Keeping a Casual Eye on ASUR, Part II

As I mentioned in a previous post ("Keeping a Casual Eye on ASUR"), I closed out my positions in Asure Software (Nasdaq: ASUR) at .25, but I planned to keep a casual eye on the stock to see

if Red Oak succeeds in unlocking some shareholder value here. If so, it might be worth considering piggybacking on their next venture in micro cap shareholder activism.

Red Oak and other current ASUR shareholders just suffered a setback: after the close yesterday, ASUR management announced that the firm had lost its trial against its former law firm, and was liable for nearly $5 million in damages, attorney's fees, and interest. If that judgment stands, that would wipe out half of the cash on ASUR's balance sheet. The stock dropped 20% on this news, in response to which a commenter on the company's Yahoo! Finance message board wrote,

1. Warrent Buffett: "You should invest in a business that even a fool can run, because someday a fool will."

2. Now, I understand why Warrent Buffett doesn't like cigar butts anymore.

3. Why this pending lawsuit is not on the 10K?

The litigation actually was mentioned in the company's 10-K, but, to be honest, I didn't pay enough attention to it. I lucked out with the verdict being released now versus last month, when I still held the stock. I wonder if this verdict was a surprise to Red Oak Partners as well. I am going to e-mail David Sandberg at Red Oak now and ask him. I'll update this post with his answer if he is kind enough to respond.

Office 2010: The Movie

Hat tip: The Atlantic's James Fallows. Fallows writes,

Thirty seconds in is the part that makes it all worthwhile to me.

Which is an allusion to this humorous anecdote from his brief stint at Microsoft. Enjoy:

A Visitor From Redmond, WA

A few days ago, this blog's Feedjit widget showed that a visitor from Redmond, WA (home of Microsoft's headquarters) clicked on this post, "Algebra Challenge". Seeing that, I wondered if someone an interviewer at Microsoft was binging math questions for the company's notorious interview questions¹. I happen to have middling math skills myself, but I think this could be an decent interview question, as long as the interviewer just asked the interviewee how he would solve the problem, instead of requiring him to actually solve it (since, the arithmetic is messy, andas commenter J.K. noted in that thread, the actual formula is heavily rounded). The key insight here would be to recognize that the problem can be stated and solved as a system of three equations.

This raises a question I've wondered about in the past, which is to what extent these sorts of questions actually measure intelligence. Maybe it doesn't even matter though, if the questions test for a similarly valuable attribute other than intelligence.

Consider, for example, a couple of word problems I remember from tests I had to take as part of the application process for jobs in the past. Without digging up the exact text of the two word problems this was the gist of them: The first asked how many of each type of coin you would have if you had a certain amount of money in change; the second asked how far apart two individuals would be if one walked so far in one direction and then so far to the left, and the other did the exact opposite. I remember these two word problems for two reasons: I know I got them right, and I know that my getting them right wasn't a reflection of my intelligence or math aptitude. I got the problems right because I had seen them before.

I knew that the first problem could be solved with elementary algebra (using 25x for a quarter, 10x for a dime, and so on), and the second one could be solved with elementary geometry (adding the hypotenuses of the two resulting right triangles). Although these questions didn't measure my intelligence or math aptitude, my getting them right did demonstrate something else: that I had paid attention in math class, or perhaps that I had studied this stuff relatively recently while preparing for a standardized test needed for a graduate degree. So getting those problems right demonstrated either intelligence/aptitude, conscientiousness, or ambition, or some combination of those attributes; and whichever of these attributes a test-taker had would reflect well on him, as far as the employer was concerned.


¹I was reminded of this by a conference call I had today with an ABD finance Ph.D. who is doing some consulting for me and one of my web developers. My finance consultant created an algorithm for me, and he was going over it with one of my web developers. My finance consultant assumed that my web developer, who has a bachelors degree in computer science, would have had all the math background necessary to understand the algorithm. My web developer noted that he had a minor in math, in addition to his comp sci degree, but he just wasn't familiar with a particular function the finance consultant specified (an infimum function). I hadn't heard of the function before either, and if a comp sci major/math minor hasn't heard of it, I guess a question based on that function wouldn't be a good one for a Microsoft interviewer.

Joel Greeblatt's New Back-Tested Results

A few days ago, I (and everyone else, I assume, whose e-mail address was on file at Greenblatt's Magic Formula website) received an e-mail announcing that Greenblatt's Formula Investing venture had released new back-tested results for the Magic Formula over the last ten years. Here are the results. The first number that jumped out at me was the positive double-digit return in 2007, which seemed surprising given the negative performance of my Magic Formula stocks that year. A glance at the first disclosure offered a partial explanation. From the Formula Investing site:

The results of the model portfolio performance:

• Reflect the strategy of buying an equity portfolio of 24 top-ranked US listed equities that are within the 20% largest companies, as measured by market capitalization. As of June 30, 2009, these companies would have market capitalizations of approximately $890 million or greater.

Well, limiting one's portfolio to names of $890 million or greater would certainly have kept you from micro cap Magic Formula stocks such as these two¹:



Why, one might ask, would someone have bought micro cap Magic Formula stocks in the first place? Greenblatt's book² suggested two reasons:

1) The back-tested results for the all-cap version of the Magic Formula, which included micro-cap stocks, were higher than those of the larger cap version: 30.8% per year, on average, versus 22.9% for the larger cap version.

2) The worst one-year return for the all-cap version was -4% (in 2002) versus -25.3% for the larger cap version (also in 2002).

Recently though, as I noted in a previous post, Greenblatt raised the minimum market cap on the screener on his Magic Formula site from $1 million to $50 million. It's too bad he refused to explain why he did this during his recent Q&A with GuruFocus readers. My guess is that Greenblatt back-tested the numbers for all-cap portfolios since his book was published and found those numbers were uglier than he expected.

¹Another simple modification to the Magic Formula would also have eliminated these two names: including a requirement that each company have positive earnings in each of its previous four quarters. Neither of these companies were consistently profitable; each had one windfall quarter in the last four, and in both cases the windfall was from a one-time legal settlement. I knew this at the time, but (perhaps I over-thought this) I assumed that the inclusion of these sorts of speculative stocks was the reason for the higher back-tested returns of the all-cap portfolios. Perhaps it was.

²See pages 56 and 61, respectively, of The Little Book that Beats the Market.

Update on VBDG

In a post in March ("Applying the Altman Z-Score Model to a Non-Manufacturing Company"), I mentioned a company called Vertical Branding (at the time it was on the OTC BB; now it's on the Pink Sheets: VBDG.PK). I noted at the time that the Altman Z-Score model predicted bankruptcy for the firm and that when I had shared this information with the folks on the Investor Hub message board for the stock, I had gotten the Enemy of the People treatment. Since then, in addition to getting kicked to the Pink Sheets for not filing its financial statements, the stock has dropped 50%.

A few days after that March post I was indefinitely banned from Investor Hub's VBDG message board. The moderator who banned me was the plaid-shirted fellow holding the fish in the photo below (the photo comes from his moderator profile on Investors Hub).

Update: I didn't note this at the time, but this fellow happens to be Matt Brown, the lead site administrator of Investors Hub, who was recently indicted on criminal securities fraud charges, and remains free on a $50,000 bond posted by his father.



This illustrates one challenge in managing stock message boards. You need some form of moderation to minimize spam and other comments that detract from a board, but when you give the authority to moderate to an individual, such as the fellow pictured above, you are forced to rely on his assessments, and if your moderator's assessments aren't objective¹, you risk losing informative posts. I believe there is a better way to moderate stock message boards, but that will be a subject of a future post.

¹E.g., perhaps he is long the stock and is biased against bearish posts?

The Top Earning Degrees

A CNN Money article today lists the most lucrative undergraduate degrees (see the graphic above) and notes that, unsurprisingly, they all require math skills. A couple of thoughts on this. First, take a look at the first and third highest-paying degrees (petroleum and mining engineering, respectively). I've argued in the past for the economic benefits of facilitating more domestic natural resources production (e.g., here and here). One of the benefits I've noted is that natural resources extraction tends to create a lot of high-paying blue collar jobs. As this CNN article notes, it also creates high-paying professional jobs, which is another benefit.

Consider the benefits to California, for example, if it dropped its opposition to expanding offshore drilling. For one thing, it might improve the state's environment by reducing natural oil seepage. It would also generate much-needed royalty revenue for the state (in fact, the state could capture that revenue up front by issuing revenue bonds backed by those future royalty income streams). In addition, how many jobs would it create for petroleum engineers and oil rig workers? Couldn't California use the additional net tax payers and potential home buyers these workers would represent?

Another thought: given that the fifteen most lucrative college majors require math aptitude, does it make sense that the SAT has reduced the relative weight of its math section in the total SAT score from one half to one third (by adding an equal-weighed essay section to the math and verbal sections)?

An Undiscovered Gem from Barron's?

Visiting Yahoo! Finance, I saw an article headline from Barron's that intrigued me, "The Best Bank You've Never Heard Of". I was hoping the article might be about some great micro cap bank I'd never heard of, but guessed it would be about a mid cap bank I already knew about, e.g., maybe Hudson City. I guessed wrong though: the bank was the mega cap multinational Santander. Is this is the sort of 'undiscovered gem' readers can expect from Barron's?

This article is my most recent reminder of why I don't read Barron's regularly. The second most recent reminder was this article back in May, which was listed under the "headlines" tab at the time for a stock I own, U.S. Energy Corp (USEG). At the time, this article wasn't available online, so I went to Barnes & Noble and looked for it in the dead tree edition of Barron's. Here was the one sentence that mentioned USEG,

Companies like Cameco (ticker: CCJ), BHP Billiton (BHP), Rio Tinto (RTP) and U.S. Energy (USEG) mine and/or trade uranium, although its value contribution to their shares is overshadowed by the many more popular metals these firms also trade.

Reading that, I thought: Is it too much to expect a Barron's writer to know at least as much about this company as me? U.S. Energy Corp. neither mines nor trades uranium, and, in fact, sold most of its uranium assets to Uranium One two years ago, as I have noted on this blog.

Barron's benefits from the inertia of its brand and of its readership. When I got out of college, I worked for a few months at a tiny, over-the-counter investment bank/brokerage in Manhattan where I was supposed to read Barron's every weekend. So I did. I'd read Alan Ableson's column, which was a little like Louis Rukeyser in print, and then I'd slog through the rest of it. I soon figured out that we weren't actually expected to learn anything useful from Barron's; we were supposed to read it because the affluent investors we were calling on read it, and they might mention something from the most recent issue and expect us to be familiar with it.

When journalists lament the decline of the print business, they ought to consider that the Google- and Craig's List-powered disruption of the advertising model isn't the only reason for print's decline; so is the decline of journalism itself. A lot of what passes for journalism today simply isn't worth paying for in any medium.

Six Wasted Syllables (for Paul Price)

On the Atlantic's Business Channel, Chris Good posts about the return of Bobby Jindal, noting that, given his expertise in health care policy, Jindal has taken advantage of the current debate over President Obama's proposed health care reform to tiptoe back into the national spotlight, now that memories of his awful response to the President's speech have faded. Good also links to Jindal's op/ed about health care policy in today's Wall Street Journal, "How to Make Health-Care Reform Bipartisan". One paragraph from Jindal's op/ed prompted the title of this post:

•Refundable tax credits. Low-income working Americans without health insurance should get help in buying private coverage through a refundable tax credit. This is preferable to building a separate, government-run health-care plan.

What would William Strunk, Jr. have called "refundable tax credits", if such a thing existed in his time? I'm guessing he'd call them what they are: "grants". I'm not sure why Jindal and other conservatives persist in wasting an additional six syllables on the longer euphemism. Perhaps it's so they can characterize government spending on such grants as tax relief instead of government spending, but, if so, this bit of obfuscation just plays into liberals' rhetoric on progressive tax policy. Most liberals are happy to characterize transfer payments to low-income Americans as tax relief, and to characterize tax cuts for the wealthy as a form of government spending. There doesn't seem to be much benefit to conservatives in conceding the rhetorical and policy ground on this, particularly since, as some smart centrists (e.g., Clive Crook) and even at least one smart liberal (Matt Yglesias) acknowledge, we are approaching the point of diminishing returns when it comes to increasing the progressivity of our tax system.

As both men have noted, if American liberals want to expand the welfare state raising taxes on the rich, by itself, won't be enough to pay for it; they'll have to raise taxes (by at least a modest amount) on everyone else. Yglesias has noted that countries such as Sweden, which have social safety nets envied by American liberals, also have much more regressive taxes than we do.

Today's NJ Corruption Arrests

From the AP, "3 NJ mayors, lawmakers arrested in corruption case":

By DAVID PORTER, Associated Press Writer David Porter, Associated Press Writer – 2 mins ago

NEWARK, N.J. – An investigation into the sale of black-market kidneys and fake Gucci handbags evolved into a sweeping probe of political corruption in New Jersey, ensnaring more than 40 people Thursday, including three mayors, two state lawmakers and several rabbis.

Even for a state with a rich history of graft, the scale of wrongdoing alleged was breathtaking. An FBI official called corruption "a cancer that is destroying the core values of this state."

Federal prosecutors said the investigation initially focused on a money laundering network that operated between Brooklyn, N.Y.; Deal, N.J.; and Israel. The network is alleged to have laundered tens of millions of dollars through Jewish charities controlled by rabbis in New York and New Jersey.

Prosecutors then used an informant in that investigation to help them go after corrupt politicians. The informant — a real estate developer charged with bank fraud three years ago — posed as a crooked businessman and paid a string of public officials tens of thousands of dollars in bribes to get approvals for buildings and other projects in New Jersey, authorities said.

Among the 44 people arrested were the mayors of Hoboken, Ridgefield and Secaucus, Jersey City's deputy mayor, and two state assemblymen. A member of the governor's cabinet resigned after agents searched his home, though he was not arrested. All but one of the officeholders are Democrats.

Also, five rabbis from New York and New Jersey — two of whom lead congregations in Deal — were accused of laundering millions of dollars, some of it from the sale of counterfeit goods and bankruptcy fraud, authorities said.

In rounding up the defendants, FBI and IRS agents raided a synagogue Thursday morning in Deal, a wealthy oceanfront city of Mediterranean-style mansions, with a large population of Syrian Jews.

A couple of thoughts on this:

Aside from these arrests being good news in the civic hygiene sense, this is obviously good news for Chris Christie's campaign to unseat Governor Jon Corzine, given that four of the five public officials arrested were Democrats, that one of Corzine's staff members is a suspect and was forced to resign, and that these arrests will remind voters of Christie's successful track record of prosecuting corruption as a U.S. Attorney in NJ. It will be interesting to see how many tens of millions of dollars the former Goldman Sachs chief Corzine will pour into his reelection campaign now.

The Syrian Jewish community mentioned in the AP article above was profiled a couple of years ago by Zev Chafets in a New York Times Magazine article, "The Sy Empire". That article focused mainly on this community's strict ban on intermarriage. It mentioned that fraudster Eddie Antar ("Crazy Eddie") was a member of the community, and that the community was affluent from its business dealings, but it didn't mention anything about the kidney business. Those of you of a certain age from the New York area will remember the original Crazy Eddie's commercials, but here's a clip of one of them from YouTube for the rest of you. The fellow who posted this video on YouTube noted that the man in the commercial isn't Crazy Eddie himself, but an actor named Jerry Carroll.

Apathy Check

I started writing a post yesterday about Bobby Jindal, his recent op/ed on health care policy in the WSJ, and the folly of conservatives calling grants "refundable tax credits". Is anyone interested in reading that post? I'm on the fence about it myself, and I was the one writing it. You decide. If this post gets no comments, I'll take that as a "no".

Talent: Not Everyone Has It...

...And those who do have it often don't seem to realize that. That thought came to mind twice recently, first when skimming a recent post on GuruFocus about Joel Greenblatt's book about special situations investing, You Can Be a Stock Market Genius. Clicking on the Amazon link, I found this comment by a reviewer from Orange County, CA named Mike Ferry:

Look before you LEAP

I get up in the morning and walk my dog on the walking path just off the beach (Pacific Ocean adjacent). On my walk I always say hello to Mrs. Rothchild who is reading the Investor's Business Daily while sitting on her polished teakwood patio set. I jibe her that she should switch to the Wall Street Journal and get a real job investing like I do. After a quick but nutritious breakfast, I settle down to my state of the art computer where I E-trade my way to this lavish lifestyle I currently enjoy (takes no more than an hour!). After my "investing", I'll cruise PCH in my new convertible BMW and work on that driving tan. Thanks Joel Greenblatt!

What the heck? Oh drat, the alarm went off. I was having that dream again; now I must get ready for the drive to Pomona in my '98 Daewoo. So kick me, I am not yet a stock market genius. Can I be if I apply the lessons of this book? Maybe... but I have neither the time nor the money. For the person with both it might still be a great idea to have a stock market genius walk them through the paces for a few months.

On the merits of readability, Greenblatt dishes out the drudgery in a well presented and entertaining style. You get case studies, nifty chapter summaries, advice not to run through dynamite factories with lit matches, and a Gilligan's Island hit in the glossary (not bad for fourteen Yankee Dollars).

P.S. All you reviewers and review readers out there, have any of you struck pay dirt following the advice in this book?

I didn't read all the other comments, but, in the ones I did read, I don't recall anyone mentioning that he had struck it big implementing Greenblatt's advice. Has Joel Greenblatt considered that maybe we can't all be him? Maybe he has, and that's why he came up with the Magic Formula, so retail investors could lose invest their money in an automated fashion.

The second time the thought in the title of this post came to mind was a few minutes ago, when I read this post by the Atlantic's Ta-Nehisi Coates, "Taking Myself Way Too Seriously". From his post:

I went to the Met yesterday, the boy likes to draw, so we've put him in a class there. I've been several times before, indeed we have a family membership. And yet somehow, I'm never prepared for the raw power of the place. Samori [Ta-Nehisi's son] went up with the kids to sketch in the modern art gallery.

[...]

I found my way down to the sculpture garden and circled The Burghers Of Calais a few times. It's funny to know something is beautiful, and not know why.

[...]

I sat for a minute, insecure, because everyone else sitting was sketching and I can't draw a lick, and for some reason, I think I should be able to.

[...]

I stopped in front of a color pencil drawing of two women smiling over a small cake. According to the description, the women were strangers. Some guy stopped next to me and took me for an artist. I think it was my gutter style--hoodie and Air Force ones, but perhaps not, since he introduced himself as an artist too. He was wearing a three-piece suit. I told him I did not have the gift, and he shook his head. "Just get some pencils and put some stuff down man."

This struck me.

It's exactly what I tell people when they say things like, "I wish I could write." or "I wish I had the gift to write." In my mind there is no gift--there is a considerable amount of labor, but I don't have much interest in talking about talent. There are a lot of talented niggers on the corner, in jail, under early tombstones. That's what my mother used to say.

I probably disagree with what Ta-Nehisi writes more often than not, and as an autodidact, he'll make a grammar mistake occasionally (as he readily admits), but the man can write. He's got talent, but, like many talented people, he doesn't seem to realize that not everyone does. That doesn't make what his mother used to tell him wrong: there are plenty of talented people who never achieve much -- that's true. But that's not the same as saying that everyone has talent. It just means that some measure of talent is often a necessary, but not sufficient, requirement for success.

A Critique of Pointless Blogging

This blog is, I realize, a glass house in some respects¹, but I'm going to ignore the old admonition in this post and throw a couple of polished stones from my blog's proverbial front porch. Today's target is the Oracle of NY, one of the blogs written by Joshua Persky, the subject of a recent post ("Infinite Corridor") and a man who was kind enough to correspond with me last week. After our correspondence, I checked out Persky's last few blog posts. I have critical comments about two of them, one of which I already noted on Persky's site, but I'll reproduce it here.

The first of the two posts I'll mention is this one, "President Obama on the American Graduation Initiative", which consists simply of three paragraphs excerpted from a recent speech by the President, without any context or commentary by Persky. This was the comment I left on Persky's site:

What is the "American Graduation Initiative"? You haven't explained what it is here, it's not mentioned in the three paragraphs you excerpted, and you didn't provide a link to the full text of Obama's speech. You also haven't provided your opinion of the American Graduation Initiative (whatever it is) here. What was the point of this post?

I hate to be critical, but through your moxie and hard work, you've gotten a lot of national attention, and I don't think posts like this one are anyway to retain that attention. This one seems like you just wanted to post something for the sake of posting something.

The second post is this one, "Valuation Services and Consulting", and here's the text of it:

Steps for producing a valuation for a bank loan to a private company:

1. Gather and review financial and legal documentation.


2. Note key loan parameters such as: interest rate, maturity date, type of loan (bullet or amortizing), first or second lien, financial covenants, up-front and other fees, pre-payment penalty.


3. Note key financial performance parameters: EBITDA, income, margins, cash flow, balance sheet (historic, current and projected).


4. Analyze key financial ratios: leverage, interest coverage, loan to value.


5. Perform DCF analysis.


6. Compare company to similar publicly traded companies.


7. Compare loan to publicly traded similar debt instruments.


8. If the company is distressed, determine the value of its assets.


9. If the company is in bankruptcy, determine the probability and timing of recoveries.

For competitively priced hedge fund portfolio valuations, business development corporation and private equity valuation services and consulting, please contact:

Joshua Persky
tel: 917 650 8700
email: joshua.persky@sloan.mit.edu

Here's my thought on that post: Wouldn't any potential customer of Persky's valuation services already know about these steps? If so, how does enumerating this list in a blog post demonstrate one's talent for valuation? A better tack might be to offer as an example a case study where you can demonstrate your mastery of some tricky aspect of valuation. Persky could use a historical case where he has access to all the necessary data, or he could speculate a little and attempt a valuation (or comment on the reported valuation) of a well-known, privately held company. A way to get some attention as a valuation expert while demonstrating that you are familiar with current technology might be to attempt a valuation for a business such as Twitter.

Another thought: is it best to lead with price by offering "competitively priced" valuations? First, it's probably implicit that your valuations will be "competitively priced", given your current situation and the state of the labor market, and second, is price the most important factor to a hedge fund or other firm seeking a valuation? If it is, they can probably find an even cheaper valuation by outsourcing the job to India, but my guess is that they have more pressing concerns than price, such as, for example, accuracy, and protection from liability. This sounds like a difficult market to compete in as a sole proprietor. I wish I had some positive suggestion to offer here, but I always try to picture myself on the other side of the deal: if you were running a hedge fund and you were concerned about litigation from your investors, wouldn't you feel more comfortable having your valuations done by an established accounting firm?

Perhaps Persky would be better off taking his talents in a different direction. Presumably, if he is talented in valuing private businesses, he'd have some talent for investing in them as well. There are always business owners looking to sell their privately-owned businesses, and affluent individuals and companies looking to buy them. Persky might, for example, offer service where he'd help affluent individuals diversify their assets by buying privately-held firms. He might also scout out businesses currently for sale, do his own valuations on them, and then offer to help sell those businesses. Last year I approached a business broker about a situation and he was happy to offer me remuneration contingent on finding a buyer for his client. I imagine most business brokers would be amenable to this.



¹Namely (for starters), in its lack of focus, its name, its use of a generic blogger template. I plan to address some of this in the near future.

Hedging against Job Loss

You can't hedge against the idiosyncratic risk of losing your job, but you can hedge against rising unemployment nationally. The North American Derivatives Exchange (Nadex.com, formerly Hedgestreet.com) offers options on the unemployment rate and other economic events. I did a quick search to see if any financial writer had suggested these options as part of a strategy to hedge against the risk of unemployment. So far, I haven't found any.

I'm curious also about whether the managers of staffing firms have used these options. A number of publicly-traded staffing firms had significant amounts of net cash on their balance sheets last year; did any of them use some of that net cash to hedge against an increase in the unemployment rate? If they did, they'd have even more cash now.

"Get mad, you sons of bitches!"

The last post (on Joshua Persky) reminded me of another unusual job searching tack that generated national publicity, Robin Stearns's website Hire My Husband. That's Robin, pictured above in front of the Golden Gate bridge. From her site:

This site was born out of frustration with the job market. My husband graduated in 2008 with an MBA from Georgetown. After Mike finished his MBA, we moved back to California to be closer to family. We both had high expectations for his career and our life after business school.

That was their first mistake, unfortunately. Georgetown apparently has a good business school -- a cursory glance at U.S. News & World Report's list of top programs has it ranked #20 (the FT ranks it 40^th globally) -- but MBA degrees from all but the most prestigious schools have never been a guarantee of financial success, even in better times than these, and Georgetown's business school isn't one of the most prestigious schools. Back to Robin, from her site:

However, those expectations quickly changed as we were faced with this horrible economy. After almost ten months of watching my wonderful husband work tirelessly to find a job, I decided to take matters into my own hands and help him stand out in a sea of unemployed.

Take a look around my site and get to know Mike. Learn more about him on the About Mike and Meet Mike pages. If you have any questions or would like the opportunity to meet my husband, you can email me on the Contact Mike page. Please pass this website along to friends, family, colleagues, and those who are hiring. I know each visitor to this site will think my husband is as great as I do.

That's sweet, Robin, but not realistic. You love your husband. The men you hope will hire him don't. Our opinions about those we love are rarely objective. That's completely natural, but it's naive to expect others to share our opinions about our loved ones. Here's a short video clip of Robin's husband Mike, from Robin's website:



I wish Robin and Mike the best of luck, but here are a few observations:

- What was the point of Mike's video, exactly? Put yourself in the shoes of a business owner. What about that nine second video clip would make you want to hire Mike Stearns? Nothing I can think of. Here's your shot Mike: a business owner clicks on that video. Does he see a confident elevator speech from an aggressive job seeker? Not at all. There's something missing here, Mike. On his blog The Nearby Pen, former commenter Daniel Wahl offers "art antidotes" -- an Edward Guest poem, or a short clip from the film "Amelie" to stir readers to action. Here's my "art antidote" for you, Mike Stearns -- Alec Baldwin's showstopper in "Glengary Glenn Ross":



If you watched the clip, now you know from whence the title of this post came. More observations:

- Is the novelty and publicity factor of your wife creating this sort of site for you outweighed by the negative implications of your wife's advocacy? Again, put yourself in the shoes of a business owner -- what would you think? You might not have heard about Mike Stearns otherwise, but now that you've heard of him, thanks to his wife's unorthodox efforts, you might wonder whether his wife isn't the one with more creativity and initiative.

- National publicity seems to be of limited utility in getting an unemployed person hired. Persky may have gotten a job through his efforts, but it was short-lived.

- National publicity might be of more use in other ways. Persky seems to have made more of an effort to explore this, having written a couple of quickie e-books which he sells on his site, and using his site to generate leads for speaking and other engagements. The Stearnses haven't done this; they have nothing to sell on their site. They should remedy that. Even if they don't have a product or service of their own to offer, the web is full of people who do, many of whom, I'm sure, would be willing to partner with the Stearnses in exchange for the added traffic.

Infinite Corridor

In the previous post on the Sonic situation in Northern NJ, I mentioned the late author David Foster Wallace, who was known for his well-reviewed (but, I suspect, infrequently-read) door stopper Infinite Jest, and for his copious use of footnotes in his writing¹. Somewhat coincidentally, yesterday I received an e-mail from Joshua Persky, the subject of this post from last December, "Infinite Connections or Infinite Jest?".

Persky, you may recall, was the MIT alumnus and former investment banker who gained national attention for his unorthodox job searching method: handing out resumes while wearing a sandwich board in Midtown Manhattan. In that post last December, I noted that Persky had found a new job with an accounting firm, but Persky informs me that he left that job a couple of months ago, and is currently open to job or business opportunities in "writing, inspirational speaking, career counseling, valuations and business development consulting". If you are aware of any such opportunities, and would like to contact him, below is Mr. Persky's website and contact info:

917 650 8700

joshua.persky@sloan.mit.edu

www.JoshuaPersky.com

In that post last December, I also questioned the value of MIT's alumni network (the school's alumni organization is called "Infinite Connections"; hence the post title) given the challenges of Mr. Persky's job search. In our e-mail correspondence, Persky seemed to agree, writing,

MIT's alumni network has not been as helpful as it could be. Unfortunately, although the education is wonderful and rigorous, the school lacks in social connectivity. It's pretty much up to each student to find his/her own way. I imagine that the other ivy league^[2] schools are a bit better at networking. However, MIT is trying and encourages alumni to be in touch and mentor each other.

Persky also was able to shed some light on the origin of the name of MIT's alumni organization, mentioning that the main hallway at MIT is called the "Infinite Corridor".


¹The Onion once hilariously mocked Wallace's tendency to write door stoppers and his use of footnotes, "Girlfriend Stops Reading David Foster Wallace Breakup Letter At Page 20". Excerpt:

BLOOMINGTON, IL—Claire Thompson, author David Foster Wallace's girlfriend of two years, stopped reading his 67-page breakup letter at page 20, she admitted Monday.

"It was pretty good, I guess, but I just couldn't get all the way through," said Thompson, 32, who was given the seven-chapter, heavily footnoted "Dear John" missive on Feb. 3. "I always meant to pick it up again, but then I got busy and, oh, I don't know. He's talented, but his letters can sometimes get a little self-indulgent."

^[2]Although MIT is more prestigious than some Ivy League universities, and is located close to Harvard geographically, it is actually not part of the Ivy League.

Sonic Discord in Northern New Jersey

In a post a few months ago, I mentioned that one business that seemed to be bucking the recession locally was Food Network chef Bobby Flay's, burger place, Bobby's Burger Palace. A few weeks ago, the first Sonic drive-in opened in Northern New Jersey, on Rt. 17, one of the two main commercial highways cutting through densely populated Bergen County¹. Since then, the place has been jammed. There have been traffic cops on foot directing traffic into the lot, and waiving off cars when the lot is full. We have a lot of people in NJ who love to eat, but we also have, arguably, the most aggressive and most dangerous drivers in the country². Last night, that combination led to one of the traffic cops getting sandwiched between two cars. From the Record:

Several teenagers in their cars at the drive-in heard the crash and ran to the scene, on Route 17 north. They saw a Honda Civic with its front end smashed, facing north, and up against an Acura SUV facing south, both vehicles pinned against the center median in the northbound lane.

They said they saw the officer pinned between the two cars. “The officer wasn’t moving … his eyes were closed,” said Ryan Conlon, 17, of Allendale.

“We heard, like, a screech, and then a loud thud … it sounded like somebody hit something heavy,” said Conlon, who was at the drive-in with two friends, Brandon Neuburger, 18, of Allendale, and Nicole Piazza, 18, of Ho-Ho-Kus³.

[...]

One customer, P.J. Montevirgen, 29, of Hackensack said he had to circle up and down the highway to try and get a spot, and saw an Acura SUV trying to get a spot and a police officer telling the driver the lot was full. The Acura driver suddenly floored his vehicle in front of the officer, jerked to the left, and disappeared behind some car. Moments later, Montevirgen said, he heard a crash.

“It’s a real popular spot. … I’ve been hearing about it [the drive-in],” said a 50-year-old Ramsey resident who declined to give her name. She said she had circled on the highway five times before she pulled into the drive-in. “People jockey to get position in the right lane to get in.”

As she pulled in, she spotted two police officers directing traffic and blurted to herself about the position of one of them, “That cop is going to get killed.” Five minutes later, she said, she saw all the commotion.

I dedicate the footnotes below to the memory of David Foster Wallace.

¹According to Wikipedia, there are about 900,000 of us tucked into the little corner of Northeastern NJ comprised by Bergen County. In contrast, Sussex County, which is situated in the Northwestern corner of NJ and covers twice the land area of Bergen County, has only about 150,000 residents. My mother owns a small horse farm in Sussex County, and when we drive there Cheryl and I pass the "Welcome to Sussex County" sign, which features that county's slogan, "People and Nature Together". We've joked that the slogan for Bergen County ought to be "People at each other's throats".

²I say this based my experience driving in a number of different parts of this country. Los Angeles, for example, has lots of traffic, but when I've driven there, I've never seen the kind of nonsense I see here. I don't see it driving in Manhattan, for that matter either (with the possible exception of the taxi drivers).

³As densely populated as Bergen County is, the northern end of it includes some scenic, rural parts. Ho-Ho-Kus is up in that area. One bit of trivia: Ho-Ho-Kus was mentioned in an episode of Sex and the City ("Sex and the Country"), when Carrie Bradshaw drives into NJ from her boyfriend's cabin in New York state to get a burger. According to IMDB, this scene was actually shot somewhere in Long Island though.

Small Businessmen Prefer Windows XP

Last week I got a packet of coupons in the mail, triggered somehow by my recent formation of a limited liability company. One of them was from Dell's small business group, and since the computer I'm typing on now dates back to the last century (I added some RAM and installed Windows XP a few years ago), I figured I'd finally buy a new desktop. The deal came with Windows Vista Home standard, and the flyer mentioned the option of upgrading to Windows Vista Business for an extra $99. Having seen Windows Vista in action on a friend's computer last year, I asked how much it would cost to downgrade to Windows XP. That was $99 as well. So I told the Dell sales rep to ship it with XP and, out of curiosity, asked him what percentage of his clients asked for a downgrade to XP. He said about 90%-95%.

Destiny Media Turns a Profit

Vandenberg comes through on his prediction of profitability, and the quarterly profit of $102,481 is almost seven times higher than my conservative, back-of-the-envelope estimate in the comments section of this post in April. From the company's press release:

Destiny Media Achieves First Operating Profit From Doubling of Play MPE(R) Revenues

VANCOUVER, British Columbia, July 14 /PRNewswire-FirstCall/ -- Destiny Media Technologies (OTC Bulletin Board: DSNY - News), the global leader in the secure distribution of pre-release music to radio and provider of instant play streaming media, is pleased to announce that third quarter revenues grew by 42% from the previous quarter (80% over the third quarter in fiscal 2008) on the strength of better than anticipated revenue for its Play MPE® system. During the quarter the Company became profitable and realized positive cash flow from operations. Play MPE® revenue grew by 114% from the same quarter in the prior year.

"The Company has 'crossed the chasm'^[1] into profitability and we expect revenues, income and positive cash flow to continue to grow into the foreseeable future", commented Destiny CFO, Fred Vandenberg. "We have experienced 17% compounded quarter over quarter revenue growth over the past eleven quarters which has resulted in income from operations. We project revenue to continue to rise in our fourth quarter leading to a conservatively estimated 30% increase in net income and to realize a profit for the year ended August 31, 2009."

According to Destiny CEO, Steve Vestergaard, "We have worked closely with the record labels to build a system that works well with their internal business processes and they are comfortable relying on our system as they phase out physical CD's completely. We expect our profits from Play MPE® business to grow into the foreseeable future as the labels expand usage internally and we expand internationally. In addition, we expect to layer in new revenue streams for Clipstream® products that will begin rolling out in Q1 of next year."

^[1]Here, Vandenberg appears to be alluding to Geoffrey Moore's bestseller on technology marketing, Crossing the Chasm. At the turn of the century, when I was a business development director for a financial/Internet start-up, the initial outside investor, a venture capitalist with a Harvard MBA and an undergrad engineering degree, recommended another of Moore's books to me, Inside the Tornado: Strategies for Developing, Leveraging, and Surviving Hypergrowth Markets. Can't say it offered any revelatory advice: our initial growth, such as it was, owed more to old-fashioned elbow grease and salesmanship than it did to any of Moore's ideas, but I do remember a humorous bit of self-deprecation in Moore's intro to the 1999 edition of his book, the first edition of which had been published in 1995:

According to the index, in the entire manuscript of Inside the Tornado the Internet is referenced precisely three times. How in the world did I completely miss what will arguably be the grandest tornado of all time? Well, all I can say is that it's a gift.

Pet Peeve

Blogging is, I know, an informal medium, but would it be too much to expect someone with an English degree from an Ivy League university to write better than Megan McCardle does on her Atlantic blog? Here's just one of her offenses today (from this post):

But of course, if Hilzoy [a prominent, pseudonymous liberal blogger] were in the Senate, she wouldn't be Hilzoy; she'd be someone who had just spent some of the best years of their life putting themself into a position to get into the Senate.

How hard would it have been to substitute her and herself for "their" and "themself" (which isn't even a word)?

Sloppy writing often correlates with sloppy thinking.

Quick Destiny Media Update

After noticing that shares of Destiny Media Technologies (OTC BB: DSNY.OB) dropped 23% today on about 10x average volume, I put in a quick call to Destiny's CFO, Fred Vandenberg. He didn't have any explanation for the move, though he suspected short sellers. He also seemed to be in a good mood while mentioning that Destiny would be releasing its Q3 numbers tomorrow and updating its investor site, DSNY.com.

Recall from my conversation with Vandenberg after Destiny released its Q2 numbers, that Vandenberg had predicted that Destiny would turn a profit in its Q3. Destiny's CEO Steve Vestergaard had falsely predicted profitability more than once in the past, but this was the first time that Vandenberg, the company's CFO, had done so. Vandenberg has tended to be conservative, as befits an accountant, in his comments to me.

John Mauldin's Latest

A couple of items worth noting in John Mauldin's latest "Thoughts from the Frontline" weekly e-mail. The first relates to the effects of high frequency program trading on the markets. The second is about a topic we've wondered about here before (e.g., in this post), why Japan's government bond yields are so low despite that country's massive debt as a percentage of its GDP. Below are brief excerpts from Mauldin's column on both topics.

On program trading:

I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it's not due to the credit crisis. They estimate that 70% of the volume in today's markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn't get to play. This is a game only for big boys who can afford to pay for the "arms" needed to fight this war. But the rest of us pay for the game, as that half cent is like a tax on transactions, not to mention the increased daily volatility, which skews pricing. Think it doesn't affect you? That "tax" is paid by mutual funds, your pension fund, and every large institution.

Frankly, this is outrageous. The more I read the madder I got. And it is going to get worse as computers get faster and software more intelligent. We need rules to level the playing field. Themis suggests one simple one: just make it a rule that all bids have to be good for at least one second. That would cure a lot of problems. One lousy second! In a world of microseconds, that is an eternity.

Goldman Sachs went after an employee who stole some of their latest and greatest software this last week. The US assistant attorney general said in the courtroom that the software had the potential to manipulate the market. Imagine that. I am shocked. There is gambling going on in the back room? Gee, commissioner, I had no idea.

The comment that the stolen Goldman Sachs software "had the potential to manipulate the market" raises a fairly obvious question: did this software only have the potential to manipulate the market in the former employee/thief's hands (i.e., did it not have the same potential in the hands of Goldman Sachs employees?)? On to Mauldin's Japan comments.

"Land of the Setting Sun":

Japan's population is shrinking, and the number of workers per retiree is rising. Japan has the highest ratio of debt to GDP in the developed world. And that debt is growing by 7-8% a year, and does not include local debt. Interest rates cannot go lower. Savings are falling rapidly and will not be able to cover the need for new debt issuance, by a long shot. Within a few years, because of the aging of the population, savings will go negative. Social security payments are rising. GDP is shrinking, and export trade is off about 30-40%, depending on the industry. Machine tools are down 80%!

If rates were to go up by 1%, let alone 2%, over time Japan's percentage of tax revenue dedicated to interest payments would double to 18% and then to 40% and then just keep going up. It is conceivable that it will take 100% of tax revenues in less than ten years, at the current trajectory. Why? Because Japan is going to have to start to compete with the rest of the world to sell its bonds. Who but the Japanese would buy a Japanese bond at 1.3%? From a country that is rapidly going to 200% of debt-to-GDP? Doesn't really seem like a smart trade to me. And as the data shows, the ability of the Japanese consumer to buy more debt is rapidly waning.

The Japanese government is coming to a crossroads with no good exits.

"Value Investing Pro"

Alex Garcia, another occasional commenter here, and, like Paul Price, a commenter on GuruFocus as well, has launched a subscription-based investment website as well, Value Investing Pro. From Alex's site:

Welcome To Value Investing Pro

Is it possible to outperform the stock market by using a simple formula. According to Joel Greenblatt’s The Little Book That Beats The Market, the answer is yes. As a matter of fact, this “formula” has produced returns that professional money managers could only dream of. This “magic formula” offers individuals uses a low-risk method to automatically purchase great businesses selling at attractive prices.

Unfortunately, the magic formula has some kinks in the armor which include unprofitable companies that benefit from one time gains, biotechs whose main products patents will soon expire, companies with fad products, etc..

This is where ValueInvestingPro.com comes in. Using basic security analysis, any investor can tweak the formula and outperform the market.

Benefits To You

• Take control of YOUR portfolio


• Discover a 3 step-30 second approach to determine whether a stock requires further  investigation


• Own a tax efficient portfolio


•  Purchase companies, not stocks


•  Receive a weekly list of companies to research


• Discover a time efficient method in which your portfolio is almost completely automated

Good luck with the site, Alex.

"Beating Buffett"

Occasional commenter Stockdoxc/Dr. Paul Price has his own blog now, BeatingBuffett.com, with an apparently soon-to-be launched subscription-based service. From his "about" page:

Like Warren Buffett, we believe in ‘Value Investing’. Unlike Mr. Buffett, who is so rich that money has ceased to matter for him, we’re still looking to make better than market returns while limiting risk.

Over 31 years of investing we’ve been refining our techniques to allow for achieving outstanding results without incurring margin interest costs. The strategic use of option sales combined with solid fundamental analysis leads to wide statistical bands of high profitability while incurring below average risk.

Our service attempts to identify stocks with well defined upside and limited risk. We then typically add the options component and clearly spell out the best-case and static returns. Break even points are identified and calculated for every suggested trade.

We constantly update company news on our featured selections. We also report on the actual net profit or loss on all closed-out positions. All short and long stock and options positions (held by the authors) are fully disclosed at the time of publication.

Best of luck on the new site, Paul.

Arturo "Thunder" Gatti, RIP

Commenter Stan B broke the news to me that Arturo "Thunder" Gatti had passed away. From the AP via the Los Angeles Times website ("Arturo Gatti, former boxing champion, found dead in hotel"):

Associated Press
4:10 PM PDT, July 11, 2009

SAO PAULO -- Former boxing champion Arturo Gatti, whose epic trilogy with Micky Ward branded him one of the most exciting fighters of his generation, was found dead in a hotel room in the posh seaside resort of Porto de Galihnas early Saturday.

Police investigator Edilson Alves told the Associated Press that the body of the former junior welterweight champ was discovered in his room at the tourist resort, where Gatti had arrived on Friday with his Brazilian wife Amanda and 1-year-old son.

Alves said police were investigating and it was unclear how the 37-year-old Canadian died.

"It is still too early to say anything concrete, although it is all very strange," Alves said. He declined to provide any additional details.

A spokeswoman for the state public safety department said Gatti's wife and son were unhurt. The woman declined to give a name in keeping with department policy.

"There were no bullet or stab wounds on his body, but police did find blood stains on the floor," she said.

Brazilian boxer and four-time world champion Acelino "Popo" Freitas told the G1 website of Brazil's largest TV network Globo that he was a close friend of Gatti and his wife, and that he "knew they were having some sort of problem and were about to separate."

[...]

"I never saw a crowd show so much love for someone like the way that the crowds flocked to Arturo's fights in Atlantic City," said referee Randy Neumann, who officiated Gatti's last fight against Alfonso Gomez two years ago. "I mean, they were so into him and the crowds were electric. He just fought his heart out every fight."

A quick aside: I've had the pleasure of meeting Randy Neumann on a few occasions. He was a heavyweight contender in the 1970s, and now, in addition to being a professional referee, runs his own financial planning practice in Paramus, NJ. According to a recent article in our local paper, the Record, Neumann's son, a former college football prospect, is now starting his own pro career, managed by his father. I had planned on blogging on that, but hadn't gotten around to it. The AP article quotes Neumann again,

Gatti attempted a comeback in July 2007, getting knocked out in seven rounds by Gomez. Afterward, with his legion of fans cheering for him in the arena, Gatti announced his retirement in the dressing room at Boardwalk Hall.

Neumann said it was tough for him to end that fight, simply because of Gatti's incredible ability to come back in fights.

"I couldn't stop that fight, simply because he was Arturo Gatti," Neumann said. "He was much more dignified to go out that way. He had to be counted out. When he fought, you never knew if he could come back. He looked beaten and still came back."

Neumann is a great referee. Sometimes you've got to let a fighter get counted out, and sometimes you have stop it before it gets to that, and it takes a great referee to make that call¹.

I was never a fan of Gatti -- I was pulling for the other guy in most of his fights -- but I always respected his courage. You had to -- how could you not respect the courage of a man who would keep fighting with a broken hand? May he rest in peace.

Below is a video of the 9th round of the first of three fights between Gatti and "Irish" Mickey Ward. This was probably the best round in the best fight of the trilogy, and this fight was one of the best I've ever seen. Ward, incidentally, if memory serves, was still driving a steam roller for a living in Massachusetts at the time of this fight. He got some nice paydays in the next two fights though, I think.

Mickey Ward vs Arturo Gatti I Round 9


¹I once complimented Neumann on stopping the Klitschko v. Mercer fight when he did. Mercer, the old U.S. Army champion, was "like a Sherman tank" according to Neumann. Letting him eat more of Klitschko's straight rights would have been pointless at that stage of the fight.

Peggy Noonan on Sarah Palin

From Noonan's Wall Street Journal column today ("A Farewell to Harms"):

Mrs. Palin has now stepped down, but she continues to poll high among some members of the Republican base, some of whom have taken to telling themselves Palin myths.

[...]

To wit, "I love her because she's so working-class."

[...]

What she is, is a seemingly very nice middle-class girl with ambition, appetite and no sense of personal limits.

[...]

"She makes the Republican Party look inclusive." She makes the party look stupid, a party of the easily manipulated.

"She shows our ingenuous interest in all classes." She shows your cynicism.

"Now she can prepare herself for higher office by studying up, reading in, boning up on the issues." Mrs. Palin's supporters have been ordering her to spend the next two years reflecting and pondering. But she is a ponder-free zone. She can memorize the names of the presidents of Pakistan, but she is not going to be able to know how to think about Pakistan. Why do her supporters not see this? Maybe they think "not thoughtful" is a working-class trope!

"The media did her in." Her lack of any appropriate modesty did her in. Actually, it's arguable that membership in the self-esteem generation harmed her. For 30 years the self-esteem movement told the young they're perfect in every way. It's yielding something new in history: an entire generation with no proper sense of inadequacy.

Noonan's mostly on-target here, I think, but it would be interesting to see some introspection from her on why so many in the Republican base might have embraced a candidate who hunts, fishes, lives in a rural area, etc. I'd expect a little more thought on this from a former Reagan speechwriter. The GOP has spent the last few decades mythologizing blue collar Americans in an attempt to woo them, going back at least as far as Reagan's "Morning in America" campaign, and continuing through the second Bush administration. We went from a plaid-shirted Reagan clearing brush on his ranch in California, to a plaid-shirted Bush clearing brush on his ranch in Texas. Noonan, of all people, shouldn't be surprised that when a candidate fits this image as well as Palin does, she will be popular among the base.

Noonan claims that Palin isn't working class because her father was a teacher and her mother was a school secretary, but this seems like splitting hairs. Okay, Palin's father didn't work in a coal mine. But neither was he the commander of the Pacific Fleet (as McCain's father was), or the CEO of an auto company (as Romney's father was), or the President of the United States (as Bush's father was). Palin may have her limitations, but she is savvy enough to run with her blue collar authenticity, such as it is, given how GOP image crafters such as Peggy Noonan have long made a fetish of it.

Weird NJ

Last week, fishermen found the body of a two year old infant in a plastic bag in the Passaic River. It turns out that this body was disinterred from its grave in Connecticut. Who would dig up the body of an infant girl in Connecticut and dump it in a river in North Jersey? Apparently, practitioners of "Palo Mayombe". According to the Record ("Police: 'Miracle baby' might have been stolen from grave as part of ritual"):

STAMFORD, Conn. – The body of a child ripped from her grave in Connecticut and found floating in the Passaic River may have been stolen for use in a ritual by practitioners of an obscure religion who prized the “miracle” girl.

[...]

“We’re seeing this as a ritualistic type of theft of the body,” said Capt. Richard Conklin of the Stamford Police Department.

Imani was born in 2004 with semilobar holoprosencephaly, a rare condition that kept her brain from fully developing. She wasn’t expected to live; the condition often causes babies to die before birth or shortly after.

Yet she survived two and a half years. Doctors hailed her as a miracle baby, and her short life was chronicled by the Stamford Advocate newspaper.

“We think that’s the hook,” Conklin said. “That the people practicing these beliefs sought that power, that mystic nature of this child.”

Conklin cited Palo Mayombe, a belief system that originated in Central Africa in which sticks and human bones and skulls are used to summon spirits. Palo Mayombe is sometimes referred to as the dark cousin of Santeria, a Caribbean blend of West African beliefs and ancient Catholicism often connected with animal sacrifices.

The Record quotes a local professor who worries that people might demonize Palo Mayombe:

Peter Savastano, a professor at Seton Hall University, cautioned that there is a tendency in Western Christian-oriented cultures to demonize African-diasporic religious traditions.

“I’m immediately suspicious that [people] are kind of demonizing of these traditions that are not easily understood by mainstream Americans,” he said.

To his credit, Record columnist Mike Kelly rejects Prof. Savastano's appeal to cultural relativism. In his column ("Who steals the body of a child?"), Kelly writes,

[I]n a nation that cherishes freedom of religion, what do we make of this? Is there a place in our diverse and open society to allow the theft of a baby's body as a form of religious expression? Or can we call this what it really is – barbaric?

Blaming it on the Brooklyn College Guy

Who was responsible for bringing the global financial system to its knees? According to Princeton alumnus Michael Lewis, and MIT alumnus Jake DeSantis (one of the only current or former traders at AIG's Financial Products division willing to speak to Lewis on the record), it was Brooklyn College alumnus Joe Cassano (pictured above), a cop's son whose status insecurities caused him to yell a lot at his underlings over issues as trivial as who left the weights on the Smith machine¹. So claims Lewis in his Vanity Fair article on the implosion of AIG's Financial Products division, "The Man Who Crashed the World" (Hat Tip: Real Clear Markets). Allowing a number of AIG F.P.'s traders to impugn Cassano anonymously was apparently the price Lewis had to pay for his access, but the article is worth reading anyway, as Lewis's Wall Street articles usually are.


¹Given Lewis's familiarity with sports as well as finance, while reading the anecdote about the Smith machine, I wondered if Lewis would bring the Smith machine up later in the article as a metaphor for hedging risk, but no dice.

Friday's Jobs Numbers

Mohamed El-Erian's op/ed in Friday's Financial Times seemed like too-gloomy a piece to link to on the eve of a holiday weekend, so I've waited until now to do so: "American jobs data are worse than we think". Excerpt:

Notwithstanding its recent surge, the unemployment rate is likely to rise even further, reaching 10 per cent by the end of this year and potentially going beyond that. Indeed, the rate may not peak until 2010, in the 10.5-11 per cent range; and it will likely stay there for a while given the lacklustre shift from inventory rebuilding to consumption, investment and exports.

Beyond the public sector hiring spree fuelled by the fiscal stimulus package, the post-bubble US economy faces considerable headwinds to sustainable job creation. It takes time to restructure an economy that became over-dependent on finance and leverage. Meanwhile, companies will use this period to shed less productive workers. This will disrupt consumption already reeling from a large negative wealth shock due to the precipitous decline in house prices. Consumption will be further undermined by uncertainties about wages.

This possibility of a very high and persistent unemployment rate is not, as yet, part of the mainstream deliberations. Instead, the persistent domination of a “mean reversion” mindset leads to excessive optimism regarding how quickly the rate will max out, and how fast it converges back to the 5 per cent level for the Nairu (non-accelerating inflation rate of unemployment).

The US faces a material probability of both a higher Nairu (in the 7 per cent range) and, relative to recent history, a much slower convergence of the actual unemployment rate to this new level.

Even former perma-bull Larry Kudlow, who was talking about "mustard seeds" months before Bernanke mentioned anything about "green shoots" couldn't put much of a positive spin on the numbers. On Real Clear Politics, Kudlow wrote:

I do the best I can to be optimistic about our nation's future. But realistically, the current picture is not particularly good.

What is Walter Kirn Whining About?

Cue the world's smallest violin for Walter Kirn while you read these excerpts from his column in today's New York Times Magazine ("Life, Liberty and the Pursuit of Aptitude"):

When Sonia Sotomayor sits down next week before the Senate Judiciary Committee to answer questions about her qualifications to serve on the U.S. Supreme Court, thoughtful observers may do well to reflect that, by certain measures, she shouldn’t be there. That’s because decades ago, in her late teens, Sotomayor faced another important test — the SAT, the traditional route to top-tier placement in our national meritocracy — on which, by her own admission, she didn’t do well. What exactly her test scores were she hasn’t said, but she has revealed that they “were not comparable to that of my colleagues” at Princeton University, where she was admitted as a self-styled “affirmative-action baby.” The fact that¹ she later graduated from Princeton with highest academic honors and went on to reach the upper echelons of her chosen career, the law, speaks well of her intellect, her drive and the discernment of Princeton’s admissions office, but it doesn’t speak well, necessarily, of the conventional, test-based notions of merit that might well have stopped her, had they been strictly applied, before she even got started.

As a product of the same education system that molded Sotomayor (and as a fellow Princeton graduate who took his degree seven years after she did), I would like to think that I know a tiny something about what she and others experienced while trying to scale, percentile by percentile, the ladder of academic and social distinction. I call this group of contemporary strivers — a group that has largely supplanted the moneyed gentry as our country’s governing class — the “Aptocrats,” after the primary trait that we were tested for and which we sought to develop in ourselves as a means of passing those tests. As defined by the institutions responsible for spotting and training America’s brightest youth, this “aptitude” is a curious quality. It doesn’t reflect the knowledge in your head, let alone the wisdom in your soul, but some quotient of promise and raw mental agility thought to be crucial to academic success and, by extension, success in general. All of this makes for a self-fulfilling prophecy. The more aptitude that a young person displays, the more likely it is that she or he will have a chance to win the golden tickets — fine diplomas, elite appointments and so on — that permit you to lead the aptocratic establishment and set the terms by which it operates.

[...]

Only when I entered Princeton did I start to have doubts about the system that got me there. Some took the form of doubts about myself. My impressive performance on the SATs (whose supposed biases I was blind to, perhaps because I was a middle-class Caucasian and they operated in my favor) didn’t seem to count for much now that I found myself having to absorb volumes upon volumes of information rather than get the right answers on multiple-choice tests. Yes, I had a large vocabulary, and yes, I knew how to deploy it to good effect in classroom discussions and during professors’ office hours, but suddenly my prowess felt slightly fraudulent.

While I dished out the high-level baloney that my aptocratic mind excelled at, I looked around at the students who didn’t resemble me in terms of skin color and background and wondered how they were staying afloat at all. As a child of the rural Midwest, I felt decidedly out of place at Princeton among the debonair Eastern prep-school graduates who still, in the early 1980s (just a decade or so after the campus went co-ed) seemed to embody its privileged heritage, so I could scarcely imagine the alienation of these other yet more marginalized students.

[...]

What’s more, the poorer and browner of my classmates — particularly the women — seemed to study twice as hard as I did, clocking endless hours in the library and forgoing weekend parties for late-night cram sessions. Maybe their SAT scores were lower than mine, but they ranked higher than I did on the effort scale. And on the bravery scale too.

[...]

The orthodox combination of high-school transcripts and SAT scores that allowed me into Princeton wasn’t, I found out after I was admitted, a guarantee of my ability to make the most of its academic offerings. Put simply, I wasted a lot of time there, I engaged in a lot of shoddy, pretentious dodges, and maybe I shouldn’t have been there in the first place. Perhaps someone else deserved my spot — someone whose talents weren’t so easily indexed but might have been another Sotomayor.

That's a nice trick Kirn attempts there, whining about the alleged unfairness of an education system that he benefited from while continuing to cash in on it. Of course, no one put a gun to Kirn's head and forced him to do well on the SAT, or to attend Princeton. He could have easily gone to a state school in the Midwest and left a spot open for another candidate. That's water over the dam now, but if Kirn really wants to eat his own dog food today, I'd be happy to suggest some ways for him to assuage his guilt (assuming he really feels any) for his success.

For starters, he could donate all the proceeds from his new book about this subject, “Lost in the Meritocracy: The Undereducation of an Overachiever.”, to a scholarship fund at Princeton for prospective Latina students whose talents might not be "so easily indexed". Kirn could also give up his slot as a frequent contributor to the New York Times, and recommend it be given to a harder-working, braver, minority journalist. With Vibe Magazine shutting down, there are surely a number African American journalists now out of work. If these journalists are anything like the "poorer and browner" classmates Kirn remembers from Princeton, they are braver and twice as hard-working as Kirn. It's too late for Kirn to give up his Princeton spot to one of them, but it's not too late for him to give up his New York Times gig to one of them. What do you say, Walter?

¹Does anyone read Strunk & White anymore? The egregious phrase "the fact that" could easily have been replaced with a simple "That" in that sentence.

The Hispanic New Haven Firefighter Plaintiff Speaks

Tucked away on p. A-20 of Friday's New York Times was a profile of Lieutenant Ben Vargas (pictured above, with his wife and one of his sons), the lone Hispanic fireman among the 18 plaintiffs in the Ricci case, "Bias Suit a Test of Resolve for Hispanic Man". Below are some excerpts.

NEW HAVEN — The two dozen firefighters who packed into Humphrey’s East Restaurant were celebrating a coming marriage, drinking and jawboning in the boisterous style of large men with risky jobs, but Lt. Ben Vargas spent the evening trying to escape the tension surrounding his presence.

During a trip to the bathroom, he found himself facing another man. Without warning, the first punch landed. When Lieutenant Vargas awoke, bloodied and splayed on the grimy floor, he was taken to the hospital.

Lieutenant Vargas believes the attack, five years ago, was orchestrated by a black firefighter in retaliation for his having joined a racial discrimination lawsuit against the city over its tossing out of an exam for promotion that few minority firefighters passed. (No arrests were made in the attack, and the black firefighter vigorously denies having been involved.)

When the Hispanic firefighters’ association and its members — including Lieutenant Vargas’s brother — refused to publicly stand behind him, he quit the organization.

Lieutenant Vargas, who posted the sixth-highest score on the exam, was ridiculed as a token, a turncoat and an Uncle Tom — all of which, he said, “made my resolve that much stronger.”

When the United States Supreme Court ruled this week in the firefighters’ favor, Lieutenant Vargas, 40, the son of Puerto Rican parents, found himself celebrating amid an awkward racial dynamic: As the lone Hispanic among the 18 plaintiffs who had challenged an affirmative action policy, he had also challenged an appeals court decision joined by Judge Sonia Sotomayor, the first Hispanic nominee to the Supreme Court.

“She’s from Puerto Rico, and I’m from Puerto Rico,” he said. “She obviously feels differently than I do.”

[...]

“I consider myself an American — I was born and raised here,” he said in an interview on the porch of his home in the wooded suburb of Wallingford. “I love my people. I love my culture. I love our rice and beans, our salsa music, our language — everything my parents raised us with. But I am so grateful for the opportunity only the United States can give.”

[...]

Lieutenant Vargas decided to follow the path of an older friend, John Marquez, whom he looked up to. Mr. Marquez had worked his way out of the neighborhood by joining the Fire Department.

“I used to tell him, ‘You know where I came from — if I can make it, anyone can,’ ” Mr. Marquez, now a deputy chief in the department, said in an interview. “ ‘But don’t expect anything to be handed to you. Work for it.’ ”

But Lieutenant Vargas’s aspirations were stymied by a 1988 lawsuit, filed by black firefighters, that shut down hiring for years. The lawsuit challenged a written test that relatively few nonwhites passed. In 1994, the city agreed to disregard the test, over union complaints, and hire 40 firefighters — 20 white, 10 black and 10 Hispanic, according to The New Haven Register.

Lieutenant Vargas was among those hired. That later led some people to criticize him as trying to shut the door that welcomed him, though he maintained that it was impossible to know how he would have done under the old hiring process.

[...]

In 2003, Lieutenant Vargas was one of 56 people in the department who passed a test for promotion; 15 were black or Hispanic. When city officials discovered that only two of those were likely to be immediately promoted, they decided to throw out the test, citing concerns that minority candidates might again sue, alleging discrimination.

Instead, a group of white firefighters sued. The results had been posted by race, without names, and when Lieutenant Vargas learned that a Hispanic firefighter had scored sixth among 41 lieutenants on the test to become a captain, he joined the suit. Only later did he discover that the score was his.

“I would have carried the load all by myself,” he said of filing the suit. “Luckily there were enough people out there who felt like I did that we could stand together.”

But Lieutenant Vargas bore more than his share of the criticism, said Lt. Matthew Marcarelli, who was among the plaintiffs and has known Lieutenant Vargas since they were classmates at the fire academy. “Why the other guys viewed him as a turncoat I really don’t understand. He did it because he’s principled and he thought it was the right thing to do. Benny’s nobody’s token.”

Chief Marquez said his old protégé was “an easy target because he didn’t fall in line.”

“It seems that if you’re not the right type of minority, you get hammered,” he said.

The president of the black firefighters’ group in New Haven did not return calls seeking comment.

[...]

[Lt. Vargas noted] that the Hispanic firefighters’ association reversed course in February, after the Supreme Court agreed to hear the case, and publicly endorsed his position.

Gesturing toward his three young sons, Lieutenant Vargas explained why he had no regrets. “I want them to have a fair shake, to get a job on their merits and not because they’re Hispanic or they fill a quota,” he said. “What a lousy way to live.”

If there's anyone in the Connecticut GOP with two brain cells to rub together, they will have already invited Lieutenant Vargas and his family to a Fourth of July barbecue this weekend and they'll encourage him to run for elective office -- maybe city council in New Haven, for starters.

The photo above, of Lt. Vargas and his wife and son, was credited to Christopher Capozziello of the New York Times.

Reconsidering the Role of Speculation in Commodities Markets

In a post last week ("Matt Taibbi versus Goldman Sachs"), I wrote,

Taibbi takes the hedge fund manager [Michael] Masters at his word re: the commodities spike last year. Goldman is an enormous player in commodities, but one problem with blaming the commodity spike on paper speculation, or on firms such as Goldman getting pension funds to pour money into commodity index funds, is that the prices of commodities that aren't traded on futures markets or included in commodity indexes (for example, certain metals) spiked as well.

News this week lends some support to Masters's claim. From the Financial Times ("‘Rogue broker’ blamed for oil spike"):

The startling spike in oil prices to their highest level this year on Tuesday was caused by a rogue broker who placed a massive bet in the Brent oil market, triggering almost $10m (€7m) of losses for his company.

PVM Oil Associates, the world’s largest over-the-counter oil brokerage, said on Thursday it had been the “victim of unauthorised trading”. The privately owned company said that as a result of the unauthorised trades it had been forced to close substantial volumes of futures contracts at a loss.

[...]

Oil traders in London and New York said the “unauthorised trading” explained the exceptional spike in business activity and prices in the early hours of Tuesday that some initially thought must have been caused by a geopolitical event. “Trading volumes rose overnight and prices jumped more than $2 a barrel without apparent justification,” a senior oil trader in New York said.

Prices rose in one hour from $71 to $73.5, the highest level for the year, according to Reuters data. In total, futures contracts for more than 16m barrels of oil changed hands in that hour – equivalent to double the daily production of Saudi Arabia, the world’s largest oil producer, and far more than the traditional 500,000 barrels for that time of the day.

Traders said the broker implicated had allegedly accounted for at least half of the unusual activity, with the rest the result of others chasing the rally. Oil prices on Thursday fell to $66.5 a barrel, down almost 10 per cent from Tuesday’s peak.

The Financial Times has identified the PVM broker as Steve Perkins. PVM declined to comment and Mr Perkins could not be reached. Fellow traders said Mr Perkins was considered an experienced broker, well-regarded in the market.

This is the second episode of rogue trading in the oil market this year. In May, an oil trader at Morgan Stanley was banned by the City watchdog after he hid from his bosses potential losses on trades made under the influence of alcohol.

The incidents come as regulators are considering tougher oversight of the commodities markets after policymakers complained that speculators fuelled last year’s surge in oil and agriculture prices.

The involvement of PVM is ironic considering the company’s head, David Hufton, has been an outspoken critic of speculators in the oil market, calling some of the exchanges “electronic oil casinos”. In 2006, he said that “if futures exchanges did not exist, oil prices would be a lot lower”.

Sarah Palin to Resign from Alaska Governorship?

Apparently so (Hat Tip: Alyssa Rosenberg, subbing on Ta-Nehisi Coates's Atlantic blog). From KTUU.com:

WASILLA, Alaska -- In a stunning announcement, Gov. Sarah Palin said Friday morning she will resign her office in a few weeks.

Speculation has swirled for weeks, perhaps months that Palin would not seek re-election in 2010 as she pursues a political career on the national stage. The former vice presidential candidate has long been rumored to be considering a run at the Republican presidential nomination in 2012.

Palin did not address those rumors at the press conference at her Wasilla home, during which she did not take questions from reporters.

Lifestyles of the Rich and Anonymous

From Russ Alan Prince's column "Learning to Say N.E.X.T." in the May/June issue of Private Wealth:

Every few months I take a cruise around Manhattan with a multibillionaire on his 300-foot “dingy.” I’m paid handsomely for my time. He even pays me a surcharge because I don’t like boats. We have lunch and discuss life, the markets, baseball, the weather, the whereabouts of all the baby pigeons and how many alligators are in the New York sewer system. You get the idea. About two years ago, he mentioned that he doesn’t have a will. With more than two decades in the financial services field serving the wealthy, that got my attention. I suggested he put together an estate plan, but he quickly moved onto another topic. Over the following two years I occasionally brought up the estate plan idea while enjoying the New York skyline and wonderful meals. One day he asked if the daughter he had with the Haitian maid should be included in the estate plan. That would be a good idea, I told him. Then, off he went on the chances of the Red Sox winning the World Series.

On our subsequent spin about the island he asked if his son by the au pair should be in his estate plan. Then he asked about the twins with his third cousin and his daughter with his second cousin once removed. After four years of circling Manhattan it dawned on me that he has a few “families” besides the one with his “loving wife and adoring children,” whom he insists are trying to have him assassinated. The day finally came when we met in a private room at a restaurant to talk about his estate plan. Over some sensational sushi, he concluded that after he is dead, his families can fight over his estate and kill each other. He’s sensitive and compassionate that way.

Another example is a woman who was worth about $400 million when I met her. She was married to a physician who earned about $300,000 annually. One day a few years ago she found her true love—her “one and only soul mate,” as she described him. He’s a mere 20 years younger then her but she insisted that they “connect.” After she explained it to me it was hard not to see how much they had in common. She loves him; he loves him. She has money; he wants her money. She wants a passionate love affair; he can fake it.

She wanted to leave her husband and run away with him. As she was my client, I explained to her how it would be a good idea to structure her financial life in a way that will permit her to share as little as possible and likely nothing at all with her soon-to-be ex-husband and ensure that her “one and only soul mate” doesn’t walk away with a sizable portion of her wealth. I painstakingly discussed how she could keep most if not all her fortune if she took certain proactive legal steps and didn’t act rashly. When she finished laughing a good 10 to 15 minutes later, she explained how her husband wouldn’t be a problem because he loves her and wants her to be happy even if it wasn’t with him.

Meanwhile, she said, her soul mate would do anything for her. There was no way she was going to listen to advice from me or anyone else. Today, about 18 months later, she’s worth $150 million. Between the divorce, the wild spending spree and paying off the boy toy, the money just went. She’s completely dumbfounded by the whole episode, which keeps me employed.

I see a few of these situations each year. Sound financial judgment easily succumbs to personal preferences and, often, an unchecked libido. This doesn’t happen just with the very rich—it’s the result of a basic human character flaw. It’s just that among the very rich, it can prove highly entertaining.