All's Fair

NYTimes covers the Assad regime's involvement in the booby-trapping of rebel ammunition.  The very brief Op-Doc on the history of this practice is well worth viewing.

24.6%

At 24.6 percent, "Spanish unemployment hit its highest level in the second quarter since the Franco dictatorship." - Reuters

Never a good headline to wake up to...

4 Minute Warning

1'06" mark, Josh Fox's GasLand (2010): Radiohead's "4 Minute Warning" eerily begins to play.

Of course, the chemical-infested frozen rabit corpse has been preserved in a WalMart bag. If you're looking for a powerful amalgamation of emotions, this is it.

Have yet to finish the documentary, but will certainly return to this EID article.

Refranchising Gains and Losses

Are YUM's refranchising losses cause for concern? The company "[does] not allocate such gains and losses to [its] segments (China / YRI / U.S. / India) for performance reporting purposes." RT's FY2008 10-K provides a decent definition of the concept:

Refranchising Gains (Losses)
Refranchising gains (losses), included in other restaurant operating costs, include gains or losses on sales of restaurants to franchisees. All direct costs associated with refranchising are included in the calculation of the gain or loss. Upon making the decision to sell a restaurant to a franchisee, the restaurant is reclassified to assets held for sale at the lower of book value or fair market value less cost to sell and any anticipated loss is immediately recognized. When the sale occurs, any loss not previously recognized is recorded concurrently with the sale. Any gains to be recognized are recorded when the sale closes.

To be continuted...

Risk Factors...

How could anyone feel comfortable with a PEIX common equity/convertible debt investment? I've never seen a more terrifying "Business Risks" portion of an annual filing.

From "Risks Related to our Business," 2011 PEIX 10-K...
"The results of operations of the Pacific Ethanol Plants and their ability to operate at a profit is largely dependent on managing the spreads among the prices of corn, natural gas, ethanol and WDG, the prices of which are subject to significant volatility and uncertainty."

If only 2006 wasn't the peak...
"In early 2006, the spread between ethanol and corn prices was at an historically high level, driven in large part by oil companies removing a competitive product, methyl tertiary butyl ether (MTBE), from the fuel stream and replacing it with ethanol in a relatively short time period. However, since that time, this spread has fluctuated widely and narrowed significantly. Fluctuations are likely to continue to occur."

Terrifying chart for PEIX investors...
Extracted from CBOT/CRB's 7/9/12 Ethanol Outlook Report, this chart bluntly exhibits the soaring input costs (corn) alongside near-month ethanol futures. Sep corn prices +36% in just 3 weeks, touching a 10-month high of $7.14. Severe heat and drought conditions have shattered the summer's corn supply outlook: Sep ethanol-corn margin remains negative at -11.5c/gallon.

Absolutely Stunning

Zero Hedge via NY Fed

Of course, Professor X mentored Emanuel Moench as a doctoral student at Penn. I've been thinking about the significance of this study nearly all day, and have yet to fully comprehend the results. I've shared with coworkers with 20+ years of market/investing experience, all of whom are stunned.

Hedge Funds!

Via Seeking Alpha's Market Currents:

10:01 AM Pension funds might consider going back to the old days of holding 60% of assets in equities and 40% in bonds as the classic strategy has whipped hedge fund performance for the last 5 years. Nevertheless, Citi sees institutional investors continuing to pour money into hedge funds. It's tough for a Vanguard brochure to compete with fancy dinners and a round at Shinnecock.

If only Malkiel's advice was more glamorous...

Quotable 7/9

“Effectively, there is no money to give back.”

- José Ciscar Bolufer, vice president of Valencia’s current regional government, on why the publicly-financed Ciudad de la Luz is struggling to repay taxpayers' $325 million.

“As long as you offer any kind of support to terrorists, you are partner.”

- Bashar al-Assad blaming the US, Saudis, and Qatar for promoting violence in Syria.

Unexpected Decree

"The announcement on Sunday suggested that Mr. Morsi was willing to stake his credibility on a challenge to the military’s version of power sharing, which left the president’s legislative agenda and even his budget dependent on the generals."
                - Kareem Fahim, NYT

This seems to make sense, however. If a president is freely elected, he should have reasonable authority above and beyond a related military council. Unfortunately for Morsi, the move may look like a greedy grab for power. But, after all, "the people and the president are one hand.”

Emmanuel and Savage on Roberts' Medical Condition

Given John Robert's susceptibility to seizures, it is interesting to wonder how his own medical condition weighed on his mind while deciding the constitutionality of ACA.

Ezekiel Emmanuel (brother to the infamous Ari and Rahm) explores just that topic:

"Chief Justice Roberts has a pre-existing condition but is just 57, and thus not eligible for Medicare. Remember his unexplained seizure soon after he became chief justice? If he did not have employer-provided insurance and had to get his own coverage on the individual market, he would be denied health insurance coverage at almost any price. Maybe the appreciation for his precarious insurance status made Chief Justice Roberts more sensitive to the need for the Affordable Care Act and its requirement that insurance be available to all of those with pre-existing conditions."

And then, there is Michael Savage, who ponders whether Roberts' condition contributed to his thought process in other, more subversive ways: 

"It's well known that Roberts, unfortunately for him, has suffered from epileptic seizures. Therefore he has been on medication. Therefore neurologists will tell you that medication used for seizure disorders, such as epilepsy, can introduce mental slowing, forgetfulness and other cognitive problems. And if you look at Roberts' writings you can see the cognitive dissociation in what he is saying."

Politics on the Bench

More on the ACA SCOTUS decision later, but in skimming the Opinion, I came across the below qoute, delivered by Chief Justice Roberts:

"We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation’s elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions."

This passage - especially in light of Scalia's rambling 22 page politically charged Arizona dissent on Monday - strikes me as particularly powerful, and on point.

Syria and Turkey as a Proxies

“If there is anyone who could not understand this up until today, we would and will prove in the most clear and determined way that Turkey cannot be challenged” - Turkish Prime Minister Recep Tayyip Erdogan on his country's response to any further Syrian agression.

With Russia and China allied with Syria, and the US and EU as part of NATO behind Turkey, the gravity of this situation - and the speed with which this conflict could potentially escalate - should not be underestimated.

(Source)

X's Pension Realities

Underfunded pension plans can be quite terrifying in some circumstances. The above exhibit, extracted from page F-38 of U.S. Steel's 2011 10K filing, reveals that PBO of $10.8b exceed the fair value of plan assets by $2.4b and "other benefits" exceed plan assets by $2.7b, for a total underfunded status of $5.2b. As David Trainer points out in a 6/20 Seeking Alpha post, this massive deficit is just under twice the size of X's current $2.76b market cap.

Great News!

"The Fed isn't going to be buying European sovereign debt."

-Ben Bernanke, 6/20/12 Federal Reserve news conference

Evolution

The New Yorker seeks to explain the results of a recent poll which initially baffled me, stating that 46% of Americans adhere to a strict creationist view -- that humans were created in their present form within the past 10,000 years.  The prevalence of this belief -- one which is categorically and demonstrably false -- can be explained, at least partially, in terms of neurophysiology.

Jonah Lehrer's Why We Don't Believe in Science, features a study showing that comprehending a scientific concept counter to intuition involves two specific brain processes, among others. The first of which involves a triggering of a part of the brain which perceives intuitive inconsistencies, and then a separate area in the more developed part of the brain whose role it is to suppress unwanted thoughts.

In essence, our brains are hardwired in their cores to detect intuitive inconsistencies - even if they are factually correct - and it is the more developed areas of our brains which are able to over-ride our knee-jerk reaction which blurts out  "it doesn't make sense, so it can't be true!"

May Post

Here is our one post for May.

Presidential Power

For the first time since WWII, no presidential candidate in either Party has served in the military. As Jeffrey Toobin points out, this is the culmination of a recent trend in American Politics over that last two and a half decades: " In every election since 1988, the candidate with the better military record lost." Some may lament the fact that military experience has played a decreasing role in how we evaluate a person's ability to become Commander and Chief - and there are valid points to be made in favor of electing a person who has seen the horrors of war up close - but there are also persuasive arguments against electing a person purely on the basis of military prowess.

Once such argument can be found in Richard Neustadt's seminal work, Presidential Power, where the author asserts that a President's greatest asset is his ability to persuade others - whether the public or in the administration - to do his bidding. As opposed to in the Military where a soldier is legally bound to obey his General, there is no such obligation in politics. This fact was not lost on President Truman when he commented that Eisenhower, should he become president, will just "sit here, and he'll say, 'Do this! Do that!' And nothing will happen. Poor Ike-it won't be a bit like the Army. He'll find it very frustrating."

And after being elected, Eisenhower found this to be true. In his very own words, "I sit here all day trying to persuade people to do the things they ought to have sense enough to do without my persuading them.... That's all the powers of the President amount to."

Americans say they don't want professional politicians in the White House, but a politician is the exact type of person who embodies and has spent his career honing these skills. We just want a politician so good, that he persuades us he isn't one.

Freedom

This actually looks like a staged photograph one would find at a fine art gallery in New York or Philadelphia. The facial expressions are tremendous, each one different from the next. The hand gestures add an additional layer of emotion and subjectivity.

Tehran, Then and Now

As Carla Parks of Foreign Policy puts it, "when Westerners think of Iran today, images of women wearing chadors, American flags burning, and militant crowds shouting nationalistic slogans often come to mind." It was, however, not always thus.

Parks' Foreign Policy photo essay, Once Upon a Time in Tehran, puts on display a city that once was, but no longer exists outside the memory of those who walked the streets of the modern pre-Revolution Tehran. What is truly striking about these photographs is how they seem as if they could have been shot in any American city during the 1970s. Needless to say, such a societal parallel is now just a distant memory.

The story of Tehran's descent from cultural bastion to Theocratic stronghold is reminiscent of Berlin's in the early 20th century. Let us hope that the former can break through its tyrannical chains without the bloodshed that accompanied the latter's accomplishment of this feat.

False Assumptions

I must admit that I put off watching Bennett Miller's rendition of Moneyball for quite some time, primarily due to its hype (especially its association with Lewis' novel), accessibility (on its face, a cliche biographical sports drama), and big-league (my apologies)  roster (Pitt/Hill/Seymour-Hoffman)--what a mistake.

Breakfast at Taco Bell?

There's something unrealistic--or, perhaps, overly romantic--about the philosophy of Yum Brands' (NYSE:YUM) CEO David C. Novak. His obsessive focus on leadership and culture (as explained in his new book Taking People With You: The Only Way to Make Big Things Happen) is wonderful in theory, but I fail to understand its tangible connection to reality, namely profit margins. Of course a good company starts with good people, but there's undoubtedly more to the story (to start: business acumen, entrepreneurship, and timing). Clearly Novak has done well for himself, though, if director seats at J.P Morgan/Bank One, a 250% YUM stock price appreciation since 2004, and a $199.88 million five-year personal compensation package are any sort of indication.

A Brilliant Pairing

Just yesterday, I came across one of the best video representations of Bon Iver's "Holocene." Larkin Seiple's stunning cinematography highlights both Iceland's natural beauty and man's innate curiosity. Although I agree that "youthful curiosity" on its face sounds cliche--and, admittedly, it pains me to use such a term--watch the video (lights off, full screen, with Bose QC3 noise-cancelling headphones) and see for yourself.

Particularly touching is the sequence starting at 02:13: "Third and Lake it burned away, the hallway / Was where we used to celebrate." Towards the end, the boy tosses a handful of pebbles in the air, ultimately puncturing the lake's metallic reflection. Fittingly, this action occurs in tandem with Vernon's utterance of "to celebrate," verbiage clearly associated with action and merriness. This type of pairing is precisely what brings the [now-corrupt] concept of a "music video" to life.

Presidential Dialogue

The NYTimes rightly places Obama's State of the Union Address in the context of electoral politics in its piece, "Obama Sets Sights on Romney." When reading excepts of Obama's speech juxtaposed with Romney's critiques, a dialogue between the two men emerges, elucidating two very distinct world views which will soon be put to the test in the general election. But not if Newt Gingrich has anything to say about it...

Jobs Bills

Rep. Bobby Schilling (R-Ill.) via Politico: "My colleagues in the House and I have been focused on jobs since Day One, passing more than 25 bills to give small businesses the certainty they need to grow, increase the domestic production of energy and get Americans back to work. Many of these bills passed the House in a bipartisan basis but remain stuck in the Senate."

What are the actual numbers here? Exactly how many Republican-proposed bills aimed at job creation failed to get through the Senate?

Seasonally Adjusted?

Despite being largely content with this morning's job report from the DOL, I must say that the Bureau of Labor Statistics' so-called "seasonal adjustments" neglect the highly cyclical couriers and messengers category from their data modification, a category responsible for the majority of December's gain at +42,000 jobs. If couriers and messengers do in fact "move and distribute documents and packages for individuals, businesses, institutions, and government agencies" (as defined in the BLS occupational outlook handbook), then clearly these jobs are significantly impacted by seasonal factors. I don't even need to post an article, graph, or chart to back up this statement--as it requires only common sense to realize that a greater number of packages are shipped in December (due to the holidays) than in any other month--but I will nonetheless.

Thanks to CS chief economist Dr. Neal Soss for noting this peculiarity on today's monthly credit strategy call. Also, see Bob Willis' article just posted on Bloomberg.

Ville d’Avray

After an initial viewing of Jean Baptiste-Camille Corot's Ville d'Avray (c. 1867), an oil on canvas landscape depicting the artist's home commune in the western suburbs of Paris, it is impossible to ignore the fact that the woman in the foreground appears to be using an industrial-grade leaf blower (backpack model), absolutely pummeling the man to the right with leaves, twigs, and other debris. Who knew that such a brilliant technology existed in nineteenth century France. Seriously , though, one of my all-time favorite landscapes is Corot's View from the Farnese Gardens, Rome (c.1826), which I first discovered in person at Washington, D.C.'s Phillips Collection, and which now sits on my desk (unfortunately, in postcard form).

Ville d'Avray

View from the Farnese Gardens, Rome

Judge Pain and Young Buck

Somewhat old news (12/22/2011), but unbelievable nonetheless. What a sad ending for "David Darnell Brown" and G-Unit, but, then again, not really. The tweets in the article's final paragraph are almost too good to be true.

Via WSJ's Bankruptcy Beat: Bankruptcy Judge Orders Young Buck Into Liquidation