Saturday, October 28, 2006

Real Interesting Article
The mutual fund story, to me, is a yawn. (Not so, I am sure, to the idiot bank executives who are calculating how many attorney hours ten basis points buys.) The article about Glaxo making up a condition - restless leg syndrome - to sell an unnecessary drug to skeptical doctors is the real crime. Drug companies have carte blanch and doctors fall for their sales pitches. But making up restless leg syndrome to sell drugs is over the top. If your legs hurt after a hard day, drink a beer and watch TV or read a book. Glaxo has sold a staggering $550 million of this drug, Requip, this past year. It made up restless leg syndrome when Requip did not work for Parkinson's Disease. The FDA is worthless. Doctors need to start looking out for their patients (because they know restless leg syndrome is nonsense) and stop looking for freebies from drug companies and falling for sales pitches from pretty young saleswomen.
Rational Realist Comments
The Rational Realist was asked to comment on Elliot Spitzer's crackdown on twenty-seven mutual fund companies improper sharing of service fees with third party record keepers. The complaint says that mutual funds paid a fee to outside firm, Bisys, who paid up to 75% of that fee back to the fund company. In other words, the fund companies overcharged investors for outside services and then received most of that charge in the form of a kickback. My comment is that this does not surprise me and it shows the stupidity and greed of fund companies and their executives. Is it worth ruining one's career for ten to fifteen basis points? These kickbacks happened at bank-owned mutual funds for crying-out-loud. Bank-owned funds are already overpriced! The extra fee could have been tacked on to the management fee and no one would have been any wiser. Memo to fund executives: if your going to ruin your career do it in a big way, not for ten basis points. If you are dumb enough to only steal ten basis points you deserve career death.

Wednesday, October 18, 2006

Tenant In Common Association Meeting
I went to the Tenant In Common Association (TICA) meeting in Las Vegas on Monday. It started on Sunday and went through Wednesday morning. One day was enough for me, plus the hotel rooms in Vegas were $300 to $400 a night. TICA has these meeting twice a year and it's the same agenda every time, but one has to show up just to network and affirm existing relationships. From that standpoint the conference was a success, and possibly a huge success.

The opening speaker, a Wharton economist, was really good. The economy is strong, housing will drop 10% to 12% and condos will offer a buying opportunity in two to three years. He said that the government will leave the economy along for the next two years as it will be preoccupied with Iraq, but look for a recession in 2009 when a new president tries to institute new initiatives. He ended on immigration and had real good comments, in that the US should encourage immigrants and that they are positive for the economy.

The lunch speaker was torture. He was from the real estate industry's lobbying group and it felt like he handicapped every House and Senate race in the country. It was information anyone could get in ten seconds on or His final conclusion is that the real estate industry will likely benefit from a Democratic House and Senate, just as its benefited from a Republican Congress.

Saturday, October 14, 2006

More Farmer Welfare
It appears farmers have no risk. They get paid twice for every disaster that befalls them - too much rain, not enough rain - you name the calamity they get paid twice for it. These guys are unbelievable. There hands are out so fast they are the ones that should be picking pears, not the illegals. The poignant pictures of farmers plowing under E-Coli tainted spinach take on new meaning. Tears of sorrow are tears of joy for the soon-to-be-received double Federal payments. According to the article referenced above, farm relief programs have cost taxpayers $24 billion since 2000. Farmers have to vote liberal, because this sounds like Lyndon Johnson's Great Society on steroids. With all this welfare, why are tomatoes are still $3.99 a pound?

Thursday, October 12, 2006

Disappearing Burrito
Wendy's is selling Baja Fresh for $31 million. Wendy's bought Baja Fresh for $275 million in 2002. Chipolte, which had a successful IPO in January, has beat Baja Fresh in the market. Good for Chipolte, but if I had to choose between the two for lunch, Baja Fresh wins.

Wednesday, October 11, 2006

Not Surprising
A real estate firm returns are not available in any investment - yes, you can get lucky with a good stock pick but no one is capable of generating 25% returns in stocks every six weeks - and investors that look for and invest in deal that promise that offered investors 25% returns in as little as forty-five days has missed interest and principal payments, is closing shop and is being investigated by the SEC. The firm allegedly used investor proceeds to buy and "flip" foreclosed properties. (I think someone watched too many late night infomercials.) I don't feel sorry for the company, because they likely stole a good portion of the money or paid it out to investors - how does one spell Ponzi? I don't feel sorry for investors because investors looking for this kind of return need to know better. Outsizedunbelievable returns deserve to lose their money. In the article, one dumb sap took out a second mortgage on his house to invest in this scam. His penalty will be having his wife scream at him for the rest of his life.
Oil and Gas Investing
This article shows the problem (for investors) with the oil and gas industry. Money flows in when prices are high, like the fall of 2005, and investors still can't make money. This is due to high fees, mutiple revenue sharing partners and the general risk of the business. The risk is why all the sponsors ask for other people's money in the first place. Investors in oil and gas deals bear all the financial risk, because the sponsors put little to no money of their own into their deals.

A successful deal in the oil and gas world is one that returns investor money (oh, and forget that crap about adding tax write-offs to the return). Investors dream of hitting the oil and gas lotto, but it never happens. They receive decent income in the first few years, but this falls quickly, and investors are lucky to receive small amounts in later years (twenty-year time horizons are not uncommon). Sponsors limit their risk becuase they receive a percentage of revenue, 30% is not uncommon, for their role in the offerings, plus fixed fees for other services. Their cash flow is assured because the fixed fees are paid to them no matter the price of oil or gas or what the wells are generating. To put it bluntly, oil and gas deals stink for investors but are good for the promotors. Buyer beware!

Tuesday, October 03, 2006

Its All Politics
Buried on the front page of today's (10/3/2006) Wall Street Journal is a blurb that the Energy Department is delaying its purchases of oil to replace the strategic reserve that was tapped after Hurricane Katrina. The reason is help reduce prices. Deferring the purchase will not lower prices - but it will not increase prices either. The national average price for a gallon of regular unleaded gas has dropped $.70 a gallon since the start of August. The strategic reserve will be replaced after November's election when there is no immediate political cost to a price increase. It would be prudent to replace the reserve now when oil is more than 20% off its high, but this administration has proved over and over that politics trumps prudence.