17 September 2014

I Think that Some Stalwart Republicans are Realizing that They Have Been Taken for Fools

It appears that for this election cycle a lot of Republican are keeping their wallets closed.

My guess is that the euphoria following the Citizens United decision has dissipated, and they have realized that, following the very expensive debacle of 2012, many of the Republican operatives are more about separating wealthy donors from their money than they are about getting Republicans elected:
Two things may be keeping Republican strategists up at night: money and the Democratic ground game. Perhaps the biggest untold story of this election is how so many Republican and conservative donors, at least those whose last name isn't Koch, have kept their checkbooks relatively closed. In many cases, GOP candidates are not enjoying nearly the same financial largesse that existed in 2012, and in some races, they are well behind Democrats. While Republican candidates, national party committees, and super PACs are hardly starving, their Senate and House campaign committees have not been able to keep pace in fundraising with their Democratic counterparts. Their super PACs do not have nearly the funding that they had in 2012 (even allowing for the absence of a presidential race this year). And, in a number of key races, Democratic candidates, party committees, and their allied groups have been on the air significantly more than Republicans. GOP strategists have privately said that if it were not for spending by organizations affiliated with the Koch brothers, they might well be in really bad shape.

Many Republican and conservative donors appear to be somewhat demoralized after 2012. They feel that they were misled about the GOP's chances in both the presidential and senatorial races that year, and/or their money was not well spent. In short, they are giving less if at all, and it has put Republican candidates in a bind in a number of places.
Republican donors realize that they are having smoke blown up on their ass, and they have yet to determine a way to separate the wheat from the chaff.

Who knows, maybe Karl Rove will need to find honest work.

It Ain't the Salt in the Pasta Water, and it Ain't the Bread Sticks, It's the Looting

Have you read the story about the hedge fund that criticized the Olive Garden restaurants for how they boiled their pasta and complained that they served too many bread sticks?

Read further, past the cute suggestions about food prep, and it becomes clear that the Starboard Value hedge fund was interested in srtip mining the real casual dining chain and leaving nothing behind but its bleached bones:
Last week, you may have noticed a kooky story about a hedge fund named Starboard Value chastising Olive Garden for handing out too many unlimited breadsticks at a time, and failing to salt its pasta water. The snarky 294-page presentation highlighted everything wrong with Olive Garden, along with recommendations to fix it. And there was much laughter.

………

Except Starboard Value does not spend its time crusading for better mid-market Italian meals for no reason. It owns a bunch of shares in Olive Garden’s parent company, Darden Restaurants, and wants to take control of the company’s board. The scheme it’s concocted to increase its share price has little to do with breadsticks and pasta water. It really wants to steal Olive Garden’s real estate, and make a billion dollars in the process.

Starboard Value doesn’t try to hide this. Right in the executive summary, it talks up Darden’s real estate holdings the way a starving man sizes up a steak. Darden, owner of LongHorn Steakhouse, Capital Grille and other chains, “has the largest real estate portfolio in the casual dining industry, owning both the land and buildings on nearly 600 stores and the buildings on another 670,” Starboard Value writes. “We believe that a real estate separation could create approximately $1 billion in shareholder value.” Here’s the actual slide:



This is a more common technique than you might realize. Private equity firms often buy businesses with lots of real estate assets, like nursing homes, restaurants or retail outlets. They then split the company in two: one owns all the real estate, and one manages the rest of the business. The operating company now has to lease back the real estate from the property company, paying rent on what it used to own. The private equity firm, meanwhile, can take profits from the lease payments or by selling the entire real estate portfolio, making back its initial investment. The more expensive the leases, the more the private equity firm makes.

………

A sale-leaseback arrangement may make sense for a company with lots of real estate holdings, if it needs quick cash to make investments and cannot access a loan. Think of it like a company making a reverse mortgage. But Eileen Appelbaum of the Center for Economics and Policy Research, co-author of a recent book called “Private Equity at Work: When Wall Street Manages Main Street,” explains the key difference. “If the company does this themselves, they get to keep the money from the sale,” Appelbaum told Salon. “And they get to spend it to make improvements. In this case and the private equity case, the shareholders see the value.” Basically, Starboard Value wants to strip Darden’s assets, the Wall Street equivalent of pocketing the silverware.

Starboard Value has a history of asset-stripping. Earlier this year, it forced Wausau Paper to change CEOs and consolidate mills, moving out of the century-old headquarters that gave the company its name. Starboard Value demanded the company use some of those savings from laying off workers to pay Starboard a dividend.

In May, Starboard Value forced Darden to sell another of its chains, Red Lobster, to private equity fund Golden Gate Capital for $2.1 billion. The same day, Golden Gate sold the real estate of 500 Red Lobster locations to a real estate investment trust (REIT) for $1.5 billion. Darden used proceeds of the sale to give dividend payments to shareholders like Starboard Value. And Golden Gate made back most of the investment in a blink with the real estate sale. But Red Lobster now has to pay exorbitant rents on its restaurants. “The sale-leaseback will cut their net earnings roughly in half,” Eileen Appelbaum estimated.

If Olive Garden has to cut its earnings in half to pay rent on properties it previously owned, you can forget about upgrading the menu or making any of the other improvements Starboard Value suggests. The restaurants will barely be able to keep afloat. But Olive Garden’s continued existence is of minimal importance to Starboard Value. “These are shareholders, they don’t really care what happens once they make their money,” said Eileen Appelbaum.
Note here that the ratf%$S who want to dismantle the chain, and sell it for parts, much like an chop shop for stolen cars.

This is what tools like Timothy Geithner call financial innovations. It's not. It's a pernicious form of parasitism.

As the old saying goes, "The best way to rob a bank is to own one."

While a modern economy need a way to get capital from people who have it to people who need it, this has nothing to do with that.

I'm not sure what the whole solution is, but a Tobin Tax on financial transactions would be a good start.

Locking up some of these crooks would be nice too.

My Feelings on Scottish Secession

After thinking about it, and analyzing my feelings on this matter, I support the secession referendum.

Basically, I think that the current political situation in the UK, where the Neoliberal consensus and the banksters in the City of London rule will continue to control the political discussion in England, and hence in the UK as a whole.

What this means is that, when in power, the Tories will continue to engage their efforts to do things like gradually privatize the social contract in Britain, and when the "new" (Blairite) Labour is will simply accept the new status quo, and so the policies will ratchet to a Dickensian society, particularly with the cross-party support of things like the Transatlantic Trade and Investment Partnership (TTIP), which largely makes privatization irreversible.

The path England has taken is pretty clearly toward continued deindustrialization and further finanacialization, at least until the Vampire Squid finishes sucking what remains out their society, and moves on.

The Tories are pushing inexorably in that direction, and Labor never moves the needle back, they just slow the deterioration for a few years.

In the process, it is clear that the National Health Service (NHS) will move to something very much like the American model for healthcare.

I would consider inflicting our system of healthcare on anyone else to be tantamount to a crime against humanity, and crimes against humanity are a justification for secession.

Charlie Pierce Makes Chuck Norris his Bitch

It appears that Mr. Norris, aficionado of martial arts, coarse acting, and promulgating historical myths, accuses President Jimmy Carter of appeasing the Ayatollahs in Iran.

Charlie pierce is having none of it:
You know what appeasing the ayatollahs looks like?

Promising them if they hold the hostages, they'll get a better deal from another president. Unfreezing the assets almost as soon as you take the oath. Secretly selling them advanced weaponry because you had use for the profits of this illegal arms sale to fund an illegal war.

That's what appeasement looks like.

And that wasn't Carter.

That was the next guy.
That is an epic take-down.

Needless to say, I am adding Mr. Pierce to the serene order of People I Do Not Want to Piss Off.

Now That's a Real Shame When Folks Be Throwin' Away a Perfectly Good White Boy Like That


In the Ukraine, a member of the parliament was accosted by an angry crowd and thrown in the dumpster.

Now I do understand that the intersection of "Ukrainian Politician," and "Perfectly Good White Boy" is a null set, but how often does one get to quote the cult favorite teen movie Better off Dead?

I will note, however, that what the crowd did is wrong.

They should have pantsed him.

16 September 2014

When the Supreme Court Gets it Right ………

In this case, it is patents, where the Supreme Court ruling in  Alice v. CLS Bank has created a new legal landscape, which has seen regular reversals of "do it on a computer" patents:
The Supreme Court's June ruling on the patentability of software — its first in 33 years — raised as many questions as it answered. One specific software patent went down in flames in the case of Alice v. CLS Bank, but the abstract reasoning of the decision didn't provide much clarity on which other patents might be in danger.

Now a series of decisions from lower courts is starting to bring the ruling's practical consequences into focus. And the results have been ugly for fans of software patents. By my count there have been 11 court rulings on the patentability of software since the Supreme Court's decision — including six that were decided this month. Every single one of them has led to the patent being invalidated. 
This doesn't necessarily mean that all software patents are in danger — these are mostly patents that are particularly vulnerable to challenge under the new Alice precedent. But it does mean that the pendulum of patent law is now clearly swinging in an anti-patent direction. Every time a patent gets invalidated, it strengthens the bargaining position of every defendant facing a lawsuit from a patent troll.
Until the supreme court slapped down the patent court, it had been routing for people to get patents for existing processes by adding, "We are doing it through the internet," as the magic words.

Not any more.

A typical patent being overturned was, "A patent on the concept of using a computer to help users plan meals while achieving dieting goals."

Because using a notebook to diet is so completely unlike using a computer, I guess.

In any case, it's nice to see the patent trolls on the wrong side of this trend.

Soldiers, Is That Our Answer to Everything?

Obama is sending 3000 soldiers to Africa to deal with the Ebola outbreak in Africa.

Am I the only one who thinks that it might be a better idea to send doctors, nurses, lab technicians, and construction workers?
The Obama administration is ramping up its response to west Africa’s Ebola crisis, preparing to assign 3,000 US military personnel to the afflicted region to supply medical and logistical support to overwhelmed local healthcare systems and to boost the number of beds needed to isolate and treat victims of the epidemic.
Seriously? We need to send in the military to deal with an epidemic?

I am coming to believe that no one in Washington believes that any agency but the Pentagon can do anything, ever!

Jon Stewart Owns Lindsay Graham


This Man is the Biggest Scardy Cat in the Senate
Jon Stewart cut Lindsey Graham a new one for his constant, and constantly hysterical, fear mongering over, basically everything.

He describes Graham's, "Panic for 13 years," and said that, "The poor man lives his entire life trapped in 'The Blair Witch Project," and that he's, "Seen chihuahuas in handbags who are less fretful and shaking."

Of course, craven abject fear has been a dominant theme of movement conservatism for decades, as I observed when involuntarily forced to watch Fox News.

Republican politics thrive on fear and panic, so it's not surprising that they advocate for it, but I also think that they are really that scared of well, everything.

15 September 2014

Moderate Syrian Rebels, My Ass

Guess what, our pet rebels in Syria have made a non-aggression pact with ISIS:
Syrian rebels and jihadists from the Islamic State have agreed a non-aggression pact for the first time in a suburb of the capital Damascus, a monitoring group said on Friday.

The Syrian Observatory for Human Rights said the ceasefire deal was agreed between IS and moderate and Islamist rebels in Hajar al-Aswad, south of the capital.

Under the deal, "the two parties will respect a truce until a final solution is found and they promise not to attack each other because they consider the principal enemy to be the Nussayri regime."

Nussayri is a pejorative term for the Alawite sect, an offshoot of Shiite Islam to which President Bashar al-Assad belongs.
Obama's war just lost one of its cornerstones.

There is no credible moderate rebel force in Syria, and Obama's truly Kafkaesque suggestion that Syrians firing at planes bombing them would be considered a hostile act, he has, "Vowed to retaliate against President Bashar al-Assad if Syrian forces shot at American planes," won't solve that.

ISIS beheaded the journalists and that aid worker because they want to entangle the United States in yet another war in the hope of bleeding us dry, and Obama, and the "bomb everything" caucus, have proved remarkably accommodating to their plans.

And While We are On the Subject of how Hedge Funds are F%$#ing the Pension Funds


Mission Accomplished:
First, you get money to your cronies, and 2nd you f%$# public servants and pub lic sector unions.
Sometimes, it is not just over-priced under-performance, sometimes, it's corruption. Case in point, the  disastrous decision by Chris Cristie to move a significant portion of New Jersey's pension funds to Christie cronies on Wall Street:
New Jersey investment officials have directed increasingly large slices of state pension money into riskier investments, such as hedge funds, touting their strategy as a means of limiting exposure to a volatile stock market. They've argued that their approach would maximize overall returns and justify the higher fees paid to Wall Street money managers.

But in seven of the eight years since the state began shifting pension funds into so-called alternative investments, returns have fallen well short of the broader stock market, an analysis of state financial records shows. In those seven years, New Jersey’s alternative investment portfolio has produced gains of just more than half of the S&P 500, the widely watched index seen as a proxy for shares of large corporations.

Since Gov. Chris Christie took office, he has nearly tripled the amount of retiree cash invested in alternative investment firms -- many of whose employees have made financial contributions to political groups backing Christie’s election campaigns. In that time, the gap between New Jersey's alternative portfolio and the broader market has rapidly expanded, costing taxpayers billions in unrealized returns and threatening the financial stability of the $78 billion pension system. The state's pension funding shortfalls -- which have been exacerbated by Christie's market-trailing investment strategy -- were one of the factors cited by Fitch Ratings in its decision last week to downgrade the state's bond rating for the second time.

………

"The idea that hedge funds, private equity funds and other alternative investments beat stock-index funds over the long haul is an urban myth like the tooth fairy," said Jeff Hooke, a former Lehman Brothers investment banker who in 2012 published a study showing that higher alternative investment fees correlated to lower pension returns. "The managers of these big state pension funds are drinking the Wall Street Kool-Aid. The problem with these alternative investments is that they have a tough time beating the low-fee index funds because the fees for alternatives are so big."
Even without considering fees, cheap (a 90% lower expense ratio) index funds outperform the aggressively managed money.

When you add in the rapacious fees charged, it's not even close.

This lack of performance, and his refusal to make necessary pension payments earned him a downgrade from S&P as well:
In a significant blow to Gov. Chris Christie, Standard & Poor's on Wednesday said it is downgrading New Jersey's credit rating. The announcement said Christie's management of New Jersey's $78 billion pension system has "significant negative implications" for the state's finances. S&P also cited the state's below-expected tax revenues as a factor that "put additional pressure on future budgets." The downgrade comes as Christie aides have been publicly suggesting that the governor's fiscal-management record would be a boon should he decide to run for president in 2016.

Bloomberg News notes this is the eighth downgrade during Christie's tenure and the Washington Post reports that "New Jersey’s credit rating has been downgraded more under Chris Christie than any other governor" in the United States.

Neither Christie's office nor the New Jersey Department of Treasury responded to emails from International Business Times requesting comment about the S&P downgrade.

Citing Christie's decision to not make actuarially required pension payments that he had previously agreed to, S&P's downgrade announcement says New Jersey has "demonstrated [a] lack of commitment when it comes to funding its annual contributions." S&P says it expects the pension system's finances "to decline much more significantly" in the coming years.
BTW, there has been a formal ethics complaint fired on his pension policies:
New Jersey’s biggest labor union today plans to file a complaint with the State Ethics Commission against a key adviser to Gov. Chris Christie who is in charge of the agency that oversees pension investments.

In an 11-page letter to the ethics commission, New Jersey AFL-CIO President Charles Wowkanech said that the chair of the State Investment Council, Robert Grady, “has violated the Division's own rules barring politics in the selection and retention of such funds and investments, and has further created an appearance of impropriety.”

At issue is the state's investment of hundreds of millions of dollars of pension money with Wall Street firms, including hedge funds and other types of “alternative investments” that charge higher fees than more traditional types of investments — a practice that started before Christie was governor but has increased under him.

Some “key executives” of the firms donated to state and national Republican organizations that helped Christie, according to Wowkanech, who said those donations potentially broke state pay-to-play laws, and at the least violated the state officials’ code of ethics. Wowkanech wants an investigation.
And on top of all this, it now appears that the Christie administration is using fuzzy math to goose their return on investment.

It's clear that Christie has moved from bombast to damage control in this matter:
The New Jersey Division of Investments has quietly sold its stake in a venture capital fund managed by General Catalyst Partners, following allegations of impropriety related to a political contribution from General Catalyst “executive-in-residence” and current Massachusetts gubernatorial candidate Charlie Baker.

Fortune has learned that the sale agreement was inked back in August, and closed within the past several weeks. It may be publicly disclosed tomorrow during an open State Investment Council meeting, and was discussed during an investment policy committee call last week. No word yet on the buyer, although a source says that the sale price was around 1.5x of cost.
I so hope that this guy runs for President.

The scrutiny he'll get will destroy any future for him in politics.

This is the Proverbial, "Big F%$#ing Deal"

The largest pension fund in the nation, Calpers, has decided that it will not longer have hedge funds manage its money:
The California Public Employees’ Retirement System, the nation’s largest pension fund, will eliminate all of its hedge fund investments over the next year on concerns that investments are too complicated and expensive.

The pension fund, which oversees $300 billion, said on Monday that it would liquidate its positions in 24 hedge funds and six hedge fund-of-funds — investments that total $4 billion and more than 1 percent of its total investments under management.

The decision, after months of deliberation by the pension fund’s investment committee, comes as public pensions across the United States are beginning to assess their exposure to hedge funds. It is likely to reverberate across the investment community in the United States, where large investment funds look to Calpers as a model because of its size and the sophistication of its investments.

“Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost and the lack of ability to scale at Calpers’ size,” the hedge fund program “doesn’t merit a continued role,” Ted Eliopoulos, the interim chief investment officer of Calpers, said in a statement.
Typically, hedge funds charge 2% of the fund plus 20% of any appreciation.

By comparison, Vanguard's S&P 500 index fund has an expense ratio of 0.17%, and it turns out that they don't generally outperform index funds, so you are not getting alpha (beating the market), and notwithstanding their protestations to the contrary, they don't deliver lower volatility (beta) either, as is evidenced by the frequency that the almost cliched phrase, "Once high flying hedge fund," appears in the financial press.

The reason that this is a big deal is not that this is a huge change in policy by Calpers, it only had a bit over 1% of its assets managed by hedge funds, but there are a lot of other public pensions out there that follow its lead, and if they start bailing, the hedgies will have to find honest work to make a living.

H/t naked capitalism, which had the best quote on the possibility of pension funds bailing on hedge funds:
One of my interlocutors said “OMG, hedgies will be jumping out of floor to ceiling windows in fancy modern building after throwing artsy pieces of modern furniture through them. There aren’t enough dumb enough rich investors to go around once the hedgies have lost the pension fund business. Short yachts, watch markers, GT cars, and Greenwich real estate.”
Look out below.

It's gonna be raining Katz and Goldmans and Sachs.

14 September 2014

At the Baltimore Tall Ships Festival

It happens every year, and in addition to the regular denizen of the harbor, the USS Constellation,.we saw the US Coast Guard barque that is the last tall ship in active service, as well as a replica of a 16th century Spanish galleon from Seville.

No clue as to how the pix will format on thus post.


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