January 23, 2004
Calandra’s Retirement Most Foul

Before getting to the topic of Thom Calandra, some contradictions are simply to rich to ignore.  Remember, supposedly the U.S. economy is embarking on a sustainable economic recovery. Consider what is being done to sustain this recovery:

* The government's pension insurance agency, the Pension Benefit Guaranty Corp., is running an $11.2 Billion deficit versus a $9.7 billion surplus in the late 1990s. Lets be honest, the grotesque practice of allowing companies to plug returns from pension assumptions into the income statement, along with the loose rules which permit companies to avoid stocking up their plans for many years, are the two key reasons why so many private pension plans are ‘unexpectedly’ imploding today.

Now, rather than adopt tough new rules which provide more transparency to the investor (something FASB has suggested may be coming this year), senators are trying to pass a pre-emptive bailout bill.  This bill would allow companies to pay only 20% of what they are usually required to pay next year, and 40% in the following year.  Moreover, the bill would allow certain companies to defer investment losses for up to two years, and give companies like Greyhound Lines Inc. ‘special relief’ (i.e. Greyhound would essentially be permitted to lie about the state of their pension plan until a later date).

The Washington Post estimates that the new bill is ‘worth an estimated $16 billion,’ while AP is reporting that the plan could save companies $26 billion over the next two years.  What no one seems to mention is that money is not being created out of thin air – or that come 2006/07 companies will be none the richer because of these bailout tactics. 

Suffice it to say, as repugnant as these types of bailout policies are (wasn’t Japan ridiculed for more than decade for not allowing capitalism to work?), the kicker when it comes to this new pension bill is that the Bush administration has said it "will strongly oppose" any special relief for weak pension plans.  Even Bush, who has yet to veto any stimulus related bill, knows that if corporate pension plans can’t cut the mustard with stock prices soaring they deserve to be folded up.

Will the Bush administration realize that they have to bail theses pension plans out if they fold and adjust their opposition to the bill? Stay tuned.  A vote is expected next week.

* It was recently reported that December housing starts hit a 28-year high.  The refi market has been on a tear going on 3-years. Home prices are in unprecedented rise (in terms of the length of the rise versus inflation).  The home ownership rate is at an all-time high of 68.4% (3Q03). Remembering that the U.S. economy is supposedly on the path to a sustainable recovery – and that the housing market could continue to perform well if jobs growth arrives (and the Fed can keep it promise to keep interest rates low) - how is the Bush administration dealing with what could be a superheated housing market that may be close to spinning out of control? Well, instead of having at least a 3% minimum down payment, Bush wants to permit the FHA to offer ‘zero down mortgages’ to cash strapped home buyers.

Expanding the home ownership base might seem like a terrific idea, but providing government-insured financing to high default risk cases when the housing market is so strong is tantamount to the government lending money to people that are unable to take part in the stock market rally.

*  Remember, the U.S. economy is expanding strongly. These two initiatives are not desperate pre-emptive bailout policies.  When, and if, U.S. interest rates rise the U.S. housing market will perform well, and Congressman will stop the evil FASB from ever shining any light on the issue of pensions.

Calandra ‘Retires’

The stock markets are way overvalued and investors are acting irrationally!  To be protected from the inevitable catastrophe in the markets buy some profitless junior mining companies and pray that when their cash runs out they can sell more shares so that they can buy some more shovels…and yes, buy these companies because gold/commodities prices are going to the moon!

Although the above investment approach has been embellished for effect, it is nonetheless similar to the type of approach touted by now retired Thom Calandra. Calandra – often carried in the feed for his bearish commentaries – retired yesterday supposedly because of ‘stress’.  However, the NY Post reports that CBS MarketWatch told him to turn in his stock trading records by Wednesday of this week, and that Calandra’s lawyer said he should retire rather than play ball.  Was it stress or guilt Mr. Calandra???

Although the SEC investigation into Calandra’s trades may not find him guilty, as a long-time reader I cannot help but recall how Mr. Calandra’s commentaries degraded from being insightful to completely speculatory. The company which Calandra appears to be under investigation for is Ivanhoe Energy. The Post reports that Ivanhoe paid for Calandra’s trip to China. Another company Calandra was fond of is Nevsun Resources.

And while there is nothing wrong with speculating on stocks per se, there is something amiss when someone like Calandra goes from lambasting investors that buy profitless tech/internet companies to basically providing the same type of ‘earnings in the future!’ investment approach. Whether or not a company mines for website hits or copper, there is danger in speculating in any company whose current business cannot be easily understood, and whose future business cannot be predicted with some degree of accuracy. 
 
Suffice it to say, I would speculate that Calandra is a criminal that had some offshore or hidden accounts to facilitate