Saturday, February 19, 2011

The Boehner tan

It's just what they call a bar room tan, liver moving particles to the skin. Tip O'Neill's were red, to cite another House speaker. It's the politics, not the complexion, that's the issue.

Sunday, February 13, 2011

High P/E, high hopes at

Interested in buying a stock with a price/earnings ratio of 55 on a trailing basis and 35 on 2011 expected earnings. Try I have a toe in the water at $34, bought on January 14. Now it's at $37.30 which is an immaterial advance relative to what may be expected in the future.

The mission of is "to help everyone discover, preserve, and share their family history". They have an extensive data base and at this point one million paid subscribers. In some form the company has been in business since 1983 and has had an online presence since 1997. Only in the past six years has it become a robust website with a wide reach.

If the quality of the management team and Board of Directors can be measured by academic degrees and experience in online businesses, this is an exceptional company. Harvard, Columbia, University of Chicago, Stanford, Dartmouth, Georgetown, and UNC are the links among the team. If the current list of the largest institutional shareholders could be indicative of support, it's an A list with only one indexer among the top 10 holders, unusual these days.

The company went public in 4Q 2009. Since then revenue growth has been at a 33% pace. It is consistently profitable but at this point has only a 12% return on equity. $290 million of goodwill is being amortized, which reduces accounting net income but of course has no impact on cash flow. As of 3Q 2010 the company has no long term debt and $340 million of shareholders equity.

The IPO price in 4Q 2009 was $16. For three quarters the company bounced around $20 a share but since September 2010 it has risen from that level to todays $37. Did we miss the move? Is it priced too richly? Could be, but shareholders of Chipotle, Netflix, Amazon, and Lululemon would have never chalked up their huge gains if they had not seen the potential despite high p/e ratios and charts that had already posted significant gains.

It's a risk at these levels, no doubt about it. I see two reasons to look for significant growth in revenue and earnings over time. First, the platform is built and fixed capital investments are not necessary. Leveraging intelligence and creativity is the path to growth. More intense marketing will come with rising revenues that can partially be committed to broadening recognition. Second, the Facebook phenomenon seems to be, among boomers, a forum for reviving the old days, high school, college, even elementary school and kindergarten. If the boomer generation is so focused on stepping back in history now, it makes sense that as the group ages further the attraction of defining family legacies could grow.

There have always been individuals who enjoyed researching geneology. My grandfather on my father's side was one of them. So was one of my father's co-workers. They were into it big time. The potential for this outlet for validation to grow is now immense, just an opinion but one that is strongly held here.

We'll see. If the stock corrects sharply for simply valuation reasons it should be bought. That opportunity, however, may not come. We'll see, see if I get egg on my face or a hole in my pocket.

Revisiting the big banks

On November 7th a post here suggested buying an equal weighted basket of the big banks(Citicorp, Bank of America, JPMorgan Chase, US Bancorp and Wells Fargo). It suggested further that this basket would lead to an aggregate 15% gain in six months or "much higher". The post gave six reasons why this performance could be expected.

Three months later Citicorp is up 15%, BofA 24%, JPM 18%, Wells 26%, and USB 16%. That's a 20% gain for the basket. So far so good.

Tuesday, February 08, 2011

Chicken soup with music

This past Saturday, for some unknown reason, I decided to make chicken soup from scratch. Never done that before now. Bought a good chicken and for once opened up "Joy of Cooking" and actually followed directions telling me how to turn a chicken into soup broth. Boiling, simmering, skimming, simmering, removing bones and carcass, straining, and putting into the refrigerator for a night of cooling. That was it, more than I wanted to do.

At six Sunday morning I began the interesting part of making the soup. No recipe, the preferred approach, just the chopping and cutting and adding the ingredients that would make or break this dish. I was alone in the kitchen and could have a soundtrack. It started with Miles Davis and "Birth of the Cool", a relaxing way to ease into the day and shake off morning agitation. It had the added benefit of no pounding rhythm section or back beat that would rouse the slumbering young adults upstairs whose bedrooms are on the kitchen side of the house.

Skim the remaining fat off of the top of the cold broth mixture and heat. "Venus De Milo" simmers, chop the onions and sauté in a skillet, wash the mushrooms, cut the celery into neat slices, chop a turnip into small bits, and add all to the bubbling pot. Sit at the table with a cup of coffee and read the sport section's final blast of pre-game hysterics, letting the base ingredients do their work. "Duplicity" is in the air. On to the Weekend section for another chance to ignore Frank Rich.

That CD done, it's time for the next step. Still early, add one dose of Bud Powell, "Strictly Confidential". More calming and complex music. Wash, peel, and cut a few red potatoes, same for several carrots. Add, and then tackle the Egypt news. "All God's Children Got Rhythm" soothes. Home prices keep going down in 24 of 25 urban areas. The potatoes need testing with a fork. They can't turn into mush. "It Could Happen To You" suggests nothing reassuring but the soup seems fine.

Time for the next step. "The Very Best of William Bell" goes on as the morning becomes more alive. Turn up the heat. Get the bubbles going. "You Don't Miss Your Water" is in tune with the activity. Add frozen edamame and frozen corn to the mix. Actively simmer for a few minutes and then down to low. "Everyday Will Be Like A Holiday" brings the soup to a climax that is ready for the final ingredient. Sit still and check out the style section to see who's getting married, the obits to see who died. Rarely know anyone but the stories can be interesting. "Gettin' What You Want, Losing What You Got" leads to the next step.

No noise in the house yet but will risk "Exile on Main Street". "Rip This Joint" elevates the mood. Round coils of hard noodles from Taiwan are ready to go into the newly bubbling pot. Drop one in, stir, another in, stir, it's working, do it again, "Sweet Virginia". The soup cooks. "I Just Want To See His Face" but the pot reveals nothing.

Turn it down. Let it sit. Relax. "Shine A Light" ON ME.

The final product was as healthy as it could be but a little on the boring side of good food. I can do wonders from time to time with beef, marrow bones, and vegetables, and of course a mean chili is always an option. I'll leave the chicken soup alone from now on, but nothing was wasted. What a nice morning.

Monday, February 07, 2011

The plague of shareholder derviative suits

This bothers the heck out of me so here goes. It could be tedious.

For the most part, shareholder derivative lawsuits against corporations are a vehicle for attorney's fees and nothing more than that. They pull resources from presumably productive corporate purposes, like hiring more workers, and convey them to the pockets of a cottage industry, or perhaps it's a mini-mansion industry at this point.

On the surface a shareholder derivative suit is litigation brought by one or more shareholders to remedy a wrong to the corporation. The plaintiff shareholder does not sue on behalf of themselves. They sue in a representative capacity on a course of action that belongs to the corporation but for some reason the corporation, supposedly, is not persuing.

When a plaintiff and the plaintiff's attorney win or settle to their benefit a shareholder derivative lawsuit, the corporation in effect pays itself, from the cash account into the shareholder's equity account(I do not know the exact income statement and tax treatment accounting of this but the concept just put forward is correct). There is a portion of the award or the settlement that the corporation does not pay to itself, and that's the attorney's fees, which generally are awarded at 30% of the penalty.

You get it. The only real beneficiaries of this legal scam are the attorneys. Why is this allowed?

The justification for this type of action is that these suits provide a means for shareholders to enforce claims of the corporation against managing officers and directors of a corporation. In some cases there may be some merit to that rationale but in practice the principle is rare.

Generally speaking, the plaintiff shareholder is not required to have a large stake in the corporation and it is the attorney who identifies a possible derivatives class and then locates a shareholder to play a nominal role in the action. The attorneys receive a fee on a contingent basis if they win or reach a settlement.

At the state level there are various laws that regulate or minimize shareholder derivative suits but a minority of states allow such actions virtually unimpeded. At a national level, Democrats resist any laws of consequence to regulate these suits because - CHOOSE ONE - A. They are a way of curbing corporate abuses of power and of holding corporate managements accountable for their actions B. Trial lawyers are one of the biggest and most reliable sources of the Democratic party and of individual candidates' political funding. Republicans, in general, support regulating and limiting this type of litigation but their ranks are not rock solid on this , as many members of Congress are attorneys and many incumbents on the Republican side of the aisle are also beneficiaries of the trial lawyers' largesse.

It should be obvious that this is a diversion of corporate resources and time that is often completely unproductive. Real abuses of power can be and should be dealt with by regulatory agencies like the SEC or by criminal prosecution in extreme cases. Large corporations, at this point, simply see the shareholder derivative lawsuits, however aggravating, as a cost of doing business that is built into what they charge their customers or taken away from what they pay their workers. If the corporation misses earnings expectations due to a surprise charge or shortfall, some suits will come. If an accountant or trader or other manager makes a serious error, misstates financial information, or is accused of fraud, the floodgates for the suits will open even if senior corporate management and government enforcement agencies are all over the issue.

For smaller companies these lawsuits can threaten their survival. This is especially true in areas like biotech where a company could be working on a specific drug that could be especially effective against some illness, a breakthrough opportunity. If the drug does not pass an FDA phase two trial, as an example, the stock gets hit and the suits that come are, in a way, easy. Since the company was optimistic enough about the prospects for the drug to risk their time and money on the research, certainly along the way they said things to the general public and investors that reflected, however tempered, their optimism. When the trial fails, those words become carved in stone for the trail lawyers. In general, small companies in technology and creative areas who are working to implement new ideas are extremely vulnerable to these predatory lawsuits.

Allowing this charade to go on is simply inexplicable. At least now I no longer feel compelled to write something on the topic. It's done. It's important but it's sort of boring. On to better posts.

Sunday, February 06, 2011

Economic indicators

---Sitting behind three late twenties type guys with classic Long Island accents on the LIRR and listening to their way too loud conversation, I gather that they are on their way to the St. Johns/Duke game at MSG. First they talk about how difficult the commute to their jobs in Manhattan has been during the snowstorms - strategy talk about bridges, tunnels, and short-cuts. Then they begin talking about unemployment insurance which they all seem to be collecting. One has changed his home address to a friends apartment in New Jersey since they have the highest benefits in the tri-state, $652 as week he said, is that possible. The take-away from 40 minutes of listening to them is that they all work off the books in family or friend's businesses and collect unemployment insurance on the side, 99 weeks of free money, can't beat that.

---Waiting for a train at Penn Station I overhear two young New York City cops talking to a mid-40's New York state trooper. The trooper is saying to the anxiously inquisitive young cops, "No, they can't touch anything with us, we're locked in, no way". The subject seemed to be salary, benefits, and union rules.

---The WSJ had tables a few days ago showing that Nassau County Long Island policemen make an average, that's average, of $202,000 a year, $135,000 in salary and overtime and the balance representing their rich benefit plan, one that does not remotely exist in the private sector. On top of that work rules are exceptionally restrictive, vacation time, sick days, and personal time are especially generous.

---97% of Long Island Railroad workers retire on disability when they are employed by a commuter line with one of the best safety records in the country.

---The men's bathroom at the Amtrak level of Penn Station, hub of the Northeast Corridor trains from Boston to New Orleans and Florida, has been under renovation for four months and is still not done. Granted it's a big bathroom, maybe eight toilets and sixteen urinal, eight sinks, but four months and counting? So Amtrak passengers are directed to six port-o-potties, or whatever they are called, one level up in the breezeway next to the cabstand - no light, no security, usual sanitation for those things. Travelers can go one level down to the relatively small LIRR bathroom if they know how to find it - Port Authority union labor at work.

---As told to me by a gloating union worker on NYC road projects and repairs, here's the workday --- arrive at central depot and get assignment at 7:30am --- load trucks and leave by 8:00am --- arrive at site by 8:30am --- unload trucks and set up work project for the day --- begin work at 9:00am --- 9:30am, mandatory union required half hour morning coffee break --- 10:00, resume work --- 11:30am, lunch hour required, union rules --- 12:30pm, resume work --- 2:00pm, break down site and load trucks --- 2:30pm, drive to depot --- 3:00pm, unload trucks, clean up --- 3:30pm, buy a Post and head home. So just simple math says that's three and a half hours of actual work on a project in an eight hour day. If that doesn't get the job done and the bosses need more, it's time and a half to stay on the job longer.

I could go on. Greece has nothing on us.

Thursday, February 03, 2011

Two churches, many churches in New York City

A few days ago while visiting friends and doing errands in Manhattan, I chanced to walk by the back of St. Patricks Old Cathedral as I was strolling up Mulberry through Nolita. Having heard of it but never visited I was intrigued and the fact that I had just eaten too much good pizza at new place called Rubirosa a few blocks down made sitting restfully seem like a nice option. The entrance on Mott Street was unassuming as the exterior of the building seems not to be the point.

The Basilica of St. Patricks Old Cathedral was begun in 1809 and completed in 1815. There was a significant fire in 1866 that led to substantial rebuild of parts of the structure that was completed in 1868. The Cathedral was the spiritual center and home of the bishops of the Catholic Diocese of New York until 1879 when it was supplanted by the "new" St. Patricks at Fifth Avenue and 50th Street.

Upon entering it's clear that this is an important church. The beautiful high vaulted ceiling and arrangement of the altar forward and the rose window back are like a modest replica of the great cathedrals of Europe. The huge stained glass windows along the side are bright, relatively simple, but powerful in this setting. The windows behind the altar are more complex, more interesting, equally impressive. Taking it all in while resting for a few minutes I wondered why I had not visited this part of New York history and architecture before.

I then continued my walk, destination unclear although ultimately Penn Station, walked through the east part of Greenwich Village and up Broadway. It was a second chance sighting at Broadway and 9th that led to my second church of the day. Grace Church, it's Episcopal but they seem so sure of their place that there is no mention of the denomination on its signage, is really an awe inspiring sight if it can be sorted out of the New York City landscape and seen on its own. It was completed in the 1840's and its spires and decorative style are a "gothic revival masterpiece" says Wikipedia. How could I disagree.

The interior is in the design of a cathedral in every respect. What is incredible are the stained glass windows, on the sides, the rose window, and especially the array behind the altar. The feeling at first was comparable to actually being in a European cathedral several centuries older than Grace's vintage of 1843. What a sight.

It occurred to me that in going to various cities in Europe we see the museums and the major churches on the sightseeing path. In New York I frequently see the museums but more or less ignore the religious buildings, which are scattered all over each borough of the city, with many built in the 1800's by European craftmen, immigrants recreating their homeland. I've got some catching up to do, not just walking past them but going in whenever I see one of some obvious significance.

Wednesday, February 02, 2011

Is this good for American Express?

Attached to my most recent American Express card bill were 11 pages explaining how my "charge" card works, the terms of the contract. They are "pleased to let you know that we've rewritten your Cardmember Agreement so that it's easier and simpler to use and easier to understand". What the pleased Amex folks don't also acknowledge is that it's also completely different.

My gold card as of now, I read, has a $35 late payment fee, a 27.54% APR penalty rate and a 15.24% rate for any revolving credit, which I have never signed up for and don't understand conceptually. In addition they inform me that in addition to normal interchange fees to the vendors, all foreign transactions have an additional 2.7% fee for me(old news) plus, and this is big one, "conversion charges for transactions made in a foreign currency". As described in the small print of part two of these eleven pages, "unless a particular rate is required by law, we will choose a conversion rate that is acceptable to us for that date...this rate may differ from the rates that are in effect on the date of your charge." Hmm, ok.

For thirty years I have viewed the American Express card as superior to others for several reasons. A primary one has been no late fees. If you missed a due date by a few days or a week so be it as long you didn't abuse the "privilege", to use one of Amex's key marketing words. So a late return from a trip, an emergency, an illness, or just a lapse in memory or the bill getting misplaced under something else on the desk, no agnst with American Express. No more.

I called the company and those people in their call center are well trained and they are not in India. As I explained that I did not want a credit card, did not want to be subject to late fees or APR's, the representative continued in various polite ways to say that nothing has changed. "We are a charge card, not a credit card". Me - "For thirty years I had one set of terms and maybe three or four times was late with a payment. That was a key feature. With the terms you have here I can go to Chase and get a free card so why would I pay you an annual fee?"

The rep continued to say nothing had changed. It was bizarre.

I did learn that with all of my awards points I am at least a hostage for awhile, because those points are considerable and if I cancel the card they all "immediately expire" according to the rep.

American Express at every chance for at least ten years has offered its customers, me, the "opportunity" to convert to a revolving credit program which they refer to as something like "extended protection", but it's the same thing. Now they finally just imposed it on all cardholders.

It will probably make them more money in the short run, almost certainly it will, but what does it do to the exclusivity of the brand longer term. This is a really stupid move if you ask me, and I'm looking at an Amex stock holding right now in two accounts and wondering what to do about them.