, he did not make it clear if he was in favor of closing 40% of the agencies or just consolidating them in a reorganization so that little was cut. Now we know! Malloy just wants to change the organization chart and cut nothing. The estimated annual savings from Malloy's much touted move is ten million dollars. So, on a multi billion dollar budget gap, Malloy wants to "cut" spending by ten million and raise taxes. Indeed, Malloy proposes another 500 million dollars in new spending which will make balancing the budget that much harder. What a mess!