Obama orders cabinet to cut $100 million from budget. Really!

More than 40 years ago, one of Obama's predecessors to his Illinois senate seat, Everett Dirksen, famously said "A billion here, a billion there, pretty soon, you're talking real money".

A few days ago I was watching TV while doing other things and I thought I had heard the president say that he was ordering his cabinet heads to cut $100 million dollars from the budget. Surely I had mis-heard. He must have said "cut $100 billion". Even then I thought $100 billion was trivial given the current budget. It passed from my mind.

Then I saw today that he actually did say $100 million. See HERE.

The President must be living in a time warp. Perhaps in Lincoln's time, $100 million was real money.

View this video to see how trivial $100 million is in the context of the government budget...

Glaxo-Smith-Kline and Swine Flu

With swine flu in the news, my brother suggested purchasing either Glaxo-Smith-Kline or Roche. Each have antiviral medications to shorten the illness and perhaps protect people against contracting the influenza. GSK has Relenza and Roche has Tamiflu. Relenza is reputed to be the more efficacious against this strain.

As expected the growing concern caused both stocks to pop today. GSK was up 7.6% and Roche was up 4.3%. In truth, their anti-viral medications are only a small part of their businesses so surely emotions played a big part in the action.

I did take a look at GSK in particular and took a position. At the open, GSK had gapped up more than 5% before I could place a buy. For the day my position was up 2.3%.

Independent of the swine flu factor, GSK seemed attractive on a valuation basis. It is trading at PE of 12.2% (ttm) and sports a 5.6% dividend. But its revenue growth has been stagnant/down. It had been recently beaten down over concerns of patent expiration of some of its key products as well as concerns over its pipeline. And I suppose that there is the general over hang of concerns with Obama's yet to be revealed health initiative.

As insurance, I'll put a stop loss on it and let it play out for a while.

If one had been more prescient a smarter move would have been to buy some of the smaller players in this field as soon as the flu started to appear. Today's pops for Novavax, Biocryst and Biota were in the range of 80-125%. See HERE.

I suppose one could argue that this is like buying gold. That is, playing off of fears and bad news. The reality is I hope that the need for these medications does not come to pass. In which case I will instead rely on the valuation and overall strength of the company.

How long will key minerals last?

The NEW SCIENTIST has a very interesting chart on the longevity of (that is, when we will run out of) key commodities based on various scenarios of consumption rates, population growth and recycling percentages.

For example they estimate that there is enough platinum to last about 15 years, silver 15-20 years, zinc 20-30 years. So either we will have to use less, find even more than is projected to be available or see prices rise.

The chart can be seen HERE.

Worst recession in the last 50 years?

The New York Times has an interesting chart on how the current recession compares with other recessions over the last 50 years.

"The current recession has become the second-worst in the last half-century and is close to surpassing the severe 1973-75 downturn, according to the Index of Coincident Indicators, based on government data and compiled each month by the Conference Board, a private organization.

Unlike the more widely followed Index of Leading Indicators, which is supposed to help forecast changes in the economy, the coincident index is aimed at simply recording how the economy is doing now.

The accompanying chart shows how far that index has declined from prerecession peaks during each downturn since 1960."

Click on the chart to view it full size. Full article is HERE.

China Going for the Gold... again

Bloomberg reports HERE that over the last 6 years China's GOLD holdings have increased by 76% to over 1,000 tons. China now has the 5th largest holding of the yellow stuff.

The U.S. has the world’s biggest gold holdings at 8,134 tons, followed by Germany with 3,413 tons, World Gold Council data show. France has 2,487 tons and Italy 2,452 tons, while the IMF has 3,217 tons.

China has been looking for ways to diversify away from dollar holdings by buying under valued commodities.

As previously reported, the IMF is about to sell 400 tons of gold. China is viewed as a likely buyer which would support prices.

Today gold jumped 1% to $912.

And according to the TELEGRAPH, "Inflows into ETFs up by more than 300% Figures from the World Gold Council show that investors appetite for gold showed no sign of abating with record inflows in to gold exchange traded funds."

Just about every economist will tell you that gold has no utility. It does not generate dividends. Even Warren Buffett has said, “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

So given that all this is true, then why does just about every government on the planet continue to hold gold?

I'm continuing to hold about 10% of my IRA in the IAU and GLD ETFs. I don't trust all the paper currency being printed. Do you?

Diamond Dollars

University of Chicago graduate and former executive with Pepsico, Vince Gennaro, talks with Bloomberg's Tom Keene on this PODCAST about his book, "Diamond Dollars: The Economics of Winning in Baseball.''

If you liked Michael Lewis' Money Ball, then Diamond Dollars would make for a great follow on baseball season read.

Autos as a distressed value play?

Dennis Virag, president of Automotive Consulting Group Inc., talks with Bloomberg's Ken Prewitt in this PODCAST about partnership negotiations between Chrysler LLC and Fiat SpA, a looming bankruptcy for General Motors Corp. and his assessment of Ford Motor Co. and its Chief Executive Officer, Alan Mullaly.

Virag expects the GM shareholders to be wiped out. So GM is the ultimate value trap. Chrysler is of course private, so no play here. But Virag is surprisingly positive on Ford.

Also Mandel of Autoweek can be heard HERE giving his comments to Bloomberg on the Detroit 3.

Emerson Electric (EMR) - A Value Play?

I tend to think that we are in stock pickers market. That is, in this market, one can do better by selectively buying stocks rather than buying the broad indexes. If you are of that mindset, then perhaps consider Emerson Electric as a value play.

I had bought Emerson back in October (down 4% since then). As I am 6 months in to this stock, I spent some time looking at its current situation to see if I should still hold (I will). Since I did the research, I thought I would share my findings in case there is any interest.

Emerson has a PE of 11 and is paying a 4+% dividend. The dividend beats money in the bank. Its return on equity is 27%.

And while Emerson has been hit like just about everyone else, it has many businesses that I should think would do well under Washington's stimulus regime. Businesses like smart grid technology, heat pumps, process management systems and more.

I tend to think of Emerson as being somewhat like General Electric but without the GE Capital albatross around its neck.

Some links:

EMR Quote

Greenblatt Value Ranking

Bloomberg Podcast: Christopher Middleton of Atlantic Equities positive on Emerson

Bloomberg: Emerson may acquire Rockwell Automation (usually negative for the acquiring company's stock)

Barrons Stockgrader Rates it a Buy[$]

MSN StockGrader rates it a 9 (out of 10)

Street.Com Video: Emerson and China

Emerson was bearish on near term outlook in their April 7 update

Emerson Quarterly Report and Webcast is May 5

President Obama's 2008 Tax Return

I just mailed my 2008 income tax return. For grins, HERE is President Obama's 2008 Form 1040 Federal Income Tax Return. His adjusted Gross Income was $2,656,902 on which he paid $855,323 in taxes.

Black blasts Bush, Paulson, Obama, Geithner and Summers

After blasting Bush, Paulson, Obama, Geithner and Summers on Bill Moyer's PBS show this past week, now Bill Black is doing more of the same in this week's Barrons Magazine. What Black says is consistent with what Economist Simon Johnson said in the Atlantic Magazine HERE. Excerpts from Black's interview in Barrons is below.

"The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.

We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? If they are going to get any truthful investigation, the Democrats picked the wrong financial team. Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS -- and even our own Goldman Sachs. To me, the single most obscene act of this scandal has been providing billions in taxpayer money via AIG to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting the bank for tax fraud. The second most obscene: Goldman receiving almost $13 billion in AIG counterparty payments after advising Geithner, president of the New York Fed, and then-Treasury Secretary Henry Paulson, former Goldman Sachs honcho, on the AIG government takeover -- and also receiving government bailout loans."

The full article is HERE[$].

A taxing time?

Don't feel so bad. Forbes magazine has an interesting ARTICLE comparing US tax rates to that of other countries.

"Total taxation (federal, state and local) amounted to 28% of the GDP in the U.S. in 2006. Only four of the 30 OECD countries had a lower tax ratio. Taxes averaged 35.9% for the OECD as a whole and 38% in Europe. Citizens of Denmark and Sweden paid very close to 50% of their total income in taxes...

...Federal revenues as a prececent of GDP will be the lowest since 1950...

...Only 4 OECD countries, Japan, Korea, Turkey and Mexico, had lower tax rates than the US."

A Bear Market Rally?

"The Dow Jones industrial average gained 246 points on Thursday. The Standard & Poor’s 500 index has now risen more than 25 percent since stocks bottomed out on March 9, one of its best runs since the Great Depression."

The question at hand is whether the recent spurt in stock prices is a turn around or just a bear market rally? In the New York Times, three economists give their opinions HERE.

You can't handle the truth!

On April 3, Bill Moyers interviewed Bill Black, a top regulator during the S&L scandal of the 1980s and now a Professor of Law and Economics at the University of Missouri.

Bill Black supported Obama in the election. Now he has scathing comments about Obama's Treasury Secretary, Geithner, his Economic Advisor, Summers, Bush's Treasury Secretary, Paulson, and others. He argues that the fraud committed on Wall Street is now knowingly being covered up by the economic team in Washington.

BILL MOYERS: Who's covering up?

WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, "We just can't let the big banks fail." That's wrong.

BILL MOYERS: So, you're saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?

WILLIAM K. BLACK: That's right. And it's particularly a crisis that brings this out, because then the class of the banker says, "You've got to keep the information away from the public or everything will collapse. If they understand how bad it is, they'll run for the exits."

Watch the full interview HERE.

To quote Jack Nicholson, "You can't handle the truth!"

Here's a TIP...

"In March, TIPS earned 6.1 percent, the best returns since the Treasury started selling the securities in 1997, according to Merrill Lynch & Co. index data." Bloomberg reports HERE.

IMF Trillion Dollar Funding and Gold Sales

The Group of 20 has announced that they will pump up the world economy by funding the International Monetary Fund with an infusion of $1 trillion dollars.

It was also agreed that the IMF should sell off a portion of their bullion holdings to provide additional funds to impoverished countries . The IMF currently holds about 100 million ounces of gold. The day of the announcement, gold fell 2.5%. Some estimate that gold will fall to $855 per ounce by the end of April.

More HERE, HERE and HERE.

Union Busting or Cold Hard Business?

The Boston Globe is reporting...

"The New York Times Co. has threatened to close the Boston Globe if it can't get the paper's unions to agree to $20 million in concessions... Management told union leaders Thursday that the Globe will lose $85 million in 2009, unless serious cutbacks are made..." MORE.

Now try and reconcile the above against a December 28, 2008 New York Times editorial in support of Obama's pro union agenda...

"Even modest increases in the share of the unionized labor force push wages upward, because nonunion workplaces must keep up with unionized ones that collectively bargain for increases. By giving employees a bigger say in compensation issues, unions also help to establish corporate norms, the absence of which has contributed to unjustifiable disparities between executive pay and rank-and-file pay.

The argument against unions — that they unduly burden employers with unreasonable demands — is one that corporate America makes in good times and bad...

...There is a strong argument that the slack labor market of a recession actually makes unions all the more important. Without a united front, workers will have even less bargaining power in the recession than they had during the growth years of this decade, when they largely failed to get raises even as productivity and profits soared. If pay continues to lag, it will only prolong the downturn by inhibiting spending." MORE

So is this a case of the New York Times not practicing what it preaches? A case of easier said than done? Or just cold hard reality?

My Greenblatt First Quarter Stock Returns

Below is my Greenblatt value holdings return for Quarter 1 of 2009. Lots of red! Including cash, my return was minus 4.4%. Boooh.

The consolation is that I beat the Total Stock Market Index by 6.3% as the Total Stock Market fell by -10.7% over the quarter. I currently hold 6.2% in cash in my Greenblatt portfolio.

What saved me was my purchase of GT Solar on March 16. It was up more than 70% in the last two weeks of the quarter.

1/1/2009 through 3/31/2009

Accenture -16.16
ADP -9.79
Amgen -14.25
Applied Materials 6.12
Biogen Idec 10.06
BJ Services -14.31
Cisco 2.88
Eli Lilly 5.74
Emerson Electric -21.93
Freightcar America -3.72
General Mills -17.19
GT Solar 70.11
Hasbro -13.37
Intel 2.52
Johnson and Johnson -12.08
Joy Global -6.95
Marathon Oil -3.91
MEMC 15.48
Microsoft -5.5
Pfizer -23.09
Sara Lee -16.34
Teva Pharmaceutical 2.41
United Technologies -19.81
Valero -17.28
Verigy -14.24
3M -13.59

Total Return Excluding Cash -4.69
Total Return Including Cash -4.41
Total Stock Market Index -10.72

Yucca Mountain Nuclear Waste of Time

In 1987 the US Congress voted to site the nation's nuclear waste depository in tunnels miles under the desolate and arid Yucca mountains of Nevada.

Nearly a quarter century later and $13 billion dollars, the project is complete needing only final regulatory approval. During all those years power plants have been holding nuclear waste in tanks which is growing at the rate of 2000 tons per year.

Now the Obama administration has decided to dump the whole project. The new energy secretary claims there is a better way to dispose of nuclear waste. (Why didn't he speak up 20 years ago?).

No doubt this is really Senate leader Harry Reid of Nevada's decision. He got the money and jobs for his state to dig the holes. And now he'll have the money and jobs to fill them back up.

Full story HERE.

Some thoughts...

I used to think a $13 billion boondoggle was a big deal. When one no longer views it as big money, then truly boondoggle inflation has already taken its toll.

Worse is the 22 years of wasted time. It will surely take another quarter century to arrive at another costly, make-work, non-decision to decide what not to do with the nuclear waste.

This goes to show that anyone who thinks we will ever build another nuclear plant in this country is inhaling u-238. One should look elsewhere for an alternative energy play. Nuclear energy has too much NIMBY baggage.

We in Illinois have some of the largest nuclear plants in the country providing clean power throughout the Midwest. Yet the spent nuclear waste is sitting in the midst of a populous state and in the midst of some of the most productive farm land in the world. What we need is a senator with both the cojones and integrity to stand up and face down Harry Reid! Tell him a thing or two! Put him in his place! Oh wait. I forgot. We have senator Roland (can't get his Blago story straight) Burris. Never mind.

Harry Reid is the same guy who has funds in the recent stimulus bill to build a high speed rail between Las Vegas and Los Angeles. Would it not be cheaper and quicker to simply legalize gambling in LA?

All this make-work "rail roads to casinos" and "hole digging to no where" reminds me of this story...

An economist visits China while under Mao Zedong. The economist sees hundreds of workers building a dam with shovels. He asks the project manager: "Why don't they use a mechanical digger?" "That would put people out of work," replies the project manager. "Oh," says the economist, "I thought you were making a dam. If it's jobs you want, take away their shovels and give them spoons."

;-)