Those Who Arrange the Blocks

No commentary needed.

Quote of the Day: Alan Simpson

Erskine Bowles and I thoroughly enjoyed our time on the West Coast and received an excellent reception from folks — at least those who are using their heads and have given up using emotion, fear, guilt or racism to juice up their troops. Your little flyer entitled “Bowles! Simpson! Stop using the deficit as a phony excuse to gut our Social Security!” is one of the phoniest excuses for a “flyer” I have ever seen. You use the faces of young people, who are the ones who are going to get gutted while you continue to push out your blather and drivel. My suggestion to you — an honest one — read the damn report. The Moment of Truth — 67 pages, and then tell me if we’re not doing the right thing with Social Security. What a wretched group of seniors you must be to use the faces of the very people that we are trying to save, while the “greedy geezers” like you use them as a tool and a front for your nefarious bunch of crap. You must feel some sense of shame for shoveling out this bulls**t. Read the latest news from the Social Security Trustees. The Social Security System will now “hit the skids” in 2033 instead of 2036. If you can’t understand all of this you need a pane of glass in your naval so you can see out during the day! Read the report. Get back to me. My address is below.

If you don’t read the report, — as Ebenezer Scrooge said in the Christmas Carol, “Haunt me no longer!”

~ Alan Simpson, Letter to California Association of Retired Americans (CARA)

The Donald: Made in China

Sometime Presidential candidate, and full-time showman and self-promoter, Donald Trump, is famous for his tough talk about China and import tariffs. In the above video he states: "When it comes to manufacturing, China is making all of these products. And they could be made in North Carolina, they could be made in Alabama, they could be made in lots of our places. And right now they’re not. Personally, I’d tax China very, very heavily."

So this begs the question, why doesn't his clothing line carry a made in USA label? What about all those wonderful jobs in North Carolina and Alabama that could have been created? Where's the substance behind the bluster?

Quote of the Day: Robert Reich on the Higher Education Bubble

"Outstanding student debt now totals over $1 trillion. That's more than the nation's total credit-card debt.

The extraordinary rise in student debt is due to two related facts: the cost of a college education continues to increase faster than inflation, and state and local spending per college student continues to drop -- this year reaching a 25-year low.

But this can't go on. If unemployment stays high for many years, if the wages of young college grads continue to fall, if the costs of college continue to rise and state and local spending per college student continues to drop, and if the college debt burden therefore continues to explode -- well, you do the math.

At some point in the not-too-distant future these lines cross. College is no longer a good investment."

~ Robert Reich, from The Commencement Address That Won't Be Given

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The 60 Minutes interview with Peter Thiel who is offering several of the brightest students $100,0000 to walk away from college into the life of the entrepreneur.



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Grouch: I don't agree with Robert Reich on many things, but it is only common sense that paying $150,000-$200,000 for a bachelor's degree in Medieval Poetry from one of the nation's finest University is probably not a cost effective investment. Students need to weigh the income potential of their future professions against the costs of their educations.

Deez Nuts

Humorous and unsettling.

Communism Isn't Dead. It Has Evolved.

As China becomes more like the U.S., the U.S. is becoming more like China. In between lies a model that looks like the bloated welfare states of Europe. These countries are currently floundering under a softer form of top-heavy state capitalism. If the past is any indication, the US will do well to move in the opposite direction of Europe.

Facebook IPO at $38 a Share, No Thanks!

Is Facebook really worth $104B as an enterprise? I don't think so. I have no quarrel with Zuckerberg and the other Facebook founders making bookoo bucks. But the pricing for Facebook is more about the hope and belief that someday all this info they've gathered on people can be turned into earnings and cashflow, something that may or may not materialize. As with all tech IPOs, investors buy on the belief that trees grow to the moon, or that a greater fool lurking somewhere around the corner will buy from them at a higher. Time will tell whether Facebook becomes one of those rare tech companies that actually grows long-term or is a short-term fad. I'm not willing to take that bet at these prices, or even use their product to divulge my private information for their exploitation.

Update 1:  My quick back of the envelope calculation would give Facebook a generous $30B valuation, significantly below where it closed on Friday.  I doubt it will drop this far anytime soon, but investors should be wary of this stock until it proves it has sustainable, long-term earnings power.

Update 2: Despite shedding almost 7 points in 2 trading days from its IPO, Facebook still looks ridiculously expensive. An overly generous PE of 50 on earnings of $0.31 a share would indicate a fair value of $12.50 a share. A decent entry point for speculators is probably in the single digits.

Cartoon of the Day: The Life of Julia

The Future According to Microsoft

Did Siri really say the best smartphone out there is the Nokia 900 running on the Windows platform?

The Dis-Utopian Future as Seen from the 1970s

The 1970s were a turbulent time, not unlike today, with American seemingly on the decline and the world poised for its own self-destruction. The prophets of gloom were all over the air waves and in the print media predicting doom and Armageddon for the human race. Their claims look ridiculous today, after the likes of Norman Borlaug, the boom in natural resources and gas and oil, and the growth in world-wide prosperity. Betting against humans has rarely been a successful wager. The doomsdayers of today will likewise be proven wrong thirty years later.

David Mamet on His Conversion

The Income Potential of MLPs

The past is no guarantee of the future, but for the period 1996 - 2011 the growth of MLP dividends blew away the competition. REITS, utilities, bonds and the S&P 500 couldn't keep up.

Energy Income Partners (energymlp.com), which manages two closed end funds for First Trust (www.ftportfolios.com) -- FEN (Energy Income and Growth) and FIF (First Trust Energy Infrastructure Fund)has prepared a chart that nicely illustrates this point.

A common way to invest in MLPs are through funds that track the Alerian MLP ETF index such as the JP Morgan Alerian MLP Index ETN (AMJ). There are two objections to this fund: 1) the high expense ratio for an ETF of .85%, and 2) the ETN structure exposes investors to the credit worthiness of JP Morgan with just took a headline catching $2 billion dollar loss on some foolish investments.

Given these objections and the limited universe of MLPs, individual investors may be better off buying these securities directly. The index is made up of companies like the ones below (a full list can be found at the Alerian site):

Security	Symbol
ENTERPRISE PRODUCTS PARTNERS L	EPD
KINDER MORGAN ENERGY PARTNERS L.P.	KMP
LINN ENERGY, LLC.	LINE
PLAINS ALL AMERICAN PIPELINE L	PAA
ENERGY TRANSFER PARTNERS LP	ETP
ONEOK PARTNERS LP	OKS
MAGELLAN MIDSTREAM PARTNERS LP	MMP
ENBRIDGE ENERGY PARTNERS LP	EEP
WILLIAMS PARTNERS LP	WPZ
MARKWEST ENERGY PARTNERS LP	MWE
EL PASO PIPELINE PARTNERS	EPB
BUCKEYE PARTNERS LP	BPL
TARGA RESOURCES PARTNERS LP	NGLS
NUSTAR ENERGY LP	NS
REGENCY ENERGY PARTNERS LP	RGP
SUNOCO LOGISTICS PARTNERS LP	SXL
WESTERN GAS PARTNERS LP	WES
BOARDWALK PIPELINE PARTNERS LP	BWP
COPANO ENERGY LLC	CPNO
GENESIS ENERGY LP	GEL
DCP MIDSTREAM PARTNERS LP	DPM
TC PIPELINES LP	TCP
SPECTRAENERGY PARTNERS LP	SEP
CHESAPEAKE MIDSTREAM PART	CHKM
EXTERRAN PARTNERS LP	EXLP
CROSSTEX ENERGY LP	XTEX

Most companies in the index deal with energy in some manner, such as exploration and production, or transport, and have a history of steady dividend increases. Merger activity has also picked up in this sector with Kinder Morgan's planned merger with El Paso, and Energy Transfer Partners planned merger with Sunoco.

The largest MLP at the moment is Energy Products Partners (EPD), and their dividend history is impressive, especially with reinvestments:

Year	Dividend
1999........	$0.92
2000........	$1.02
2001........	$1.14
2002........	$1.34
2003........	$1.44
2004........	$1.51
2005........	$1.66
2006........	$1.80
2007........	$1.92
2008........	$2.05
2009........	$2.17
2010........	$2.29
2011........	$2.41

Income investors should take a hard look at MLPs for their portfolios to supplement their traditional stock and bond allocations. The last decade was spectacular for MLPs as compared to stocks, and while that is not a predictor of the future the oil and gas boom on private lands is continuing to fuel the growth of these companies.

Disclosure: Long EPD, LINE, BIP.

WMDs Discovered at JP Morgan

Bloomberg breaking the story:


Jamie Diamond losing his street cred:


Reggie Middleton discussing derivatives in banking on 10/19/2010


As Warren Buffett says: "Derivatives are financial weapons of mass destruction." Will JP Morgan's misfortune present investors with a buying opportunity to pick up more conservatively run banks such as Wells Fargo, PNC or BB&T at attractive prices?

The Facebook Sales Pitch to Investors

I will not be buying the IPO. I don't see the durable competitive advantage of this company's business model. And quite frankly, I grew tired of using Facebook after about a month. So if a product doesn't appeal to me, I won't be buying into the company. Those who buy the IPO may indeed make money, but I'm looking for companies to buy and hold for 20 to 30 years and I do not see this company surviving anywhere near that long.