Marketing Commentary – August 27, 2012
“There are only two things I hate in this world. People who are intolerant of other people's
cultures . . . . and the Dutch.” – Michael Caine as Nigel Powers, Austin Powers in
Goldmember, 2002
Last week, a young lady named Kaitlin Nootbaar was interviewed on several national television
programs. What brought her to national attention? Ms. Nootbaar, the valedictorian of Prague
High School in Prague, Oklahoma, had used the word “hell” in her commencement speech, and
was thus being denied her high school diploma. The straight A, 4.0 grade point average student
was influenced by an opening scene in the popular teenage movie, The Twilight Saga: Eclipse,
where one of the primary characters relates how people keep asking teenagers what they want to
do and her reply is “How the hell do I know?” At most, this young lady is guilty of quoting from
a truly awful movie. She has been told that, if she will write an apology, then she will be given
her diploma. She said she won’t do it. Meanwhile, down the road in Oklahoma City, a student
was told he had to turn his tee-shirt inside out, because it was against the school dress code.
What was his violation? Gang affiliation? Obscene messages or images? A revealing cut to the
clothing? Nope, he was wearing a Michigan Wolverines tee shirt, and the school’s dress code
clearly states “students are only allowed to wear Oklahoma, Oklahoma State or apparel from
another Oklahoma state school.” The young man’s parents are big Michigan fans, so naturally
he is too. That’s just the way it usually is when you’re 5 YEARS OLD!!!!!! Now as a devout
and life-long Cornhusker fan, I can kind of see a child abuse angle here, but let the kid wear what
he wants! And Ms. Nootbaar, stick to your guns, because life will beat you up and make you
compromise on enough things over the decades that stretch out ahead of you. Don’t start
apologizing for an imagined infraction to a bunch of pseudo-fascists. I mean really . . . what the
hell?
“You're always spreading rumors; whether bad or good. You're the damn Walter Cronkite
of the neighborhood. The Barbara Walters, and the Howard Cosell; You always come
around, with a story to tell.” – Run DMC, You Talk Too Much, 1985
It’s sure to be an interesting week in Jackson, Wyoming. Normally one of my favorite places,
this time of year you couldn’t lure me there even with a reserved saddle seat in The Million
Dollar Cowboy Bar. That’s because every year, the world’s central bankers choose to meet in
Jackson, and discuss the financial conditions of the world before holding press conferences
where they pass their deified thoughts down to we mere mortals. Shouldn’t these people stay at
a Holiday Express instead? Anyway, this year should prove interesting, in that the glare of the
spotlight may well fall upon someone other than U.S. Federal Reserve Chief Ben Bernanke.
Like a scene from West Side Story, the media may pay less attention to Benny and the Jets and
more to Super Mario. OK, I’ll quit mixing my metaphors here and get on with things. Mario
Draghi, the president of the European Central Bank, is likely to garner more attention, because of
the perception that, at this point, the financial stability of Europe is of greater concern. The
market feels like they have somewhat of an understanding about how the U.S. Fed is going to
act. After the release of the Fed’s last meeting minutes, it seems obvious that they are closing in
on some type of action. It seems that our Fed will continue to pay lip service to a low rate
posture until after the presidential election, when another ineffective round of quantitative easing
appears to be on the buffet. Action prior to the election would give fiscal hawks too much fodder
to rally against, and since the previous programs of QE and QE2 arguably had no impact, then
timing would not seem to be of paramount importance.
Draghi on the other hand is a relatively unknown quantity, due to his lack of clarity and
definition in recent statements. Draghi set markets on fire in late July in London when he said
this: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And
believe me, it will be enough.” The markets were disappointed about a week later, when Draghi
didn’t quite deliver on whatever that promise meant at a scheduled European Central Bank
meeting, perhaps because he overpromised, or perhaps because of opposition from German
central bankers. The market is looking for less obfuscation and more clarity on what “it will be
enough” means. It will be interesting to see the competition for attention between Bernanke and
Draghi this week, like the king and queen of a high school prom. Will Big Ben pout? Will
Draghi get roses or tomatoes thrown at him? As long as it isn’t more money!
"Oh, there ain't no rest for the wicked, Money don't grow on trees. We got bills to pay, We
got mouths to feed, There ain't nothing in this world for free.” – Cage The Elephant, Ain’t
No Rest For The Wicked, 2008
Perhaps because Super Mario is stateside, German leader Angela Merkel cautioned over the
weekend that a bond-buying program by the European Central Bank would be an ill advised
action and is unlikely to receive German support. As Greece erodes from within for want of
funding, Merkel finds herself in a corner, as protests from the German citizenry have put her into
a less flexible posture. Compounding the air of populist anger is the question over whether a
bond-buying program from the ECB is even legal. Opponents say such a program is tantamount
to financing governments, and that function is outside the purview of the central bank and the
charge of the various parliaments. Initially, Merkel gave her tacit support to Draghi on a trip to
Canada earlier this month, and reiterated in interviews that she believed the ECB's policies were
in line with its mandate to ensure stable prices in the bloc. Since then however, several
European leaders have expressed discomfort with the expansive yet non-specific statements
being made by Draghi. The bank's Italian head is expected to detail his plans after a September 6
meeting of its 23-member governing council. The Bundesbank retains substantial influence
within Germany and on financial markets due to its inflation-fighting credentials, but, as just one
of 17 constituents at the ECB, it is unlikely it could sink Draghi's plans. That doesn’t mean
however that they won’t continue to remind him that the current Italian Navy has glass-bottomed
boats so they can see the former Italian Navy!
“A Stanford MBA named Roy Raymond wants to buy his wife some lingerie but he's too
embarrassed to shop for it at a department store. He comes up with an idea for a high end
place that doesn't make you feel like a pervert. He gets a $40,000 bank loan, borrows
another $40,000 from his in-laws, opens a store, and calls it Victoria's Secret. Makes a half
million dollars his first year. He starts a catalog, opens three more stores and after five
years he sells the company to Leslie Wexner and the Limited for four million dollars.
Happy ending, right? Except two years later, the company's worth 500 million dollars and
Roy Raymond jumps off the Golden Gate Bridge. Poor guy just wanted to buy his wife a
pair of thigh-highs.” – The Social Network, 2010
Last week, the market was stunned when Peter Thiel, Facebook's (FB) earliest institutional
investor, sold the vast majority of his stake in the company, as soon as the first insider lockup
expired. Like other Facebook insiders, Thiel had already sold on the IPO, selling 16.8 million
shares at $38 a share for $638 million. Then, last week, Thiel sold an additional 20 million
shares for about $400 million at a share price that was down by almost half from the IPO price.
So is Thiel far-sighted or short-sighted? Insider trading is seldom seen as a great thing for a
company, but most of the time is because someone bought a new house, or needs to pay college
tuition, or simply needs additional diversification to lower their investment risk. But, with Thiel
selling the majority of his stake in Facebook as soon as he was legally able, many analysts saw it
as a negative indicator concerning the value of the company by one of the largest and earliest
shareholders. At best, it seems to indicate that in Thiel’s opinion the value of Facebook shares is
in the $19 to $20 dollar range, and it appears he thinks it may be in that range for the near term.
Or he just wanted to take his billion dollars and go do something different, because, even though
Thiel is a Board of Directors member, the company is still under the direction of founder Mark
Zuckerberg.
Dr. Evil: “Here's the plan. We get the warhead and we hold the world ransom for... ONE
MILLION DOLLARS! Number Two: Don't you think we should ask for more than a
million dollars? A million dollars isn't exactly a lot of money these days.” – Austin Powers:
International Man of Mystery, 1997
Last week, Apple Inc. won a jury verdict of more than $1.05 billion against Samsung Electronics
Co. after a finding that Samsung infringed six of seven patents for mobile devices in the first
lawsuit to go before a U.S. jury in a fight for dominance of the global smartphone market. Not
that a billion dollars isn’t a lot, but Apple sought $2.5 billion to $2.75 billion for its claims that
Suwon, South Korea- based Samsung infringed four design patents and three software patents in
copying the iPhone and iPad. A larger consequence of this judgment could follow in that Apple
wants to make permanent a preliminary ban it won on U.S. sales of a Samsung tablet computer
and extend the ban to Samsung smartphones. That would effectively eliminate Samsung from
competition against Apple in the domestic market for the near term, until they could re-engineer
acceptable products for sale in the U.S. market. Time will tell, but perhaps Samsung should have
paid more attention to the book of Genesis and not taken a bite of the apple!
“It’s not what you know, it’s who you know!” – time honored defense of scalawags
throughout history
It’s not often I get to use the word scalawag in everyday conversation, but last week provided a
perfect opportunity. Russell Wasendorf of Peregrine Financial was indicted last week on 31
counts of lying to regulators and robbing his firm's clients of about $200 million, and after
pleading “not guilty” he can face up to 155 years in prison. Wasendorf and Peregrine were in the
news in early July after a failed suicide attempt by Wasendorf uncovered his alleged illegal
activity. Meanwhile, on the far side of reality in what is evidently an alternate universe, nearly a
year after losing $1.6 BILLION dollars through highly questionable actions, Jon Corzine, head
of MF Global, the now bankrupt futures firm, is reportedly unlikely to face any charges.
Wasendorf should have taken networking tips from Corzine, a former CEO of Goldman Sachs, a
former senator and governor of New Jersey and a former major fundraiser for President Obama.
Now to be fair, or at least sarcastic, Wasendorf supposedly confessed to what he did in his
suicide note, while Corzine has denied any wrongdoing leading to the conclusion that he is
simply inept at best and arrogant at the least. But in the tradition of The Peter Principle, where
people tend to rise to their level of incompetence, Corzine is rumored to be considering starting
his own hedge fund. Hopefully the name he’ll choose for the new firm will be Caveat Emptor!
Only in America!
Now before anyone gets all bent out of shape at me, let me assure you that I love animals. When
I was growing up, we always had at least a dog and a cat as pets, and if my wife wasn’t highly
allergic to animals I’m sure we’d own a pet or two now. I’ve done my share of getting tearful
when a pet has died, and I’ve pampered animals in my day, but isn’t there a line somewhere? I
can’t stand the supposed “celebrities” that carry small dogs in their purses. I don’t understand
how I can get a traffic ticket for holding my cell phone to my ear, but someone can drive with 3
Pomeranians sitting on their laps. I hate the guy who treats his hunting dogs better than his kids.
But last week, I was driving by a construction site near my home where a “Paws Spa” is being
built. Of the many services listed on the sign along with daycare, teeth brushing and gourmet
dining was “color televisions”. Huh? Now while dogs aren’t strictly colorblind, they don’t see
color like humans do; so, to paraphrase Prague High School valedictorian, Kaitlin Nootbaar,
“What the hell?”
Until next week.
Scott Friel - Vice President
The Pacific Financial Group, Inc.
800-735-7199 - Home Office
866-583-8734 - Marketing
www.tpfg.com
If your investment manager isn’t giving you what you need, maybe you’re missing the boat!
DISCLOSURE: The material in this article is for informational purposes only and is not intended to be a solicitation, offering, or
recommendation of any security or investment product. Market data contained in this article has been obtained from sources believed to be
reliable, but is not guaranteed. Commentary in this article contains the current opinion of the author(s) as of the date above, which are subject to
change without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without the express written
consent of The Pacific Financial Group, Inc.
Sources: Morningstar, Bloomberg, Barclays Capital, Goldman Sachs, RDQ Economics, The Wall Street Journal, Barrons, Standard and Poors,
and Briefing.com