Lobster Rolls in Lean Times

Last night, Cheryl and I had lobster rolls and a couple of pints of Sierra Nevada Pale Ale for a total of about $25, including tax & tip at McCormick & Schmick's (Nasdaq: MSSR). The lobster rolls are about $20 each, and pints of Sierra Nevada are $5 each, so normally this meal would cost about $60 with tax & tip. Here's how we paid less than half that much. Cheryl found and printed out a buy one, get one free entree coupon from The Bargainist. After tax and tipping based on the pre-discount amount, our total bill came to $32. Then we paid with the McCormick & Schmick's gift card shown above. Since we bought two $50 gift cards from Costco (Nasdaq: COST) last week (which came with a cook book) for $79.99, we got a 20% discount on the $32 bill, so effectively, our total cost was only $25.60.

Tony Batman's Open Letter to Senator Obama

Today, RealClearMarkets published an open letter from Tony Batman, the CEO of the financial services firm 1st Global, to Senator Obama ("A Letter to Senator Obama"). About seven years ago I had the pleasure of meeting Tony Batman, though I doubt he remembers me. I worked for a start-up that was one of two finalists competing for a contract with his company, and I went to 1st Global's headquarters in Dallas to make our pitch. If memory serves, the other guy won the contract. One thing I remember about Tony was that he had more professional designations listed on his business card than anyone I had ever met. He mentions in his letter that he is a CPA, but as I recall he also holds a CFA, a CFP, and a few other designations.

Batman's letter is, among other things, an impassioned defense of the role business owners play in our economy, and a rant against class warfare and collectivism. Batman also explicates the role his Catholic faith has in his worldview, and throws in an allusion to Atlas Shrugged for good measure. Below are two brief excerpts:

I am a product of public schools, local community college, and state university. I am only marginally educated beyond my intelligence. I was taught to think rigorously.

No job was ever beneath my dignity. I did farm work, drove a tractor to plow fields, operated a combine to harvest summer wheat, cut and stacked hay, navigated a Sunday morning newspaper route, was a fry cook at Kentucky Fried Chicken, cutter in a beef packing plant, roughneck on a drilling rig, night clerk at a liquor store, a bouncer at a discotheque, and I even trapped and killed gophers on a golf course. Yep, I was the original Carl Spackler in “Caddyshack.”

My parents never financially helped me because they could not, despite their desires to do so. They did the best they could in life and they would not have ever considered asking for a handout from anybody. I would never change one thing about my upbringing.

[...]

My wife and I started our company in 1992 with an $88,000 investment from our savings, a few untapped credit cards, a month-to-month rental on an executive suite, no customers and no employees. All we had was a dream, the willingness to work very hard and to honor the promises we made to people.

We lived frugally and saved money which allowed us to have options and choices in life like starting a business. For the first thirteen years of marriage, we lived in a 1,200 square foot home with our two young sons with mortgage payments of only $650/month. Frugality ruled the day and it still rules.

For two years after the start of the business, I drew less than a $30,000 salary, living mostly on additional savings. For the ensuing five years, I drew a salary substantially below my market value just to make the business work. This is the price a working class business owner pays for happiness.

Sixteen years later, we have a national payroll of over $125 million and the pride we feel is for the creation of so many good jobs and the opportunity to serve those we love.

A life centered on high and unchanging values is central to the life of a working class business owner. For me, the virtue of personal responsibility is so important that I will not even give a permanent job to my sons. They cannot even apply for a job at my company. They are not entitled to one from me. I love them and I only owe them a good education and an education in those life values essential to their personal joy, significance and meaning. They will be better and happier men for it.

You may not agree with all of what Tony writes, but perhaps you will find it worth reading, as I did.

A Conversation with the CEO of Vaalco Energy

The CEO of Vaalco Energy (NYSE: EGY), Robert L. Gerry III, was kind enough to spend a few minutes on the phone with me today. A few notes from our conversation:

- He estimates that the per-barrel cost of production of any oil produced by Vaalco's current exploration projects will be similar to the cost of the company's current production, i.e., about $10 per barrel.

- No predictions on oil prices, but given Vaalco's low cost of production, Gerry was unconcerned. "We can make money on $20 oil," he mentioned.

- Regarding the political environment in West Africa, he said the government of Gabon had been great to deal with, and Vaalco hasn't had any problems there. He noted that Gabon is one of the more stable countries in Africa (as we mentioned in a previous post, "Vaalco Energy Reports"). Vaalco currently has an office in Angola as well, in support of its exploration there.

- Gerry estimated that the company would be able to maintain daily production rates of about 25,000 barrels through '09, but noted that its FPSO¹ would be about maxed-out at these levels. He mentioned that the rates to lease an FPSO currently average about $70,000 per day, but given the current correction in crude, these might start coming down at some point. If they do, he'd consider locking in low rates on one in advance.

¹Floating Production, Storage, and Offloading vessel -- see the image above, which comes from Vaalco's website.

U.S. Energy Corp. and Wyoming

In previous posts on U.S. Energy Corp. (Nasdaq: USEG), e.g., "A Conversation with the CEO of U.S. Energy Corp.", we mentioned the multi-family housing project the company was developing in Gillette, Wyoming, where, as the company notes on its website, "there is a critical housing shortage due to high employment in the energy and mining industries." The graphic above, borrowed from the Economist article we referred to in the previous post (A Tale of Two States: Utah versus Rhode Island") shows that the current unemployment rate in Wyoming is even lower than Utah's, at 3.3%.

A Tale of Two States: Utah versus Rhode Island

An article in last week's Economist (The Mormon work ethic: Why Utah’s economy is soaring above its neighbours") noted that Utah's unemployment rate is 3.5%. A few days later, a New York Times article ("Leading in Job Losses, Rhode Island Struggles On") noted that Rhode Island's unemployment rate is 8.8%. A number of factors contribute to this disparity, but a smart Republican strategist would focus on two of them: energy costs¹ and taxes on businesses². According to The Tax Foundation, among the states, Utah ranks 17^th in business tax climate, and Rhode Island ranks 50^th. According to the Energy Information Agency, Utah had the 5^th cheapest industrial electricity rates in July, with an average cost of 5.26 cents per kilowatt hour, and Rhode Island ranked 47^th, with an average cost of 15.53 cents per kilowatt hour.

Neither article mentions the Tax Foundation or EIA data I just cited, but the Economist does mention Utah's low energy costs, noting that "The state has experienced a minor semiconductor boom in part because of its cheap, coal-fired power", and the New York Times article mentions taxes, noting that "Many economic analysts and state officials say Rhode Island has long had a high tax burden for businesses, discouraging them from moving here."

¹Energy is one issue the GOP initially had some traction with a couple of months ago (e.g., "Drill here, drill now, pay less"), before the steep correction in oil prices.

²Republican candidates, such as McCain, generally focus on personal income taxes, which doesn't give them much traction anymore, since the federal income tax code is so progressive that most Americans pay little if any net federal income taxes, and Democratic candidates can always promise to make the income tax even more progressive, as Senator Obama is currently doing. Better to focus on business taxes, and explain how high taxes on business discourage job creation.

McCain's Base

In the 2000 Republican presidential primary, Senator McCain and his campaign staffers used to joke that "the press is our base". McCain had long had favorable relations with the press, particularly when he bucked his party on various issues, and that continued during his insurgent primary campaign against then-Governor George W. Bush. McCain enjoyed some favorable press during this year's Republican primary as well, but once the general election campaign between McCain and Senator Obama began, McCain's press 'base' largely deserted him. The Pew Research Center study released last week provides some evidence of this (see: "Canvasing Campaign Media: An Analysis of Time, Tone and Topics"; the histogram above comes from this study). According to the Pew study,

In the six weeks following the conventions through the final debate, unfavorable stories about McCain outweighed favorable ones by a factor of more than three-to-one [...]

The Pew Research Center study summary report asks whether media bias has played a role in this negative coverage,

One question likely to be posed is whether these findings provide evidence that the news media are pro-Obama. Is there some element in these numbers that reflects a rooting by journalists for Obama and against McCain, unconscious or otherwise?

Maybe not, says Pew:

The data do not provide conclusive answers. They do offer a strong suggestion that winning in politics begets winning coverage, thanks in part to the relentless tendency of the press to frame its coverage of national elections as running narratives about the relative position of the candidates in the polls and internal tactical maneuvering to alter those positions.

Many conservatives have long complained that since most journalists tend to be Democrats, the mainstream media is inherently biased against conservatives (although they are sometimes more tolerant of liberal Republicans). This week the Washington Post Company's online magazine Slate was open enough to publish a piece detailing who its staff members and contributors were supporting in the upcoming presidential election. The results won't do anything to assuage conservative complaints of media bias: 55 Slate staff members and contributors are supporting Obama, versus 1 (Deputy Managing Editor and Copy Chief Rachel Larimore, who hopefully doesn't have to eat lunch by herself) supporting McCain (you can read their explanations of their votes here, "How we're voting: Obama wins Slate in a landslide").

Will the Credit Crisis lead to a Food Crisis?

In a recent post ("Jim Rogers on CNBC Europe Early This Morning") we mentioned that Rogers continues to be bullish on agricultural commodities. Another investor who remains bullish on agriculture is Aaron Edelheit. Today on his blog, Aaron Edelheit writes that low global inventories, continuing demand growth from China, and the credit crisis together are setting the table for food shortages next year ("Looming Food Catastrophe in 2009"). Regarding Chinese demand, Edelheit quotes an article by Jim Lane, editor of Biofuels Digest¹ ("It's not food, it's not fuel, it's China: Expanded study of impact of China on global corn market") that argues that demand for corn has been driven primarily by the growing consumption of meat in China (since corn is used to feed livestock):

“Even with all the growth, Chinese meat consumption is still 45 percent less than the average consumption in the US,” Lane warned. “An additional 277 million tonnes of grain would be needed to support China at parity with the US. That would take 68 million acres to grow. There isn’t that kind of arable land available anywhere is the world, whether we grow grains for renewable energy or not.”

Regarding the impact of the credit crisis, Edelheit writes,

The credit crisis is hammering South American farmers, to the extent that they cannot get fertilizer². No fertilizer, no planting of crops.

Further, suppliers are asking farmers in the U.S. for more upfront money to make sure they aren’t holding delinquent debts, causing farming to be a bit more uncertain this year.

Edelheit bases this on an article by Carlos Caminada, Shruti Singh and Jeff Wilson on Bloomberg yesterday ("Farm-Credit Squeeze May Cut Crops, Spur Food Crisis").³ This raises two questions related to one of Edelheit's holdings, Hemisphere GPS (TSX: HEM.TO): if farmers can't get credit to buy fertilizer, can they get credit to buy Hemisphere's precision agriculture equipment? Do they need credit to buy Hemisphere's equipment? Edelheit doesn't say, as he doesn't discuss his stock positions on his blog.


¹I find this sort of primary research -- the kind often done by industry-specific analysts, but occasionally done by money managers such as Edelheit -- impressive. Partly as a result of doing this sort of research, occasional commenter Daniel Wahl (his blog) invested early in some winners in the agricultural space, as I noted in a post last June ("Stress Fractures in Titanium"). Daniel has taken his blog in something of a new direction recently, as he prepares to launch a new blog, and he no longer writes about his trades, but he did note in a recent comment thread on his blog that he is still holds Hemisphere GPS, and calls on the fertilizer company Potash Corp. of Saskatchewan (NYSE: POT).

²This may have been a factor in the recent correction in the prices of fertilizer company stocks.

³Jim Rogers similarly linked the credit crisis and commodities in his CNBC Europe interview last week, noting the difficulty anyone would have in borrowing money to dig a mine today.