Monday, July 18, 2016

Checks and Balance Sheets

For the better part of a century, there’s been a clear separation between the ownership and the management of publicly traded companies. Most shareholders haven’t individually owned enough stock or had the expertise to credibly demand a say in decision-making. As a result, most owners have been passive; if they disagree with the direction of a company, their only option has been to sell.

But all that is changing. First, institutional shareholders have gotten bigger, and their ownership of corporate America has become more concentrated. These institutions invest the savings of many Americans, and the amount they manage has swelled. Second, many of these institutional shareholders have developed deep industry expertise, truly understanding the industries in which they invest. Third, poor performance by management and outright cases of abuse of power and even fraud have created a mindset among shareholders that management teams have lost their right to be left alone. Lastly, there are a few shareholders, commonly known as “activists” but whom I call “highly engaged shareowners,” who are galvanizing their fellow shareholders and providing the catalyst for management to be held accountable.

Critics have accused so-called activists of advocating business decisions that create a short-term bump in stock prices at the expense of the company’s long-term health, and some politicians would like to legislate against the rising influence of shareholders, claiming that it leads to short-termism, rising inequality and low pay for workers.

The management and directors of public companies, not the shareholders, have driven such short-term behavior, and the way to build strong companies and create jobs is not through government mandate or protecting weak management teams. It will happen because market forces will reward the companies in which management teams and highly engaged shareowners work together to achieve sustained, lasting growth.

There’s no going back: Public shareowners are becoming more involved, more informed and more engaged. That will lead to better long-term growth and performance, a win-win for all constituencies, including customers, employees, shareholders and management.

GOOD READS -  "Dealbook" column on NYT Business front, "Tell-Alls, Strategic Plans and Cautionary Tales": "One of the best books I've read recently isn't out until October. It is a biography of Alan Greenspan titled, 'The Man Who Knew: The Life and Times of Alan Greenspan' ... by the journalist Sebastian Mallaby ... Greenspan is a fascinating subject because for so long he was considered a genius, only to later be blamed for the financial crisis."

GOOD READS PART DEUX - The Trump Before Trump," by David Frum on the cover of Saturday's WSJ Review section: "There are lessons for today's Republican Party in the ill-fated populist insurgency of William Jennings Bryan.

TRUMP'S RIGHT HAND MAN - Trump son-in-law Jarey Kushner: A 35-year-old real estate developer, investor and newspaper publisher, Mr. Kushner derives his authority in the campaign not from a traditional résumé but from a marital vow ... Yet in a gradual but unmistakable fashion, Mr. Kushner has become involved in virtually every facet of the Trump presidential operation, so much so that many inside and out of it increasingly see him as a de facto campaign manager ...

And now that Mr. Trump has secured the Republican nomination, Mr. Kushner is counseling his father-in-law on the selection of a running mate. It is a new and unlikely role for Mr. Kushner, a conspicuously polite Harvard graduate whose prominent New Jersey family bankrolled Democrats for decades and whose father's reputation was destroyed, in a highly public and humiliating manner, by his involvement in electoral politics.

BANKING ON A CRISIS  - America’s shadow banking system slowed sharply through the end of June, with the value of bonds backed by personal, corporate and real-estate loans falling $98 billion from the first half of 2015. That drop off in issuance of securitized bonds, a 37% decline from a year earlier, is making it harder for businesses, shopping-mall owners and consumers to refinance their debt. Contributing factors include a regulation that will require producers to hold some of the securities they create and uncertainty raised by Britain’s vote to leave the EU. The Brexit vote has produced dire predictions for the U.K. economy and the rest of Europe, but nowhere is the risk concentrated more heavily than in the Italian banking sector. In Italy, 17% of banks’ loans are sour, nearly 10 times the level in the U.S.

COLLEGE CHRONICLES – The opinion of Higher Education Today: “Millennials and student debt crisis: The number one reason for the high cost of college tuition, that is guaranteed government students loans. If (they) never existed, we guarantee you that college tuition today would be half of what it currently costs, because colleges and universities are absolutely immune from pricing. Because you, as a student, have been guaranteed a student loan, you are graduating from college with a home mortgage -- without the home.”

RESEARCH 101 - FAREWELL, THOMAS - The Library of Congress last week bid adieu to a relic of its internet past:, the first online legislative information system, established in 1995. Its replacement,, was unveiled in 2012 and has now officially become the main site for parsing through legislative records. It employs a more streamlined search function and mobile interface, along with a non-anthropomorphized name.

STATE OF THE ART - Republican National Convention app launches: Users will be able to watch our YouTube 360-degree livestream broadcast of the convention floor ... stay up-to-date on the Convention schedule, find your way around Cleveland and the Convention Complex [including the nearest restroom], check out your favorite speeches, or watch the proceedings live." Screenshot

... The app in the Apple Store

 ... Google Play

INTERNET – With politics now consuming the news a hot new web site for public discussion. The world’s first network for voters, Brigade:

POLITICS 101 - 5 takeaways from Clinton's email reprieve : While the campaign dodges a bullet - dashing GOP hopes - the scandal will live on": "1) Americans still don't trust Clinton. ... 2) Paranoia may destroy her. ... 3) The system is rigged! ... 4) Trump vs. Comey? ... 5) Stop using email.

OUT AND ABOUT – Seen at the Glendora Country Club in full golf attire, Joe Zanetta, Cornell ’75 and Cornell Law ’78 and Dan McElvaine, St. Lawrence ’08.

An interesting lecture/discussion hosted by Tom Scali in Claremont entitled “A Cynics View of the Holy Land” given by Dr. Jonathan Reed, Provost of the University of La Verne, but also well known as “Indiana Jones” by his colleagues and former students.

FILLER UP - Top 10 countries by recoverable oil reserves," per Rystad Energy: 1) United States: 264 billion barrels ... 2) Russia: 256 billion barrels ... 3) Saudi Arabia: 212 billion barrels ... 4) Canada: 167 billion barrels ... 5) Iran: 143 billion barrels ... 6) Brazil: 120 billion barrels ... 7) Iraq: 117 billion barrels ... 8) Venezuela: 95 billion barrels ... 9) Mexico: 72 billion barrels ... 10) China: 59 billion barrels.

TOP MUNI DOGS -- See the highest-paid municipal employee in each California city: Most California cities paid at least one employee more than $200,000 in salary, overtime and bonuses last year, according to a Sacramento Bee review of new municipal pay figures from the State Controller's Office. Wages for the highest-paid employee in each city ranged from about $10,000 for the city manager in the tiny town of Amador to about $510,000 for the chief investment officer in the city of San Francisco." With searchable database:

BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to Dick Button (86) Boca Raton, FL.; John Glenn (95) Columbus, Ohio; “Action” Jackson Krich …future DB; Linda Ronstadt (70) Tucson, AZ.; Kat Weaver …Dr. of FLEX.

JACKASS OF THE MONTH – The Donald is becoming a Rink Rats Jack Ass regular: Donald Trump has a message to African Americans — I understand you because “even against me, the system is rigged.” Last Tuesday Trump spoke to Fox News’ Bill O’Reilly about the racial tension that has ripped through the United States.

O’Reilly asked the presumptive Republican nominee what his message would be to African Americans who “who believe that the system is biased against them. The American system because they're black, they don't get the same kind of shot, they don't get the same kind of fairness that whites do.”

“I have been saying even against me the system is rigged when I ran ... for president, I mean, I could see what was going on with the system and the system is rigged,” Trump responded. That isn’t an uplifting message, O’Reilly said.

“What I'm saying is they are not necessarily wrong. I mean, there are certain people where unfortunately that comes into play ... And I can relate it really very much to myself,” Trump said. O’Reilly pressed on asking Trump more specifically if he actually understood the experience of African Americans in this country.

“I would like to say yes, but you really can't unless you are African American. You can't truly understand what's going on unless you are African American. I would like to say yes, however,” Trump said.

-Donald Trump is sort of to politics what Bernie Madoff was to investment ... He is selling something that people don't fully understand and appreciate what it actually means.

In announcing Mike Pence, Donald Trump talks mostly about himself. Introducing his new running mate on Saturday, Donald Trump stood alone behind a lectern bearing only his name and rambled for 28 minutes about his primary victories, what he called Hillary Clinton's crimes against the country, how pastors should be allowed to endorse candidates and how he correctly predicted the outcome of the Brexit vote.

Occasionally, Trump mentioned his new 'partner,' Indiana Gov. Mike Pence, mostly looking down to read from notes when he did. The presumptive Republican nominee insisted Pence was his 'first choice' despite reports that he was uncomfortable with the decision until the end. Trump eventually invited Pence onstage, and the two shook hands. 'You're amazing,' Pence whispered to him. Then Trump left the stage. The interaction lasted all of six seconds.

And so it goes, another JACK ASS of the Month title to The Donald.

VEEP -- 7 ways Mike Pence is nothing like Donald Trump: 1. He voted to invade Iraq. ... 2. He is an evangelical Christian. ... 3. He caved to critics last year amid political controversy. ... 4. He's only had one wife. ... 5. He swore off negative campaigning. ... 6. He's a Midwesterner through and through. ... 7. He opposes banning Muslims from the U.S.

RNC - Members of Congress SKIPPING THE COUNTRY instead of going to Cleveland: Several House Republicans are going on overseas Congressional delegation trips instead of going to the GOP convention in Cleveland, according to multiple sources involved in the planning. One such trip is being led by Utah Rep. Jason Chaffetz, the powerful chairman of the investigatory House Oversight and Government Reform Committee. His trip boasts eight Republicans and two Democrats, according to a source. There are other trips going overseas as well, according to Capitol Hill sources.

The GOP convention speakers:  Natalie Gulbis, the 484th ranked female golfer in the world; Oklahoma Gov. Mary Fallin; Florida Attorney General Pam Bondi; Iowa Sen. Joni Ernst; Melania Trump; Darryl Glenn, a Republican running for Senate in Colorado; Dana White, president of the Ultimate Fighting Championship; investor Peter Thiel; private equity investor Thomas Barrack; Sen. Tom Cotton of Arkansas; former NYC Mayor Rudy Giuliani.

--Theme nights: There are plans to emphasize different themes each night of the convention. Mr. Trump wants to touch on a few of his favorite hot-button issues, like the 2012 attack on the American diplomatic compound in Benghazi, former President Clinton's infidelities and border security.

The roster of speakers ... reveals a lineup lacking many of the party's rising stars. Instead, it features some of Mr. Trump's eclectic collection of friends, celebrities and relatives ... The parade of people seems to have been selected to broaden Mr. Trump's demographic reach.

TELEPHONE DRAMA – I am home during the day a lot more during the summer months. Has anyone out there picked up some of your telephone calls lately during the day? Here are a few of mine:

“I have forty five minutes before I am arrested:” Many phone calls from the Internal Revenue Service saying that I am being investigated and have forty five minutes to get back to them before they will be at my house to arrest me.

“Your computer has a serious virus and needs immediate attention:” Really, how do you know that and if you represent Microsoft Corporation why do you sound like you are from a different galaxy?

“We are in your neighborhood and would like to install a new security system:” I would believe The Watergate conspirators before I would believe these scam artists.

“Would you like to donate some blood:” Now I do believe the American Red Cross and I do donate blood, but I only have so much blood in me…they call weekly.

Such are the summer time telephone dramas, stay tuned my next Blog may be from jail.


Major League Baseball Game of the Week: Saturday July 23, 7:05 p.m. ET, CSN: Cleveland Indians (54-38) at Baltimore Orioles (53-38). Two playoff bound teams in the American League, Orioles are tough in Camden Yards. Birds win 5-4.

Season to date (53 -39)

MARKET WEEK – In markets, the U.S. ended on a quiet note in what was a record setting week, with the S&P 500 and the Dow Jones Industrial Average both making all-time highs. On Friday, major indexes closed within a few ticks of where they opened. Treasury yields finished higher; the 10-year yield closed at 1.60%, over 20 basis-points higher on the week. The U.S. dollar index closed higher on Friday, with big gains against the EUR and the Yen.

News of the Turkish coup attempt came after the close in U.S. equities, but the futures markets (which were still open) fell 0.25%. Currency markets were also still open and the Turkish lira fell 4% in the last 30-minutes of trading.

The week ahead in the U.S. is quiet on the data front. Thursday sees existing home sales, jobless claims and the Philadelphia fed manufacturing index reports.

The focus for local investors will be second-quarter earnings reports. This coming week is the first full week of the quarter, with many large-cap companies reporting. Here is the schedule for the upcoming week:

Monday: Bank of America, IBM, Netflix and Yahoo.

Tuesday: Goldman Sachs and Microsoft.

Wednesday: eBay and Intel.

Thursday: Amazon, AT&T, Chipotle, Domino's, Starbucks and Visa.

Friday: American Airlines, General Electric and Honeywell.

DRIVING THE WEEK - Consider this: Over the last week, a man drove a truck through a beautiful seaside town in France, killing 84 people, including two Americans. The government of Turkey -- once a bastion of relative stability in the Middle East -- was briefly overthrown by a failed military coup. On the homefront, Donald Trump spent all week playing coy about his vice presidential choice, eventually tapping Indiana Gov. Mike Pence, only to have someone in his inner circle leak that he was trying to wiggle out of the selection the night before he was set to announce. One day after a man killed three police officers in Louisiana, the Republican convention kicks off here today focusing on "making America safe again.

This week, we go to Cleveland, where Trump -- a man who donated money to his Democratic rival and invited her to his third wedding -- will become the Republican nominee. Meanwhile, Republicans are millions of dollars short of the money they need to pay for the convention, and have asked corporations and Sheldon Adelson, the billionaire casino mogul, to help bridge the gap. The following week, we'll all go to Philadelphia, where Democrats will nominate Hillary Clinton, who, despite -- or maybe because of -- more than a decade of public service, has bottom-of-the-barrel-low favorability ratings. AND more American citizens are aware of Pokémon Go than who are their elective representatives.

What a world.

The GOP convention will dominate with Trump's nomination coming Thursday night ... Treasury Secretary Jack Lew on Monday "will conduct a bilateral meeting with European Commissioner for the Euro and Social Dialogue and Vice-President of the European Commission Valdis Dombrovskis" ... Lew chairs an FSOC meeting in the afternoon ... Bank of America reports second quarters earnings Monday ... Goldman reports Tuesday and Morgan Stanley on Wednesday ... ECB meets Thursday in Frankfurt with no change expected ... ComiCon offers some RNC counterprogramming starting Thursday in San Diego ... G-20 finance leaders meeting begins in Chengdu, China on Saturday.

Next week: Summer gardening, summer food, summer cocktails.

Until Next Time, Adios.

Claremont, CA

July 18, 2016



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