Pascal and James: Apollo and Artemis

For more than a century now, people have been intrigued by the comparison AND the contrast, of

Pascal and William James, of the wager for God on the one hand and the “will to believe” on the other.  

It recently occurred to me that the relationship between the two philosophers and their views in faith is akin to that between the new 2020s moon program and the 1960s Apollo moon shots.

One point that us very clear is that William James didn't think his views had much in common with Pascal's thought experiment. His famous essay on the will to believe brings up Pascal only to dismiss him, saying (in close paraphrase here: if I were God I would take special pleasure in cutting off from eternal salvation those who had gone to mass and taken communion based on a cold-hearted casino-like calculation, because the idea of betting on God is so cut off from the essence of what faith means.

And yet, as generations have noted, there is a great similarity. James like Pascal believes that it is both right and proper for the human will to enter into matters of brief, that there are circumstances of appropriate rational belief that are NOT coerced by evidence and need not be.

So … how can we picture clearly to ourselves the difference AND the similarity? We can do this, I submit, by thinking of Pascal as Neil Armstrong, and Wiliam James as the administrator of a 2020s-style NASA.

What the new missions want to do is not just to GET to the moon, but to integrate the moon with the earth, to create a permanent station that will be tied to the earth economy, as well as serving as a way in which humans can learn about the cosmos well beyond us and, in time, from which we can launch missions to Mars.   

Armstrong just wanted to get there and back on a schedule (“by the end of this decade.”) 

Likewise, James wants to tie the will into a general account of how humans form beliefs, act upon them, and over time develop better ones. WIll/faith is part of the epistemological global economy. 

For Pascal, it is just a way to implore the persistently secular to come to the right result on a this-ticket-only basis. To get them to mass.  To plant a flag.

Email from Wachtell Lipton

Deal Activism:  Lessons from the EQT Proxy Contest

          “Deal Activism,” in which activists invest to oppose announced deals, has become an increasingly frequent component of the activist playbook.  While efforts by the target company’s shareholders to oppose a deal to secure a higher bid have received the most media attention, activists have also run campaigns against acquirors to block transactions outright, to extract concessions or to generate pressure against a board.  This occurs most frequently in strategic, stock-for-stock transactions where votes are needed on both sides.

          The recent proxy contest over EQT Corporation’s strategic merger with Rice Energy demonstrates that these fights can be fought and won.   EQT is one of the largest natural gas producers in the United States, and has viewed its vertical integration of production and midstream as a source of competitive strength.  At the same time, EQT has taken steps over the last five years to unlock the embedded value of its midstream businesses, including creating two listed midstream MLPs.  However, a “sum-of-the-parts” valuation issue then arose, which EQT had announced would be addressed in 2018.  The opportunity to acquire Rice Energy, which has a compelling adjacent geography to EQT’s existing acreage, became available in 2017 – but activists complained that the transaction should be precluded until the valuation issue was resolved.   After a highly visible contest for nearly four months, shareholders voted today to authorize the deal.  The EQT proxy contest provides a number of valuable lessons on how companies can successfully navigate this type of activist assault.

          Broad engagement with shareholders before and during the deal.  EQT has a long history of dialogue with shareholders that it was able to draw upon in articulating and persuading shareholders of the benefits of the merger.  It goes without saying that it is harder to get support from shareholders if the first time the company reaches out to them is when a proxy card is needed.  Post-announcement, EQT engaged broadly and intensively with shareholders – the Lead Independent Director and CEO personally called on significant shareholders and proxy advisory firms, and the Board closely monitored and heard shareholder feedback.  Particularly in the fog of war and the never-ending rumor mills that are attendant to activist-led proxy fights, these efforts make all the difference in building credibility for the board and management and enabling them to hear what long-term shareholders want. 

          Keep on message.  In all deals, but especially those subject to activist challenge, a strong rollout, and staying on message throughout the process, is critical.  In the course of an activist assault it is often difficult not to be distracted by the wide variety of criticisms the activists may raise, and the wide variety of “experts” whose presentations often oversimplify the many complicated and subtle judgments involved.   In this often chaotic context, it is critical to maintain focus on the benefits of the deal and the credibility of the board and management.  EQT introduced the transaction with a detailed investor presentation and conference call.  In the face of a barrage of disparagement by activists, much of it ad hominem, EQT maintained its composure and continued to focus the market on the deal.  EQT’s Board also wisely made real, public commitments to underscore the strength of  its focus on the interests of shareholders and its  intention to address valuation issues.  The ISS and Glass-Lewis recommendations are still important, and the Lead Independent Director and CEO personally and effectively presenting to those firms were key factors in EQT’s success in obtaining their recommendations.  The merger’s opponents also made presentations, but ultimately failed to persuade the proxy advisory firms, and then withdrew the challenge shortly following the advisory firms’ recommendations in favor of the deal.

          Settlement has its place, but is not always necessary or desirable.  The temptation to short-circuit the disruption and distraction of a proxy fight with a settlement is understandable and, in some circumstances, appropriate.  Activists sometimes will publicize some of their settlement demands to generate support from other investors or to appear reasonable and build pressure for their platform.  However, accommodating the demands of the activist may not always be what the board considers to be in the best interests of all shareholders, and companies must carefully and deliberately make this determination.  In some cases, the optimal approach may be to sort out which ideas resonate broadly and proactively take actions with wide support to demonstrate responsiveness to investor concerns without acceding to the activists’ more parochial demands.  EQT’s Board, for instance, made important, unilateral public commitments to do what it believed was right for all shareholders and not just the activists – including commitments to address valuation promptly following completion of the merger, to add two new directors with midstream experience and to move the 2018 board nomination window to provide accountability for its announcement concerning the valuation issue.  Actions like this may not result in immediate peace, but can strengthen the case to institutional shareholders and proxy advisory firms that the board is open minded and doing what is best for all shareholders on a longer-term basis.

          Focus on the long-term investor and the value-creation strategy.  Deals are more likely to be successfully received in the face of an activist challenge when companies can contextualize them within a longer-term plan to create value.  Companies should articulate the strategy to institutional investors in advance of a deal so that when a deal opportunity becomes actionable there is support.   In EQT’s case, activists highlighted the near-term gain that might be obtained by scuttling the merger and focusing on the valuation issues instead, and wanted assurance that the Rice merger would not detract from EQT’s commitment to address this discount.  EQT was able to argue that the merger would create value and the company could address valuation issues after the merger from a stronger position, so that longer-term shareholders could get the benefit of both steps.  EQT’s long record of executing value-enhancing transactions, consistent strategy of building geographic concentration and willingness to add directors and to address valuation following closing were no doubt reassuring to long-term investors.  While the facts and circumstances of each deal are unique, shareholders generally can be persuaded that the opportunity to complete an accretive strategic transaction is worth pursuing when it complements a well-articulated long-term plan to create value. 

Embedding a Tweet

Interesting infographic on blockchain use cases pic.twitter.com/iVTcV25hJl

— jamie mcgurk (@jpm25) August 3, 2015

The idea here concerns blockchain use cases. I could write up something about it quickly.

Quick Course: 140 Years of Panic and Policy

I originally wrote the following three years ago, for the financial blog AllAboutAlpha. The 140 years reference then worked well enough if one was dating from the publication of Bagehot's work. Next year, on May 2016, the financial world will mark an even 150 years since the Overend Gurney crisis itself.



In London, in May 1866, a banking panic began at 65 Lombard Street, the address of a discount bank, Overend Gurney. Overend (an ominous-sounding name for a financial institution to begin with!) had only just transformed itself from a partnership to a joint-stock company, making its books public in the process.

At the time of the panic, Overend had been pursuing litigation for the recovery of a £60,000 debt. On May 9, a court held against it. The public discovered that the firm would have to write off that debt, and this datum proved the catalyst for a run.  On the afternoon of May 10, Overend suspended payments.

This panic spread on May 11 to other banks and to the stock market. Further, it was not limited to London: spreading to Bristol, Derby, and the other great cities of Britain. But this particular panic, not especially unique out of all of history’s bank panics, is remembered not only for its city of origin but for its street address, and is remembered because it was the Overend Gurney crisis that stimulated Walter Bagehot to write a classic on finance, a book called simply Lombard Street: A Description of the Money Market (1873).

Stiff Upper Lip

In the Appendices to this book you may find the minutes of a meeting of the proprietors of the Bank of England that September, by which time matters had settled down a bit. At this meeting, the bank’s Governor, Launcelot Holland, addressed the proprietors thus: “[That] the banking establishments generally of London met the demands made upon them during the greater portion of the past half-year affords a most satisfactory proof of the soundness of the principles on which their business is conducted. This house exerted itself to the utmost – and exerted itself most successfully – to meet the crisis. We did not flinch from our post.”

You have to love that attitude. That’s why the Victorians ran the world.  They never ‘flinched.’
In the text proper, one of Bagehot’s key points is that the banking world in his day was reaching a threshold, beyond which it would become impossible for families to manage banks. They would become “very rotten” as control passed from one generation to the next, because of the enormous amount of detail work modern banking requires, the need for professional management.

“We have had as yet in London, happily, no example of this [a great private bank becoming ‘very rotten’]; indeed, we have hardly as yet had the opportunity. Till now private banks have been small; small as we now reckon banks.” Small enough to fail, one might fairly add.

But that dynamic, the superiority of professional over amateurs as managers, is what led to the Overend crisis by pressing the firm to change its own status. “The richest partners had least concern in the management; and when they found that incredible losses were ruining them, they stopped the concern and turned it into a company.”

A Continuing Conversation

That is a profound historical point, made no less so by the fact that it wasn’t yet ‘history;’ when Bagehot made it. Indeed, it provokes thoughts of the work of Alfred Chandler, and other institutional economists, to whom the development of professional managements, and the ‘scale and scope’ professionals can deploy, is still a crucial consideration in understanding contemporary capitalism.
Even more provocative, though, are Bagehot’s policy ideas. How should a central bank, a lender of last resort, respond to a banking crisis? Should it lower interest rates to near zero in the hope that liquidity will drown systemic sorrows?

Bagehot argues for a contrary approach. The interest rates for loans made to desperate borrowers should be high. “This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early….”

Nonetheless, though the interest rate should include a punishment as a check on what in our day is called ‘moral hazard,’ still such crisis loans should be made, if solid collateral exists for them, “wherever the security is good” as Bagehot says.

In terms of the crisis of 2008, one can make a case that Bagehot would have supported TARP in its original significance (where it was supposed to involve purchase of the assets of the troubled entities). He would likely see this as lending where the “security is good.” But I doubt one can make the case on Bagehotian terms for the actual implementation of TARP as a TERP, that is, through the purchase of equities.

At any rate, as we look forward in contemplation of crises yet unborn, Bagehot continues to have a voice in contemporary discussions. As well he should.

A Bad Case of Magical Thinking

A FB friend shared something from an outfit called "Americans Against the Tea Party."

It was something that was written/prepared in response to the disaster at the fertilizer plant in Texas recently. But there is always something. I have to presume that this post is aimed at a federal initiative to improve safety inspectors, that it isn't aimed at the state government in Texas. After all, the state government can't print money, and may be limited by scruples against running deficits and borrowing money from the Chinese.

But I'm going to ignore a lot here in order to sharpen my focus. I'll ignore federal/state questions, philosophical taxation-as-theft arguments, arguments about the folly of printing money, etc. Sometimes you have to pick your targets. My target at the moment is a certain magical two-goals-at-once thinking that goes with many such appeals.

Here is a bit of what the FB "share" said,' "Don't support deregulation. Hiring inspectors in numbers enough to make a difference would put a small dent in unemployment. And we'd be safer...."

Wow. Those are presented as two separate arguments, and the first one is a prelude to the second: put a dent in unemployment and be safer.

How much of a dent in unemployment is desired from the creation of new safety inspector positions?

However many inspectors you deem the right number, "enough to make a difference" in safety, ask yourself: why not twice that many? Why not three times? Wouldn't that make twice as big a dent? Three times as big a dent? I suspect the phrase  "enough to make a difference" is meant to indicate some level of modesty in the plan. Not too many, just enough for a specific purpose. or even only enough to make a "dent" in a specific purpose.

But if you -- and I address the actual author of this silliness -- if you really believe that hiring inspectors is an unmitigated good thing, why be modest about it? Why not abolish unemployment overnight by declaring every unemployed adult an inspector of fertilizer plants so you can start sending out the checks?

Because you sense a practicality issue with that?  Ah ... we're getting somewhere then.

There is always a tension between two different reasons for doing X, when it comes to the specifics of X. If you want to hire more safety inspectors for a certain industrial process because (a) you want to make that process more safe and (b) you want to put a dent in unemployment, there will come times when those goals pull in opposite directions. What if a heavily automated process turns out to be the best way of making the process safer? Are we supposed to favor a labor-intensive process anyway, because of our high-employment goal?

Here's a not-at-all-farfetched scenario: suppose the best way to make fertilizing plants safer involves the hiring of a small group of human inspectors, assisted by robots, and involves giving advice to the management of those plants that leads to the plants' themselves becoming more automated and less labor intensive than they are.

Suppose that after a month or two of such inspections and re-structuring, there is more unemployment than when we started, because the loss of jobs in the newly re-designed plants exceeds the initial "dent" made by hiring the inspectors. Yet (by hypothesis) the neighborhoods are all safer.

Good plan ... or bad plan?

There is a certain sort of social welfare policy that consists chiefly in refusing to ask one's self such questions. But among those who do ask those questions, safety-as-jobs-policy doesn't find may defenders. Safety for safety is one thing, jobs policy is another, and only a bad argument confuses the two.

Perhaps safety can be best served by a vigorous tort law system. If businesses see the bottom-line costs of safety lapses through an effective litigation system, those costs are internalized, and they'll hire the optimal number of inspectors themselves. But in no case should we think of that as a jobs policy: even then, they might well decide the best way to lower their liability costs is to automate, and should they not be free to make that call?

A quote from Mises

"The expressions solvency and liquidity are not always used correctly when they are applied to the circumstances of a bank. They are sometimes regarded as synonymous; but orthodox opinion understands them to refer to two different states....A bank may be said to be solvent when its assets are so constituted that a liquidation would necessarily result at least in complete satisfaction of all its creditors. Liquidity [on the other hand] is that condition of the bank's assets which will enable it to meet all of its liabilities, not merely in full, but also in time, i.e. without being obliged to ask for anything in the nature of a moratorium from its creditors."

- The Theory of Money and Credit.

Happy New Year 2013

Okay, help me out here, informed readers.

The 112th Congress formally comes to an end on January 3, when the new session's members will be sworn in.

Whatever the Senate has done, if the House hasn't done likewise, won't count once the 112th session expires.

So ... the possibility of the big 'compromise' every one is talking about turns on a 2 day difference between two different deadlines.

We've already gone off the 'cliff.' The Bush tax cuts have expired, we are living in 2013 with the pre-Bush tax rates formally back in force.

So, the Senators, by acting on Dec. 31, before the cliff, were able -- and will always be able -- to describe their action as raising taxes on 'those fat cats' (relative to 2012 law).

But members of the House, by acting on the 1st or 2d of 2013, will be able to describe their actions as a tax cut, relative to the new/resurrected/Clinton-era rates, if they pass the same bill. So of course they haven't violated any pledge they may have signed not to raise taxes, because the tax increase took place automatically, not by their vote, and they will then have voted to lessen it slightly, i.e. to decrease taxes.

Is that it?

If it isn't brilliant, it is insane. I can't decide which.

Working on Caro Review

Robert Caro has been working on a multi-volume life of the 36^th President, called The Years of Lyndon Johnson, for more than forty of his and our years now. The first volume of the set, The Path to Power, appeared in 1982, when Caro’s professional reputation as historian and biographer turned on his work on the New York parks-and-highways maven Robert Moses. Important as Moses was for that metro area: this was bigger game.

The Path to Power related the first thirty-three years of Johnson’s life, including his first election to the House of Representatives in 1937. In that period, Johnson was at least on the surface a devotee of the New Deal, and was in particular associated with rural electrification. But Caro sees all of Johnson’s devotions during the Roosevelt years through the lens of his protagonist's overweening ambition. In this 1982 volume, Caro stressed that a close tie to the REA gave Johnson an instrument, one that he could and did use to build his own political machine in Texas.

The second volume, Means of Ascent (1990), focused on Johnson’s elevation to the U.S. Senate in 1948. The key votes, in the Texas of that time, were those cast in the Democratic primary, since the defeat of the Republican was a mere formality. Johnson’s primary election opponent in 1948 was former Governor Coke Stevenson. Caro argues that Johnson’s defeat of Stevenson was blatant theft. Nonetheless, the Democratic state convention upheld Johnson’s victory, and he prevailed in the resulting litigation with some help from attorney Abe Fortas, a man he would in the fullness of time put on the U.S. Supreme Court.

TESTING:  DO I HAVE THE SAME TROUBLES here as with the other blog?  If not, one plausible hypothesis is that there is just too much in the other blog, and it may make sense to start from scratch.

.

The IRS Code permits the owner of mineral rights to account for the reduction of the available value as reserves are brought to the surface and exploited. This is not on its face a glaring “loophole;” it is closely analogous to the depreciation of the value of machinery.

Whatever the factual rate of depletion might be, the statutory (?) rate of depletion in the case of oil and gas is 15 percent of the gross income from the property, based on average daily production, up to the depletable quantity.   

The review in the form in which I sent it to Henry did not contain any material about Johnson's role in depletion allowance controversy.  Hey. This is neat.  I can type at will in this blog. So the problem must be overcrowding.

------------------------ 

 

LBJ told Weisl that "your folks (his clients in the securities business, presumably) should take the hint that"this thing ... this assassin may ... have a lot more complications that you know about....It may lie deeper than you think."

The message clearly was that Wall Street should show its own faith in and solidarity with Johnson, because he was going to save the system from the shadowy forces represented by the assassin.

Euro/Dollar

That is my own clumsy graphing, assisted by XE.com and an educational website.

The subject of the graph is the fluctuations of the euro against the dollar over the last crisis-ridden year.

I've used an arbitrary date in the middle of each covered month (the 12th) as that month's data point.

How does this correlate with some of the events of the unfolding crises regarding Euro sovereign debt during this period?

Last May and June, when the euro was circa .70, saw German politicians in particular taking a hard stand against assistance for Greece. That stance began to soften a bit in late June, when Merkel agreed to work with the ECB to line up the participation on private investors in a restructuring. It appears that this helped the euro's value, which reached .73 that September.

The markets' attentions shifted to Italy by September, though. That month S&P downgraded seven Italian banks, and there was some fall-back. Then in November, the Italians managed to rid themselves of Silvio Berlusconi and  Mario Monti became the new PM there. Europe's bankers have confidence in Monti, who has a reputation as a competent, boring, technocrat, a good reputation to have at such times, and the value of the euro climbed through December and into January of this year.

The most recent fall-off, since the January peak, may represent more a strengthening of the US dollar than a weakening of the euro.

Just a Data Dump

Now this graph is illuminating. And a bit scary. It tells us the stages by which the remaining ivestment banks became 2 Big 2 Fail.

Wow

Suspension

I will not be adding new posts to Proxy Partisans for some time now.

It has been fun and a privilege, and I hope to resume when the time is right.

Thank you to all readers.

Posen's speech

Adam Posen is a senior fellow at the Peterson Institute for International Economics , and you can click on that link to learn more about him. Heavy-duty important economist with trans-Atlantic influence. Member of the monetary policy committee of the Bank of England, etc.

Posen spoke on September 28 to the Hull and Humber Chamber of Commerce, and laid out "the case for doing more." See the whole speech here.

For more of what? by whom? Central bankers "in the UK and beyond," should be doing more to promote recovery, and should not concern themselves with the risk of inflation that this creates.

"[P]olicymakers should not settle for weak growth out of misplaced fear of inflation. If price stability is at risk over the medium-term, meaning over the two- to three-year time horizon ... it is on the downside."

That just sounds insane to me. It seems that our economics gurus have uterly lost sight of the most basic facts about the business cycle. Maybe this video will help. Surely recent events have vindicated Hayek's concern about the boom and bust cycle? Those responsible for the bust are always those who stoked the preceding boom.

We're suffering from the hangover from the last boom-bust, and we're reaching for a hair of the dog. Breaking the addiction would be a better plan.

Dividend policy

Let's put some links together on the broad subject -- one of great relevance to all the themes of this blog -- of corporate dividend policy. How do companies decide how much cash their stockholders get on a regular basis?

Here's a pdf from Deutsche Bank on the theory and practice.

And here are a few words from scholars at UPenn.

One piece of the puzzle is the fact that individuals in the US are generally taxed more for dividends than for the capital gain on the sale of stock. The dividends are "ordinary income." So, shouldn't a rational investor want the company to keep reinvesting its cash, building up that strike price, and earning him that capital gain? Why does anyone even want a dividend?

On the other hand, a stock that doesn't pay dividends has a Madoff-like air to it. I'm holding on to it so I can sell it at a higher price to someone else, you say? Well, why would he want it? Because he expects to sell it to a yet greater fool further down the road? Somewhere, somebody has to receive a stream of income/cash in order to anchor those capital gains. That, at any rate is one common sensical take on the issue.

At any rate, once a company has a history, a track record as to the quantity of dividends it pays, there is a good deal of pressure to keep it up. The dividend level is "sticky." Why? Because any departure can be taken as a signal. A cut in dividends can be considered proof the company is in trouble and desperately needs to hold onto its cash. An increase in dividends can also be taken as a signal that the company is in trouble, specifically that it is making a desperate move to perfume that fact!

Consider that Lehman Brothers, the broker-dealer that famously declared bankruptcy in September 2008 and set off that autumnal crisis, had increased its own dividends by 13% earlier in the year. You may as well give that some consideration -- if you are the member of a board of directors that institutes such a cut, signalling theorists will consider it for you!

Finally, if you are an investor, you might want to consider a dividend reinvestment plan. Especially because it goes by such a neat acronym. Such a plan is known as a DRIP.

Europe's Hedge Funds

Deliberations among the nations of the European Union about a new level of regulations for hedge funds there have reached an impasse.

I wrote here 11 months ago that the draft directive circulating at that time was dead as written. There have been lots of developments since.

The U.K., where most of the Europe-headquartered funds actually are, has been working to water down the more draconian aspects of these proposals from within the EU system, and the U.S. has been exerting some pressure from without.

The Brits are worried that this will hurt London's status as one of the world's great financial hubs, while the U.S., and in particular Treasury Secretary Geithner, worries that the EU is going protectionist -- that it will put barriers in the path of any institutions and high net worth investors there who want to entrust their money to operations in New York.

Meanwhile, the French and the Germans are pulling in the other direction, to make the regulations tougher on the nasty hedge funds, whether of New York or London, than the drafts of the directive would have it.

There is an idea circulating in some quarters that hedge funds were at fault in the 2007-08 credit crunch. That is utter nonsense. Quite old-fashioned, supposedly conservative and stodgy, institutions like banks were the real trouble makers. The hedgers generally did a good job of keeping their head while bankers all around them were losing theirs.

At any rate: the news this week is that EU diplomats tried to push the process forward at a meeting Monday, the 27th, but they failed.

A big possible winner is Switzerland. A map will tell you that the Swiss are in Europe, but they don't act like it. They've stayed away from the EU, and if EU rules do become too onerous for HFs, we might see a lot of them developing a taste for Alpine air.

Buy Some Furniture, Give the Cat A Name

This is the chart for the performance of Tiffany's common stock over the last six months. As you can see, there was an early peak at $52, then a jagged decline to $36 by early July. It has since risen from that, to the neighborhood of $46, although there was another dramatic-looking dip at the end of August.

That dip may have come about largely because Trian Fund, the investment vehicle of Nelson Peltz, has been selling. Trian still owns a 5.43% stake, whichmakes it Tiffany's biggest stockholder.

Tiffany did better-than-expected in recent quarters. But even that hurts it in Shapira's estimation, because she thinks it did well on the basis of declining commodity prices, and its profit margins are not sustainable.

The relevant Goldman Sachs analyst has downgraded Tiffany from neutral to sell. That analyst is Adrianne Shapira by name. She says, "TIF trades at a 26% premium to an index of department stores, which is approaching one standard deviation above the 3-year average premium of 15%. We believe as [earnings estimate] beats moderate in the near term, peak valuations will be tough to sustain."

There is not especially good reason for me to be discussing Tiffany's right now, but it does give me a chance to quote the famous dialog from a certain classic Audrey Hepburn movie:

Holly: Poor old Cat. Poor slob. Poor slob without a name. The way I look at it, I don’t have the right to give him one. We don’t belong to each other; we just took up by the river one day. I don’t even want to own anything until I can find a place where me and things go together. I’m not sure where that is, but I know what it’s like. It’s like Tiffany’s

Fred: Tiffany’s? You mean the jewelry store?

Holly: That’s right. I’m crazy about Tiffany’s…Calms me down right away. The quietness and the proud look of it. Nothing very bad could ever happen to you at Tiffany’s. If I could find a real-life place that made me feel like Tiffany’s then…then I’d buy some furniture and give the cat a name.

Here's hoping that Tiffany's itself finds that place.

Airgas/Air Products

As regular readers will recall, this blog has traced the sometimes stormy relationship between two competitors in the market for industrial gas supplies, both headquartered in Pennsylvania: Air Products (APD), of Allentown, [get out of my head, Billy Joel!] and Airgas (ARG), of Radnor.

APD bid for ARG back in February and signalled at that time a readiness to wage a proxy fight for control.

Airgas held its annual meeting recently -- September 15. So ... what happened?

Shareholders elected the three nominees for director promoted by APD. But that doesn't mean an acquisition will go through uncontested. The board is staggered, so APD would have to win another election to gain majority control. Even in announcing their election, Airgas cautioned them against over confidence in this regard.

"Although our new directors were originally nominated to stand for election to our Board by Air Products, like all Board members, they have fiduciary duties to all AIrgas stockholders. These duties do not allow them to act in Air Products' interests, or in affiliation with Air Products."

Meanwhile, shareholders also voted on three proposed bylaw amendments designed for the benefit of the would-be acquirer, and it isn't clear what the result was of these votes.

ISS Sides with Burkle in B&N Matter

Institutional Shareholder Services (ISS) a major proxy-advisory firm, has recommended that shareholders in Barnes & Noble vote for the dissident slate backed by Yucaipa Cos. in the ongoing proxy fight.

B&N holds its annual meeting a week from today. Each of the other three major proxy-advisory firms, Glass Lewis, PROXY Governance, and Egan-Jones, has come down on the management's side.

This is in accord with the developing pattern. The folks at ISS are more likely to back insurgents than their colleagues.

In this case, ISS says: "Barnes & Noble’s history of poor performance, analysts’ lack of confidence in management’s ability to achieve its targets, corporate governance concerns regarding the company’s employment relationships with Leonard and Stephen Riggio, concerns about the independence of the current board, and questions over the rationale for the 2009 acquisition of Barnes & Noble College Booksellers from Chairman Leonard Riggio."

The book selling business is in the midst of a major transformation, and B&N has tried to keep ahead of the curve, bring out its Nook to compete with Amazon's Kindle and the other eReaders on the market for example. B&N has been increasingly aggressive over the last year in using its bricks-and-mortar stores to push the eReader on shoppers. That sounds a bit odd: "Buy this, and you'll never have to come here again!" -- but such is the transition to a digital age. Or to whatever the heck we are all heading for.

But some are skeptical of whether they really are out in front. Goldman Sachs, in a late-August report, said: "Results fell short of our forecast and, more importantly, reduced visibility on objectives going forward, given two factors: (1) Additional disclosure revealed surprisingly low gross profit margins for the .com business, reflecting both sharp, structural margin cuts in the traditional (physical) .com realm, and poor underlying profitability of the digital business in aggregate (Nook + ebooks). (2) Soft superstore sales, as results missed guidance issued two thirds of the way through the July quarter."

Boyd and Interoil

Roddy Boyd, in his blog, The Financial Investigator, has a fascinating post on The Interoil Math. Interoil is an oil and gas producer that, Boyd says, "recently raised cash at exorbitant rates and appears to be internally valuing its assets way below what the market appears to think they are worth."

So, on such revelations, its stock price should be tanking, right?

Ummm ... no. The stock price rose sharply in the middle of the day Wednesday, September 15, and held level at close to $64 a share through Thursday and Friday, and resumed moving north on Monday.

"To be sure," Boyd continues, "the bull’s case is both elegant and obvious: If there is oil and natural gas is in Papua New Guinea, and in the volumes suggested on the company’s properties, shareholders are in for an instant windfall to the tune of several dozen points worth of price appreciation."

And if my car had a propeller, it would be The Spirit of St Louis.

Provable reserves as I noted last November are hard to come by.Separately: any company that found them in Papua New Guinea would still have to be willing and able to spend the money to exploit them. Yet Interoil is cash strapped -- sufficiently strapped to need to pay those card-card-like interest rates we mentioned above.

Interoil will naturally tempt short selling. Of course, if you do go down that road, you take enormous chances, even if your underlying case is strong. Such intriguing recent books as CONFIDENCE GAME, whatever else they do, make this clear. I don't recommend shorting -- indeed, I don't recommend anything at all. [Except this: for roughly 99% of investors who have an interest in the equity markets, the best course is a simple passively managed fund, tracking some broad-based index.] Still, Interoil is the sort of spectacle that makes one wish there was more shorting activity in the financial world than there is. The number of nest eggs that have to be sacrificed to prove the prophetic powers of P.T. Barnum is unnecessarily high.

The CFTC on CPOs

The Commodity Futures Trading Commission (CFTC) has asked for public comment on a rulemaking petition from the National Futures Association (NFA), which would narrow the scope of the regulatory exclusion for registered investment companies from commodity pool operators (CPO) status.

Registered investment companies are at present eligible for a broad exemption from CPO status. 17 C.F.R. 4.5, but the petition would require that RICs seeking such an exemption represent that their funds will use commodity futures and commodity options contracts only for bona fide hedging purposes and that the fund will not be marketed to the public as a commodity pool.

The petition contemplates the application of these limits even retrospectively, to companies that previously had filed notices under the broader exemption, though it recommends that these companies be given time to come into compliance.

October 18 (my 52d birthday) is the deadline for comments.

Inflation and the 1970s

In a lazy-Sunday mood, my mind is wandering back to the 1970s, assisted in its wandering by a recent book, RIGHT STAR RISING, by Laura Kalman.

Kalman's book covers the period 1974 to 1980, a period that began with the resignation of Richard Nixon and ends with the election of Ronald Reagan. How did we get from one to another? One might reasonably have suspected, a priori, that Nixon's fdall would signal a leftward move in the country's politics. Why did that not happen? That is the question that fascinates Kalman.

What I have read of her book has forcefully reminded me of the centrality of inflation in the politics of that period: inflation at levels we have not known since, and inflation that came to be taken for granted year-to-year. Ford declared that we could stop it, and introduced ridiculous WIN buttons. The inflationary environment stimulated more serious policy disputes, such as that over common situs picketing.

So let's think about inflation today. With all the "quantitative easing" and stimulus packages of the last couple of years, shouldn't we have expected some of late? Why has it remained so tame in 2010? Here's a take from The Motley Fool back in March.

One reason it has remained tame is simply that other currencies have taken harder hits than the dollar, and this has allowed the dollar to retain its significance as a safe haven. Switzerland, and its franc, has long been considered another safe haven, but its status as such took some hits in 2009, because the Swiss economy is so closely tied to world banking, and banking as an industry was so much under siege. For investors even nervous about Switzerland, the US dollar looked even better. (Sort of like the way the girls [boys, if you prefer!] all look cuter at closing time?)

Of course the safe-haven notion increased demand for the dollar, and the increased demand has kept its value up, i.e. has foiled the forces that would otherwise have pressed for inflation/devaluation.

But I think we've gotten as much mileage out of that as we're going to get, and we may be headed back to the '70s sans DeLorean.