Quote for the Week, December 30, 2012-January 5, 2013

Higher taxes on investments will turn your portfolio into a conduit between the [Fed's] printing press and those who do not have these financial assets.  Consider yourself lucky:  earlier societies resolved such imbalances through non-financial instruments such as the guillotine.
--Howard Simons

Tuesday Tune-up

Alison Kraus & John Waite, "Lay Down Beside Me"

Quote for the Week, December 23-29, 2012

We need a different narrative...away from a story of growth for its own sake and towards a future shaped by design, not disaster, where we value prosperity first and growth second, if at all.

--Chris Martenson, interviewed recently by OilPrice.com

Uncle Sam Cuts, Runs from GM

Taking the government out of Government Motors.

The U.S. Treasury has announced this morning that it will sell 200 million shares of its stake in General Motors back to the company for $27.50 a share, or $5.5 billion.  Sounds like a lot of money.  Trouble is, the cost basis was roughly $53 a share, which was a lot MORE money.  My calculator shows a loss of $5.1 billion, how about yours?

That still leaves Uncle Sam with 300 million shares to be sold on the open market over the next 12-15 months into the teeth of a recession.  Now he needs $72 a share on the remainder to break even.  Not likely.  More likely (for reasons mentioned previously) is an average share price of less than, maybe even far less than, today's $27-fifty.  Last year Treasury booked a $1.3 billion loss when it sold its "investment" in Chrysler.  Once the GM stake is fully liquidated, the total loss to the government for its capital injection into the auto industry in 2009 is expected to hit $24.3 billion.  The Obama Administration has avoided use of the word "bailout," but that is exactly what the intervention has turned out to be.

Credit Treasury for at least cutting its loss....


[update, 12-20-12--]

...and doing it before today's announcement that GM is recalling 145,628 pick-up trucks to install a secondary hood latch.  Quality control? 

Tuesday Tune-up

Mark Knopfler & Emmylou Harris, "Why Worry"

Who's the Target Now?

If you are not a gun aficionado, maybe you did not know the difference between a Bushmaster and a bush leaguer.  Until last Friday, that is.  Now you know.  A .223-caliber Bushmaster semi-automatic rifle (a civilian version of the military M-16) was used by a single attacker to mow down 20 first-graders and 6 faculty at Sandy Hook Elementary School in Newtown, CT.  It took less than ten minutes for the gunman to discharge 100 rounds.

This attack came ten years after the infamous D.C. snipers randomly targeted 13 victims at long range, killing ten (Washington Post retrospective here).  The weapon of their choice:  a Bushmaster .223.  Relatives of the victims eventually sued the manufacturer, Bushmaster Firearms International, LLC, as well as a gun shop, Bull's Eye Shooter Supply.  The gun used in the Beltway shootings was actually stolen from Bull's Eye, but that did not relieve the dealer of responsibility.  Plaintiffs argued that Bull's Eye was negligent in failing to control its inventory and furthermore that Bushmaster was negligent not for making the gun, but for distributing it to a dealer with a long history of stolen inventory.  Bull's Eye settled for $2 million in September 2004.  Bushmaster chipped in another 500 grand.

At the time Bushmaster was headquartered in Windham, Maine.  The company was manufacturing guns both there and at a second facility in Nevada and was doing about $65 million in annual sales.  The Windham plant had 95 employees.  In April 2006 Bushmaster was sold to Freedom Group, Inc., a gunmaker roll-up itself owned by Cerberus Capital Management.

River Valley citizens will recognize that last name.  Cerberus is the private equity firm that bought Rumford's coated-paper mill and several other sister mills from MeadWestvaco in 2005.  The new papermaking entity, NewPage, funded the acquisition with high-coupon debt.   Even after mill closures and workforce reductions, NewPage was forced to seek bankruptcy protection from creditors in 2011.  That was the same year that the Bushmaster plant in Windham was shuttered, eliminating the remaining 73 jobs there.  Anyone see a pattern here?

But I digress.  We were talking about GUNS and AMMO!  Question is, will Bushmaster be on the hook for damages from the Sandy Hook slaughter?  There might be some clever lawyers out there who think yes.  In its latest financial disclosure, Freedom Group included the following advisory to investors:

"As a manufacturer of firearms, we were previously named as a defendant in certain lawsuits brought by municipalities or organizations challenging manufacturers‘ distribution practices and alleging that the defendants have also failed to include a variety of safety devices in their firearms. Our insurance primarily excludes coverage regarding such claims. In the event that additional such lawsuits were filed, or if certain legal theories advanced by plaintiffs were to be generally accepted by the courts, our financial condition and results of operations could be adversely affected."

There is also regulatory risk, should lawmakers decide to tighten restrictions on the sale and distribution of certain kinds of firearms.  And if that is not enough risk, how about this:  13% of Freedom's sales are made through Wal-Mart.  There is no long-term contract governing this merchant relationship.  If Wal-Mart determines that continuing to push guns might invite a public-relations nightmare, the retailing giant could cut off Freedom just.  Like.  That.

Freedom is ill prepared for the blowback.  It has reserved less than $20 million for product-liability litigation and is saddled with over $650 million in debt, which about matches the company's total sales for the first nine months of 2012.  Perhaps to throw off the lawyers, Freedom has just changed its name to Remington Outdoor Company, Inc.  But it can't hide.  If Congress does not address the gun market soon, the courts will.

Click here to buy.

[update, 12-18-12--]

Under pressure, Cerberus is dumping its stake in Freedom Group.  Story here.

Dick's Sporting Goods has suspended sales of all rifles at its 500+ stores nationwide (company website here).  Wal-Mart pulled a Bushmaster model from its web store yesterday.

A spokesman for MetLife says that the N.Y.-based insurer has "no material exposure to gun manufacturers," which means that the firm's investors can stop sweating bullets.

The Massachusetts state pension fund is considering scrubbing its portfolio of gun manufacturers.

ZeroHedge passes along this chart from Smith & Wesson's latest pitch to investors:

[click here to enlarge]

People talk about gun control...
for the other guy.

And here's what Smith & Wesson's share price has done recently:

Off 30% in eight trading sessions!

[update, 01-24-13--]

Two major banks are urged to pull their credit lines to gun manufacturers as pension funds divest.  Story here.

Quote for the Week, December 16-22, 2012

Philosophy is a battle against the bewitchment of our intelligence by means of language.

--Ludwig Wittgenstein

Obama Trembles, HSBC Skates

There are more where this came from.

Democracy Now! interviews Rolling Stone's Matt Taibbi following the latest wrist-slap from the U.S. Department of Justice, whose advice to banksters is simple:  Do the crime, forget the time.

[12 minutes]

How do the mega-banks get away with serial malfeasance?  And why is the bad behavior not caught internally?  The Office of the Comptroller of the Currency recently evaluated corporate governance at the 19 largest U.S. banks.  Average grade:  D-.  Yves Smith at NakedCapitalism comments here.

Tuesday Tune-up

Dave Brubeck Quartet, "Take Five"

Dave Brubeck
(1920-2012)

Quote for the Week, December 9-15, 2012

Confidence is going after Moby Dick in a rowboat and taking the tartar sauce with you.
--Zig Ziglar

Nice Work, If You Can Get It

ZeroHedge calls it "age outsourcing":

[click here to enlarge]

The headline number from the Bureau of Labor Statistics this morning was 146,000 nonfarm payrolls added in the U.S. during November.  At least that is what the "seasonally adjusted" Establishment Survey says.  The companion Household Survey tells a different story:  130,000 non-ag jobs lost (Table A-8).  Which to believe?

Play with the numbers all you want, but the unspun facts are these.  First, the job mix is shifting to more part-time work without benefits; looking at the "not seasonally adjusted" data in the Household Survey, Lee Adler at the Wall Street Examiner found that over 500,000 full-time jobs were lost in November.  Second, new hires are mostly older folks whose retirement savings have shriveled faster than their skin (see chart above).  The number of jobs going to those between the ages of 25 and 54 (inclusive) has declined to roughly 94 million, a level first reached by that cohort in 1997.  That means zero employment growth for prime-time earners despite an overall increase in the total U.S. population of nearly 15 percent in the past 15 years.

In the last five years, the U.S. economy has lost 4.4 million jobs.  During the same period, the number of sidelined workers collecting Social Security Disability Insurance (SSDI) has increased by 1.7 million.  The number of food-stamp recipients has increased by over 20 million.  [More from ZeroHedge.]

General Mothballs

[click here to enlarge]

Usually, in the business world, graphs that work higher from lower-left to upper-right are Good.  Not so with this one.  Those are not car sales being counted, but unsold GM cars sitting unloved on dealer lots.  That's Bad.  The chart shows that dealer inventory increased by 49,000 during the month of November.  That compares to 139,520 sold to retail customers (company figures here).  Even with triple-zero sales incentives, GM could not sell three vehicles out of every four made.  As the Wall Street Journal reports, the company will be idling plants in December to allow sales to catch up.

The U.S. government still owns 26% of General Motors.  Sales figures like these will not allow Uncle Sam to exit the stock profitably (yesterday's closing price of $25 a share is less than half what he needs to break even).

MainePERS owned 186,408 shares of GM as of September 30.

The Way Life Was

...and where the 47-percenters are actually the majority.

Check out the Forbes Bottom Ten (+ One),

the so-called 'Death Spiral' states, marked by

a rising tax burden,

deteriorating state finances, and

an exodus of employers.

A single word of advice to investors holding municipal bonds issued by any of these states:

SELL.

Hunker in a Bunker

"We are the healthiest horse in the glue factory."

Surveying the fiscal stalemate in D.C., former U.S. Senator Alan Simpson (WY) has stern advice for his fellow Americans.

FixTheDebt.org

Tuesday Tune-up

Tom Rush, "Urge For Going"

[recorded just yesterday in the Boston.com MediaLab]

Worse Than W

Ralph Nader grades the President harshly:

[2 minutes]

"[Obama] is more aggressive, more illegal, worldwide...You know, like he is the prosecutor, judge, jury, executioner, and cover-upper, because it's all secret."

For more on how all Americans are becoming Persons of Interest, listen to National Security Agency whistleblower William Binney:

[12:29]

"The change is, it's getting worse [under the Obama Administration].  They're doing more...They're collecting a lot more now [e.g. private e-mails], and they need more storage for it."

Quote for the Week, December 2-8, 2012

The politicians may be able to say compromise, possibly even spell it, but have forgotten how to do it.
--Peter Tchir, on the 'fiscal cliff' negotiations in D.C.

More Gloom, Doom and Kaboom

"All of the ingredients are there to have this vicious cocktail fall apart."

[8 minutes]

Kyle Bass at the UVA Investing Conference,
November 15-16, 2012

Things That Go Bump in the Night

Can't get enough:

[N.E. Patriots at N.Y. Jets, 11-25-12]