Chicago Boyz

What is the role of the SecDef? For one, to define a vision for the DOD; a roadmap to the future, a strategic plan. In this, Secretary Rumsfeld has provided the vision of ‘transformation’. In short, it’s a plan to make the armed forces lighter, more quickly and easily deployable, and simultaneously, more lethal. Laudable goals. Hence, we have the cancellation of the Crusader, a behemoth of a self propelled howitzer. Too big, too heavy. We also have the promotion of the Stryker armored vehicle. It fits into the network-centric warfare scheme of the future quite nicely. So far, so good.

Finally, on the ‘vision’ thing, we have the light-mobile force concept. Special forces types, acting with forward air controllers, use combined arms techniques to leverage modern telecom capablities and precision weapons synergistically. They’re ‘force multipliers’, as Rummy likes to say. The war in Afghanistan was a demonstration, if you will, of how light forces can bring precision firepower to bear to create battlefield effects formerly reserved for heavy armored divisions. Again, no quibbles.

That brings us to the SecDef’s other primary duty, the strategy and management of warfare. And that brings us to Iraq.

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First, a little backstory.

The Canadian government has very strict price controls on prescription drugs. Canadian citizens are rather proud of this, since they claim that it shows that evil greedy uncaring corperations can’t reap undeserved profits while callously allowing people to die simply because they can’t help the bottom line.

This is a matter of pride in Canada. The idea is that they’ve proven that they’re caring and compassionate while being efficient and fiscally responsible.

US pharms sell to Canada because they do get some profit and it’s a big market, even though they claim that they’re not realizing a fair return for the product.

Now consumers and government agencies here in the US are getting into the act. They’re ordering drugs over the Internet from Canadian firms to realize significant savings.

US pharmas are calling foul. They say it costs an enormous amount to develop new drugs, and the high prices they charge are just an attempt to earn a fair return on their investment before the patents expire.

So which view is the correct one? Who has the closer line on the truth?

This report by the Frasier Institute goes a long way towards debunking claims that the Canadian system is more efficient. (Hat tip to Innocents Abroad.) According to the report, Canada provides one of the worst level of care amongst other countries with universal health care, and at significantly higher cost.

Thomas Sowell has an op-ed that’s pretty interesting. (Hat tip to No Watermelons Allowed.) Sowell points out the enormous costs that is required when developing any medical resource, from drugs to your family doctor. He also says that one of the really big expenses that many people ignore are various liability concerns, either lawsuits themselves or insurance to protect from same. Canadian pharmas don’t develop their own products so they dodge this bullet.

This topic has become a hardy perennial amongst the Boyz, and has generated much heated commentary. In “The Outsourcing Bogeyman,” Drezner does a nice job of shedding the light of common sense into this often smoke-shrouded topic. Drezner provides authorities and a bibliography (found here). This material is good if you want to dig into this topic even further.

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Not everyone has In-Cog-Nito’s tolerance for risk. For those of us not equipped with brass appurtenances, reducing investment risk is often a goal. To increase risk, including upside risk, you issue debt, either by buying on margin or selling short, which is really just borrowing shares of stock instead of cash. To reduce risk, you acquire debt. Here is one way to do it for free.

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Here are the latest efforts in the In-Cog-Nito Needs Money Fund.

Ameritrade sucks, don’t use them. They may be fine once you get up and running, but the initial process to get up and running is too slow for my taste. The main complaint I have is that they won’t let you short stocks without the funds clearing. And with ACH transfers (they claim it’s fast in their ads), it takes a good five days for the funds to settle. Starting without the ability to short in this market is like boxing with one hand tied behind your back; it takes away half your arsenal. Their interface is also too cluttered for my taste. I was a huge fan of Datek when I first started: clean web interface, excellent value in terms of commission costs and margin interest, fast and responsive customer service. Ameritrade bought Datek a few years ago. I tried also going the route of re-opening my old Datek account. It was nice to see my old trading history still preserved there – a stroll down memory lane. Other than that, being a part of Ameritrade, their customer service seemed to have gone down hill as well. Obviously, I’m a more demanding user than your average investor, but it never hurts to have the best available tools at your disposal eh? So learn from my first mistake, don’t go with Ameritrade.

I opened an account with Scottrade today, and so far so good. They remind me of what Datek was about five years ago. Clean interface. Good fast service. Super easy forms – they have the shortest options form I have seen of any brokerage (1 page). Their web interface is something else. Technology and competition have really upped the ante in what is available to the general public in terms of information, execution, and trading tools. One nice bonus is that you get free Dow Jones real time news. It’s not really that important for most investing purposes unless you day trade, but it’s nice to have nonetheless. Seven bucks a trade and relatively low margin rates are more pluses.

The positive of not getting up and running fast is that it’s a week off to get up to speed on the feel of the market. I’ve set up a free trial subscription to Realmoney.com – part of Jim Cramer’s Thestreet.com. It was my go-to site for news when I first started. They still put out good articles, but Cramer seems to have lost some of his luster – i.e. his performance isn’t that good now, based on his Action Alert Portfolio. My biggest thing is that Nortel (NT) makes up about 6% of his portfolio. It seems Nortel’s comeback was based on accounting shenanigans. I remember one of Cramer’s constant sayings years ago was that he kept a post-it on his screen saying accounting troubles = sell. Seems he is not keeping to his own advice, and it’s hurting him. Scott Moritz over there is still putting out good articles, primarily because he seems to be a natural skeptic, or at least he writes with a healthy dose of skepticism – something you always want in the market. One thing I really don’t like about Realmoney.com now is that they try to nickel and dime you on all their services. If you want to read articles from so and so, you have to pay this much each month. It’s good for their business obviously, especially if the writer has built up a loyal audience. But it’s quite a sticker shock for new investors. The best thing I liked about them back then was that a newbie can get strong opinions, and everything they had to offer about the market for twenty or thirty bucks a month. An excellent value proposition. But if you want everything now, it’s going to cost ya.

So what to do? One thing I liked back then was the Yahoo message boards on stocks. They’re easily available and are strong opinions for free. Most of it is garbage, but I like to think of them as pre-cursors to blogging. People literally write whatever they’re thinking, and if you take it on the merits of their arguments backed up by facts and links to relevant articles, it’s useful. The main thing, as with all news, is you have to pick up the ability to filter out the good, and toss the bad. Don’t get me wrong, message boards shouldn’t be your main source of information. But there’s more than one way to look at it.

A couple of stock specific thoughts: VIP and MBT are getting hammered. Their charts aren’t too pretty. I would let it play itself out before going long on these two.

BOBJ (I pronounce it Bob-Jay): I’ve been itching to short this one. Their being a French company is reason enough. But the chart ain’t too pretty, and it looks like they’re starting to have some accounting problems. They’re a business software firm, and from what I know, software firms tend to be aggressive in their revenue recognition to boost sales. BOBJ has close to 80% gross margins, but only 1% of their revenues make it to their bottom line. This says to me there’s a lot of waste going on. The SEC has an informal probe with regards to their deferred revenue, or backlog. It won’t be a fast short, but it’ll be interesting to see how it plays out. I’m guessing if there’s smoke, there’s a fire somewhere.

Cheers.