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"Davidson": Panic at The White House

My readers, named “Davidson” by me has submitted the following piece…

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He writes:

The panic in Obama’s recent speeches as he attempts to railroad the Democratic spending bill is without thoughtful analysis. Unfortunately, this reflects the misunderstandings of his advisors who believe that throwing spending at the lack of liquidity is the solution.

How wrong can so many people be!!!

The issue is that Mark-to-Market is providing a false view of the value of assets. Brian Wesbury and others have suggested a “Cash Flow” methodology, i.e. if the debt security is paying its interest and principal streams then it should be valued according to the risk of non-payment along bonds that are paying. This is a simple model and one that can be trusted as it is based on the realities of commerce.

This does not require another $800bil of spending. This requires 20min of discussion and a flip of the accounting switch. We may need a few guarantees as well.

Just where do we get people who cannot see the simplicity of this! It is Mark-to-Market that has caused many $billions of write offs. These need to be reversed and then let the market pricing mechanism get to work.

It is frustrating to watch so much intelligence go to waste and even do great damage because they are panicked.

For more on mark-to-market, here is a post I wrote in March 2008.

Here is a bit of a rant I wrote on it in May of 2008

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More on Dow Chemical & Rohm and Hass

Spoke Friday with sources who have insight into the litigation between Dow Chemical (DOW) and Rohm & Hass (ROH). Some notes

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– Delaware courts are “courts of equity”. Simply put, the Judge has a broad array of remedies short of forcing a merger. He could rule for or against “specific performance” and either force the merger or not and then decide on damages. Should he rule against Dow, they would have the option of an appeal.

– He also has the option to order specific performance but at a later date.

– The Judge did seem to recognize and agree that specific performance was a remedy of equity and that because he is in a court of equity, he won’t simply ignore certain realities outside of the contract.

– Dow is trying to impress on the court that those at Rohm & Haas who are fighting to close now, have no interest in the health or outcome of the company after the merger and that the well-being of the near 60,000 employees should be taken into account by the court.

For instance, the family of company founder Otto Haas, would receive $5 billion, Raj Gupta, the chief executive officer of Rohm & Haas would receive over $100 million and Paulson & Co. Inc., second-largest holder of Rohm & Haas stock, the value would be $1.5 billion. In short 3 groups receive nearly 50% of the proceeds of the sale.

Recently, David Bernick, an attorney for Dow, said the Haas family and other shareholders cared only about the huge payout, even more than the future of the company and its employees. “The Haas family apparently has no interest in the health of Rohm & Haas,” he said last week.

This is illustrated by the unwillingness of management to work with Dow at all on the closing date. What happens to the combined entity after the closing is of no interest to management.

– Paulson’s letter was self indulgent and old news. Dow has already considered (and publicly said so) and investigated the remedies he put forth in the letter. His offer to put money into an offering was gratuitous.

Separately, I was informed later in the day Friday (from other sources) that:

– Dow is in very active conversations with parties regarding the commodity business. The source said they believe that the primary party was Sabic or the Saudi Basic Industries Corp. You’ll remember they were the buyer for GE’s(GE) plastic business

More on this as I get more information..

Disclosure (“none” means no position):Long DOW

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Sunday Viewing…..

The classics are always contemporary

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Security Analysis, 6th Edition

This is the latest 6th edition of the book with a forward from Seth Klarman & James Grant

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Security Analysis , Sixth Edition

Publish at Scribd or explore others: Finance & Investing Business & Legal research security

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Tom Russo on Wealth Track

Tom Russo, an excellent Buffett Style investor and a hell of a nice guy talks about last year..

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"A Time For Choosing"

Quite possibly the greatest political speech ever given….

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Saturday Viewing….

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Nancy? there only 300 million Americans…

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Saturday’s Links

Russia, Ethanol, CNBC, Housing

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– Do not ignore them

More coming

– I stopped watching over this crap….

Another dire view
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Weekend Reading ………….. Mandatory

How fast “hope” turned to “fear”…….

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From the Washington Post

“A failure to act, and act now, will turn crisis into a catastrophe.”

— President Obama, Feb. 4.

Catastrophe, mind you. So much for the president who in his inaugural address two weeks earlier declared “we have chosen hope over fear.” Until, that is, you need fear to pass a bill.

And so much for the promise to banish the money changers and influence peddlers from the temple. An ostentatious executive order banning lobbyists was immediately followed by the nomination of at least a dozen current or former lobbyists to high position. Followed by a Treasury secretary who allegedly couldn’t understand the payroll tax provisions in his 1040. Followed by Tom Daschle, who had to fall on his sword according to the new Washington rule that no Cabinet can have more than one tax delinquent.

The Daschle affair was more serious because his offense involved more than taxes. As Michael Kinsley once observed, in Washington the real scandal isn’t what’s illegal, but what’s legal. Not paying taxes is one thing. But what made this case intolerable was the perfectly legal dealings that amassed Daschle $5.2 million in just two years.

He’d been getting $1 million per year from a law firm. But he’s not a lawyer, nor a registered lobbyist. You don’t get paid this kind of money to instruct partners on the Senate markup process. You get it for picking up the phone and peddling influence.

At least Tim Geithner, the tax-challenged Treasury secretary, had been working for years as a humble international civil servant earning non-stratospheric wages. Daschle, who had made another cool million a year (plus chauffeur and Caddy) for unspecified services to a pal’s private equity firm, represented everything Obama said he’d come to Washington to upend.

And yet more damaging to Obama’s image than all the hypocrisies in the appointment process is his signature bill: the stimulus package. He inexplicably delegated the writing to Nancy Pelosi and the barons of the House. The product, which inevitably carries Obama’s name, was not just bad, not just flawed, but a legislative abomination.

It’s not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It’s not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It’s the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus — and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress’s own budget office says won’t be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Not just to abolish but to create something new — a new politics where the moneyed pork-barreling and corrupt logrolling of the past would give way to a bottom-up, grass-roots participatory democracy. That is what made Obama so dazzling and new. Turns out the “fierce urgency of now” includes $150 million for livestock (and honeybee and farm-raised fish) insurance.

The Age of Obama begins with perhaps the greatest frenzy of old-politics influence peddling ever seen in Washington. By the time the stimulus bill reached the Senate, reports the Wall Street Journal, pharmaceutical and high-tech companies were lobbying furiously for a new plan to repatriate overseas profits that would yield major tax savings. California wine growers and Florida citrus producers were fighting to change a single phrase in one provision. Substituting “planted” for “ready to market” would mean a windfall garnered from a new “bonus depreciation” incentive.

After Obama’s miraculous 2008 presidential campaign, it was clear that at some point the magical mystery tour would have to end. The nation would rub its eyes and begin to emerge from its reverie. The hallucinatory Obama would give way to the mere mortal. The great ethical transformations promised would be seen as a fairy tale that all presidents tell — and that this president told better than anyone.

I thought the awakening would take six months. It took two and a half weeks.

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Classic Commercials from 1948

Talk about lasting brands…..


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Shorting Sears Holdings? Pay 38% To Do So?

I have said for about 6 months now and still believe there is a mother of a short squeeze coming in Sears Holdings (SHLD)..


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Lampert Still Buying AutoNation Shares

Justa day after Bill Gates, who holds 12.2% of the stock filed a 13D, Sears Holdings Chairman (SHLD) Eddie Lampert added to is 46% stake.

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Lampert disclosed today he added 28k shares of AutoNation (AN) on 2/2.

Seems to be a race to own it..

Disclosure (“none” means no position):Long SHLD, AN

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Fairholme Funds Annual Results

Bruce Berkowitz’s Fairholme Fund (FAIRX) just released their annual numbers.

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A Visual Illustration of the Financial Crisis

This is cool….

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From Flowing Data

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How Did I Miss This? Gates Talking to AutoNation $$

Sorry, did not read close enough last night. AutoNation (AN) shares are up 10% – 15% today and foks have been emailing me asking why. This little nuggett in Bill Gates 13D filed last night gives a clue.

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The filing:

From time to time the Reporting Persons have engaged and expect in the future to engage in discussions with management of the Issuer concerning the Reporting Persons’ investments in the Issuer and the business and strategic direction of the Issuer. The Reporting Persons may also engage in discussions with other shareholders of the Issuer to discuss matters of mutual interest, which may include discussions regarding the strategic direction of the Issuer and opportunities to enhance shareholder value.

The Reporting Persons intend to continuously review their investment in the Issuer and reserve the right to change their plans and intentions at any time, as they deem appropriate, and to take any and all actions that they may deem appropriate to maximize the value of their investment. The Reporting Persons may at any time and from time to time, in privately negotiated transactions or otherwise, acquire additional securities of the Issuer and/or dispose of all or a portion of the securities of the Issuer that the Reporting Persons now own or may hereafter acquire. The Reporting Persons may formulate other plans or proposals regarding the Issuer or its securities to the extent deemed advisable by the Reporting Persons in light of their general investment policies, market conditions, subsequent developments affecting the Issuer (including but not limited to the attitude of the Issuer’s board of directors, management and other shareholders) and the general business and future prospects of the Issuer.

Except as set forth herein, the Reporting Persons have no current intention, plan or proposal with respect to: (a) the acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Issuer; (f) any other material change in the Issuer’s business or corporate structure, including but not limited to, if the Issuer is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by section 13 of the Investment Company Act of 1940; (g) changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to section 12(g)(4) of the Securities Exchange Act of 1934; or (j) any action similar to any of those enumerated above.

So now we have both Gates and Sears Holdings (SHLD) Eddie Lampert in discussions with management………hmmmmmmm

Disclosure (“none” means no position):Long AN, SHLD


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