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May 31, 2004
Stros go down meekly to Cubs to start long road trip
Aging superstar Greg Maddux made it seem like old times today as he handcuffed the Stros over seven innnings and led the Cubs to a 3-1 victory at Wrigley. The Stros have now lost eight of their last 11 games as they begin a 12 game, two week road trip, which is their longest of the season.
Hard luck Roy O (3-4) pitched well again as he continues to receive poor run support from his teammates. Ex-Astro Moises Alou's two-run yak in the sixth was the game winner, while Lance Berkman's ninth dinger in his last 13 games was the only offense the Stros could muster.
With Andy Pettitte going back on the disabled list today, the Stros' Brandon Duckworth makes the start tomorrow night at Wrigley against the Cubs Glendon Rusch.
Posted by Tom at 6:24 PM | Comments (0) | TrackBack (0)
President Cheney
Posted by Tom at 9:58 AM | Comments (0) | TrackBack (0)
How to torch a bridge
This Gawker post passes along the following farewell email (or is it a flamethrower?) from a departing associate at Los Angeles-based Paul, Hastings, Janofsky, and Walker, LLP:
Subject: FW: Goodbye...As many of you are aware, today is my last day at the firm. It is time for me to move on and I want you to know that I have accepted a position as "Trophy Husband". This decision was quite easy and took little consideration. However, I am confident this new role represents a welcome change in my life and a step up from my current situation. While I have a high degree of personal respect for PHJW as a law firm, and I have made wonderful friendships during my time here, I am no longer comfortable working for a group largely populated by gossips, backstabbers and Napoleonic personalities. In fact, I dare say that I would rather be dressed up like a pinata and beaten than remain with this group any longer. I wish you continued success in your goals to turn vibrant, productive, dedicated associates into an aimless, shambling group of dry, lifeless husks.
May the smoke from any bridges I burn today be seen far and wide.
Respectfully submitted,
[SIGNED]
ps. Achilles absent, was Achilles still. (Homer)
Hat tip to Brian Leiter for the link to this hilarious post.
Posted by Tom at 9:31 AM | Comments (3) | TrackBack (0)
May 30, 2004
Stros beat Cards; season evaluation to date
Bags, Lance Berkman and Mike Lamb all cranked two-run dingers Sunday afternoon and Tim Redding pitched seven and a third shutout innings as the Stros won the final game of their weekend series with the Cardinals, 7-1.
Redding (3-3) allowed just four hits and, after a first inning single, retired 16 of the next 18 batters. The Stros got to Matt Morris (4-5) for three runs and four hits in seven innings with Lamb's yak being the big blow, and then Bags and Berkman's homers in the bottom of the eighth against Cal Eldred put the game away. Berkman has now hit eight home runs in his last 12 games.
The Stros now become road warriors for the next two weeks as they go on a 13 game road trip to Chicago, St. Louis, Seattle, and Milwaukee. Roy O starts tomorrow's Memorial Day game against the Cubs' Greg Maddux at Wrigley Field.
The Stros (27-22) are inching their way to the one-third mark of the season, and its an appropriate time to assess how the club is doing. This post from yesterday explained the helpful hitting statistic of "runs created against average," or "RCAA," which computes the number of outs that a particular player uses in creating runs for his team and then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs.
Through yesterday's games, here are the National League leaders in RCAA, courtesy of Lee Sinins:
1 Barry Bonds 41
2 Lance Berkman 33
3 Mike Lowell 30
4 Sean Casey 26
5 Craig Wilson 25
T6 Bobby Abreu 20
T6 Scott Rolen 20
8 Jim Thome 19
T9 Adam Dunn 18
T9 Todd Helton 18
Consequently, in case you didn't know it already, Lance Berkman is currently the second best hitter in the National League behind Barry Bonds, who happens to be one of the best hitters of all-time. Why on earth does manager Jimy Williams continue to bat Berkman either fifth or sixth in the order?
Although the Stros are currently a respectable fourth in the National League in team RCAA, the individual numbers are more revealing:
Lance Berkman 33
Jeff Bagwell 10
Craig Biggio 6
Jeff Kent 4
Mike Lamb 3
Eric Bruntlett 1
Jason Lane 0
Orlando Palmeiro -2
Raul Chavez -3
Richard Hidalgo -3
Morgan Ensberg -5
Adam Everett -5
Jose Vizcaino -6
Brad Ausmus -9
Thus, Berkman is having a monster season, and Bags is solid. However, after a fast start (the peril of relying on a small sample of games), Biggio is falling back to his declining trend over the past several seasons of not being much better than an average NL player. The reality is that the Stros would probably get at least as good offense and much better defense by replacing Bidg with Jason Lane as the season wears on, but don't expect Manager "I love my veterans" Williams to make such a move.
Moreover, despite the media's touting of Jeff Kent's meaningless 15 game hitting streak, Kent also is hitting just barely above an average NL hitter and has no business batting in front of the torrid Berkman in the lineup. Likewise Richard Hidalgo has slumped badly in May after a hot start and Williams' use of Palmeiro and Lamb in his place is actually a good move. Why can't Jimy do that in regard to Biggio?
The perception is that Adam Everett is having a much better season to date than Morgan Ensberg, but the facts indicate that, at least from a hitting standpoint, they are doing the same. Of course, Everett is the best defensive player on the team, so some indulgence of mediocre hitting is more justified than with other players. Ensberg had a horrendous April and a better May, but his power numbers are still way down from last season. After hitting 25 yaks last season, Ensberg still does not have one this season.
And, as readers of this blog already know, Brad Ausmus and Jose Vizcaino are among the worst hitters in Major League Baseball and, thus, should be used as little as possible. Of course, under veteran-entranced Williams, Ausmus is a starter and Viz is a key regular. I'm not certain that the rest of the Astros' hitters are good enough to make up for the regular negative hitting contributions of these two.
The equivalent RCAA statistic for pitchers is called "runs saved against average" or "RSAA." RSAA basically computes the number of runs that a pitcher saves for his team relative to the number of runs that an average pitcher in the league would give up while obtaining an equivalent number of outs for his team (as with RCAA, RSAA is park-adjusted). As with RCAA, a pitcher can have either a positive RSAA, which indicates he is an above average pitcher, or a negative RSAA, which means he is performing below average.
The following are the current NL leaders in RSAA:
1 Randy Johnson 18
T2 Tom Glavine 17
T2 Livan Hernandez 17
T4 Roger Clemens 14
T4 Brad Penny 14
6 Ben Sheets 13
T7 Armando Benitez 12
T7 Horacio Ramirez 12
T9 Chad Cordero 11
T9 Zach Day 11
T9 Ryan Madson 11
T9 Tomo Ohka 11
T9 Jake Peavy 11
T9 Carlos Zambrano 11
Again, the Stros are a solid third in the NL in team RSAA, but as with RCAA, the individual RSAA stats are more revealing:
Roger Clemens 14
Roy Oswalt 8
Andy Pettitte 4
Octavio Dotel 3
Mike Gallo 3
Brad Lidge 3
Wade Miller 3
Dan Miceli 1
Chad Harville 0
Brandon Backe -2
Ricky Stone -3
Brandon Duckworth -4
Tim Redding -5
Jared Fernandez -6
The Rocket and Roy O are off to solid starts, but the rest of the pitchers are just barely above average or below average (note that Redding's solid start of today is not included in the above statistics and will improve his negative RSAA considerably). The biggest disappointment has been Dotel, who has been one of the Astros' leaders in RSAA over the past three seasons.
Consequently, the Stros are solidly in contention in the NL Central, but they are being carried by strong performances by a relatively small group of players (Berkman, Bags, Clemens and Oswalt) while the other players are grinding away at either just above or below average seasons. Inasmuch as older players such as Bags and Clemens will likely trend downward as the season wears on, other Astros will likely have to pick up their performances considerably if the Stros are going to remain in contention for the NL Central title. That's certainly possible, as Hidalgo, Ensberg, Kent, Redding and Dotel are all candidates to improve their performance from the first third of the season. But it's also far from a certainty.
The final element -- and admittedly the least important -- is manager Jimy Williams. As noted here earlier, Williams' mishandling of Ensberg last season may have cost the Astros the NL Central title that they lost to the Cubs by a game. This season, Williams has continued his inconsistent use of Ensberg, inexplicably bats his best hitter in the five or six hole rather than third, and continues to overuse poor performers Ausmus and Vizcaino.
Again, these may appear to be relatively small errors in isolated circumstances, but over 162 games, those errors in judgment add up and can make a difference, particularly in a close race. The NL Central race looks like it will be a barnburner this season, and its doubtful that the Astros will have any margin for error. Here's hoping Williams' illogical prejudices don't end up costing the Stros in a close race.
Posted by Tom at 9:23 PM | Comments (6) | TrackBack (0)
Archibald Cox dies
Here is the NY Times obituary on Archibald Cox, the Harvard Law School constitutional law professor who became famous as the special prosecutor who investigated the Watergate scandal during the second Administration of the late president, Richard M. Nixon. President Nixon's firing of Mr. Cox during a crucial phase of the investigation into the Watergate scandal eventually was a galvanizing event that eventually led to Nixon's resignation of the presidency and the granting of a pardon to Nixon by his successor, Gerald R. Ford.
Mr. Cox was a solicitor general of the United States in the Kennedy Administration and a Harvard Law School professor when he took over the the Watergate scandal investigation in May, 1973. He was appointed to that position largely because of his friendship with his former student, then Attorney General Elliot L. Richardson. The appointment of Mr. Cox came on the heels of President Nixon's announcement in late April 1973 of the forced departure from his administration of four top- level appointees after they were swept up in the Watergate affair. The scandals had begun with the June 1972 burglary of the Democratic National Committee's offices in the Watergate office complex during 1972 Presidential election campaign between Nixon and Democratic nominee, George McGovern.
As the special prosecutor, Mr. Cox soon wound up in a constitutional confrontation with the White House. After the discovery of secret tape recordings of Nixon's Oval Office conversations, Mr. Cox subpoenaed those tapes and, when the White House refused to comply with the subpoena under principles of Executive Privilege, Mr. Cox sought to enforce the subpoena through the federal courts and won.
When Nixon resisted the federal courts' orders requiring him to turnover the tapes and Mr. Cox persisted, Nixon ordered Attorney General Richardson to fire Mr. Cox, but Richardson refused as a matter of principle. As a result, Richardson resigned and Nixon then ordered the deputy attorney general, William D. Ruckelshaus, to fire Mr. Cox. Mr. Ruckelshaus refused and was then fired. Finally, Robert H. Bork, the solicitor general, finally complied with Nixon's order to fire Mr. Cox. Many powerful people in the U.S. government never forgave Mr. Bork's compliance with Nixon's order to fire Mr. Cox, and that probably had more to do with Mr. Bork's eventual rejection years later as a Supreme Court Justice than any of his more relevant views on application of constitutional law.
These extraordinary events were eventually dubbed "the Saturday Night Massacre" of the Watergate scandal, and the resulting public outcry against Nixon was the beginning of the end of his Presidency. Nixon eventually appointed famed Houston trial attorney Leon Jaworski to replace Mr. Cox as special prosecutor, and Mr. Jaworski continued Mr. Cox's relentless pursuit of the tapes. Nixon eventually turned them over to Mr. Jaworski, their contents proved Nixon's involvement in the cover up of the Watergate burglary, and Nixon resigned the Presidency in disgrace shortly thereafter.
After his involement in the Watergate affair, Mr. Cox returned to Harvard, where he taught constitutional law and became a professor emeritus in 1984. Rest in peace, Professor Cox.
Posted by Tom at 12:38 PM | Comments (0) | TrackBack (0)
May 29, 2004
Stros' buzzard's luck
The Stros lost their seventh game in the last nine on Saturday afternoon as the Cards scored six runs in the last two innings in their 10-3 victory. Albert Pujols went nuclear on the Stros, going 4 for 5 with two mammoth yaks, a double, and three RBIs.
The game was close until the eighth when things really got out of hand. Jeff Kent went after a foul pop-up from Ray Lankford that appeared to richocet into fair territory (and unfortunately away from Kent) off of one of the Juice Box's roof beams. Under Minute Maid Park ground rules, the ball should have been declared a foul ball, but the umpiring staff blew the call, just as they blew the balk call against Dotel the previous game. The flustered Kent overthrew third base on the play, allowing another run to score, and a Vizcaino throwing error on the next batter allowed two more runs to score. After that chaotic interlude, the Stros were toast.
Tim Redding takes the mound tomorrow in the Sunday afternoon game to try and salvage one for the Stros in this series. Ace Matt Morris goes for the Redbirds.
Posted by Tom at 9:28 PM | Comments (0) | TrackBack (0)
Another milestone for Bags
Stros first baseman and future Hall of Famer Jeff Bagwell played in his 2000th career game last night.
Bags has been good for so long that it is easy to take him for granted. Although he is clearly in the autumn of his career (this will likely be his fifth straight season of declining offensive numbers), Bags in decline is still better than most players.
A team wins baseball games by scoring more runs than the other team. So, the amount of runs that a player creates is the best indication of a player's hitting ability. In that connection, sabermetricians who have studied hitting statistics over generations have concluded that two particular hitting statistics are the best indicators of how many runs that a player will create -- on base average ("OBA") and slugging percentage ("SLG"). This makes sense because players who get on base frequently (OBA) and who hit the ball hard (SLG) tend to create the most runs. OBA and SLG are combined into a cumulative statistic called "OPS," which is OBA + SLG = OPS.
Building on these statistics, Lee Sinins, a lawyer turned sabermetrician, has developed another statistic called "runs created against average" ("RCAA") in connection with his website Baseball Immortals and his related Baseball Sabermetric Encyclopedia, which is an excellent baseball statistical database than can be purchased through Lee's site.
RCAA is a particularly valuable statistic to evaluate hitting because it focuses on the two most important things in winning baseball games that is, creating runs and avoiding making outs. RCAA basically computes the number of outs that a particular player uses in creating runs for his team and then compares that number to the amount of runs that an average player in the league would create while using an equivalent number of outs.
RCAA is computed by taking a specific player's runs created ("RC") statistic minus the amount of runs created that an average player would have created using the same amount of his team's outs based on the league average and adjusted to the player's home park. The hypothetical average hitter in the league has an RCAA of exactly zero. Thus, a player can have either a positive RCAA -- which indicates he is an above average hitter -- or a negative RCAA, which means he is performing below average.
For example, as you might expect, Barry Bonds led the NL and MLB last season with a positive 115 RCAA that is, he produced an incredible 115 more runs for the Giants than an average NL player would have created using an equivalent number of his team's outs. On the other side of the ledger, the Stros' Brad Ausmus was one of the five worst hitters in the NL last season, producing a horrid negative 32 RCAA, which means that he created 32 fewer runs than an average player would have created using an equivalent number of his team's outs.
In acknowledging Bags' milestone of playing in his 2000th game, Sinins noted the following:
After 43 RCAA/.966 OPS and 38 RCAA/.919 OPS seasons, Bagwell hit .524 SLG, .373 OBA, .897 OPS, 21 RCAA in 160 games in 2003 and is off to a .465 SLG, .411 OBA, .876 OPS, 9 RCAA start in his first 45 games. He has a .957 career OPS, compared to his league average of .762, and 672 RCAA in 2000 games.Bagwell ranks 8th on the NL's career RCAA list (since 1900)--
RCAA
1 Barry Bonds 1385
2 Stan Musial 1204
3 Rogers Hornsby 1081
4 Hank Aaron 1039
5 Willie Mays 1008
6 Mel Ott 989
7 Honus Wagner 938
8 Jeff Bagwell 672
9 Joe Morgan 657
10 Eddie Mathews 652
That's pretty good company for Bags, who is simply the best Stros player ever.
Posted by Tom at 12:05 PM | Comments (0) | TrackBack (0)
Daniel Drezner on the Iraq War plan
In this New Republic ($) Online article, Daniel Drezner does a good job of concisely analyzing the Iraq War plan and the execution of its goal. The entire article is well worth reading, and the following is a tidbit to pique your interest:
Say what you will about the neoconservatives' skills at manners or management; their big idea cannot be dismissed lightly. There is a compelling logic to the argument that the primary source of frustration among Arabs in the Middle East is a sense of powerlessness. Trapped in a region littered with authoritarian and corrupt regimes, they are encouraged by these regimes and their Islamic critics to blame their situation on Israel and the United States. This is an ideal environment for fomenting terrorism. Creating an open society in Iraq would put the lie to this kind of hate-mongering.To be sure, democracy promotion is far from easy. Indeed, regime change in the Middle East looks like a lousy, rotten policy option for addressing the root causes of terrorism, until one considers the alternatives--appeasement or muddling through. The latter option was essentially the pre-9/11 position of the United States and its allies, and has been found wanting. Appeasement or isolation has the same benefits and costs that the strategy had in the 1930s: It buys short-term solace but raises the long-term costs of facing a stronger and potentially undeterrable adversary.
For all their criticism of Bush's grand strategy, Europeans and left-wingers have offered very little in the way of alternatives to his vision. Some say that American soft power could bring about change in the Middle East. But decades of alternately coddling, cajoling, and ostracizing Arab despots has not led to liberalization or democratization. We have showered Egypt with aid, but have succeeded only in propping up an authoritarian monster in Hosni Mubarak. We have tried to isolate Syria, but have only strengthened that country's anti-American credentials. Maybe U.S. soft power is part of the solution to the Middle East's woes, but soft power alone cannot accomplish our desired ends.
The craft of foreign policy is choosing wisely from a set of imperfect options. While flawed, the neoconservative plan of democracy promotion in the Middle East remains preferable to any known alternatives.
Posted by Tom at 8:22 AM | Comments (0) | TrackBack (0)
VDH quotes Al Davis
Victor Davis Hanson quoting Oakland Raiders' owner Al Davis? Read about it here. One of Professor Hanson's typically insightful observations is the following:
If one goes back to the fifth week of Bill Clinton's 79-day bombing campaign against Serbia no U.N. approval, no congressional sanction, NATO partners backing out one reads of castigation from the American Right about bombing a Christian Orthodox country in Europe, from neoconservatives about not committing ground troops, and from the Left about going to war at all. But with Milosevic in the dock and the mass murder stopped, we now are told that the Clinton administration's efforts to stop the bloodbath in the Balkans proved to be about the only success of his scandal-ridden administration. Why? He persevered and won and we can imagine what would have happened had he caved in at week six and called it another Mogadishu.The truth is that for all our education, nuance, and professed idealism, too many of us think and act with our limbic systems, which are hard-wired to appreciate perceived success and feel comfortable with consensus. Like most in the animal kingdom, man wishes to identify with good fortune and abhors apparent failure, and thus seeks conveniently to find distance from it. After Abu Graib and the insurrections in Fallujah and Najef, the loudmouth critic Michael Moore is praised as a gifted filmmaker at the Cannes Film Festival even as prominent conservatives and ex-generals, now in their newfound genius, trash the war and claim they were brainwashed, naοve, or not listened to.
Our leaders should remember this volatility. In the long run, of course, the present strategy is sound and in a decade will be judged as such by historians. How could it not be sound to remove a mass murderer who posed a threat to the region and our country and then sponsor a consensual government in his place?
Listening Al Gore?
Posted by Tom at 7:55 AM | Comments (0) | TrackBack (0)
May 28, 2004
Ouch!
The Stros lose to the Cards 2-1 as Dotel balks in the winning run in the 10th on a dubious call by Ump Hunter Wendlestadt. I suspect that the phrase "chicken shit" is being uttered more than once in the Stros' clubhouse this evening.
Wade Miller goes for the Stros in the Saturday afternoon game against the Cards' former but recently struggling Astro-killer, Woody Williams.
Posted by Tom at 10:16 PM | Comments (0) | TrackBack (0)
Important 5th Circuit decision on family limited partnerships
Professor Ribstein posts this interesting analysis of the Fifth Circuit's recent decision in Kimbell v. U.S.A., Case no. 03-10529 (May 20, 2004) that is welcome relief to estate planning attorneys who utilize the popular technique of family limited partnerships to help wealthy families escape taxes.
Family partnerships -- although largely untested legally -- have become increasingly popular over the past decade because they allow wealthy people to transfer large amounts of money and other property virtually tax-free to their heirs. In the typical family partnership, a wealthy person transfers assets into a partnership that is usually formed with the children. In most cases, a parent serves as general partner with the children holding limited partner shares. Less often, one of the children serves as the general partner.
For the wealthy, such tax planning can save an enormous amount for heirs that would otherwise be used to pay estate and gift taxes. For example, the top federal estate-tax rate is 48%, although the first $1.5 million of a taxable estate is usually exempt from federal estate tax.
Concern about the level of protection that family limited partnerships afford increased last year when the IRS won a case involving the late Texas businessman Albert Strangi on the grounds that Mr. Strangi retained excessive control over his family partnership. That decision is currently on appeal to the Fifth Circuit.
The new decision involves the estate of Ruth A. Kimbell, who died in 1998 at the age of 96. At the time Mrs. Kimbell died, the value of the assets in her family limited partnership -- which was created only a few months before her death -- was about $2.4 million. When the federal estate-tax return was filed, the estate claimed a big discount on the value of Mrs. Kimbell's interest in the partnership, to which the IRS objected.
The dispute landed in federal district court, and the Fifth Circuit reversed the district court's ruling that had denied the estate's request for a refund of the estate taxes and interest paid. The Fifth Circuit panel noted that the assets contributed to the partnership included working interests in oil and gas properties, that Mrs. Kimbell retained sufficient assets outside the partnership for her own support, and that there was no commingling of partnership and Mrs. Kimbell's personal assets.
Professor Ribstein observes the following:
There remain serious potential debtor-creditor issues in these firms aside from any estate planning problems, as I discuss in Reverse Limited Liability and the Design of Business Associations. Notably, in this case the partnership was set up to insulate the owners from potential environmental liability generated by the transferred assets. But in many of these cases, as I discuss in my article, the conveyance is intended to put the assets out of the reach of a debtor's creditors on claims that have nothing to do with the transferred assets themselves. This might stand for estate tax purposes after this case, but even if it does raises problems in the debtor-creditor context.The case illustrates the potentially devastating impact of the death tax, here a million without the FLP discount, on an estate that is not so enormous by modern standards.
Posted by Tom at 12:30 PM | Comments (0) | TrackBack (1)
Enron Nigerian Barge case gets teed up
This Chronicle article reports on the pre-trial conference yeseterday in the Enron-related criminal case commonly known as the "Nigerian Barge case," which appears to be the first Enron-related criminal case that will actually go to trial.
As noted in previous posts here and here, the Justice Department in general, and the Enron Task Force in particular, have adopted a sledgehammer policy in white collar criminal cases against business executives -- that is, Justice alleges a myriad of counts against the business executive so that the executive is confronted with a draconian choice: either what amounts to a life prison sentence if the executive dares to defend the charges at trial or a plea bargain calling for a shorter prison sentence of between one (Lea Fastow) and ten (Andrew Fastow) years.
For the government's standpoint, the strategy has worked well in regard to the Enron criminal investigation. In the two and a half years since Enron crumbled into bankruptcy, the Task Force has obtained plea bargains from over a dozen former Enron executives and has not had to conduct a trial against any former Enron executive to date. In fact, the only Enron-related criminal trial that has taken place was the case against Enron's auditor, Arthur Andersen, in early 2002. That trial resulted in a controversial conviction of Andersen, which is currently the subject of an appeal before the Fifth Circuit Court of Appeals in New Orleans.
However, the Nigerian Barge case is a different animal, and it does not look like this case is likely to be resolved through a plea bargain. The case is particularly interesting because it involves the government's attempt to convict former Enron and Merrill Lynch executives for participating in a commercial transaction of the type that is common throughout the business world.
In essence, the Task Force's indictment against the Merrill executives contends that the entire Nigerian Barge deal was a sham because Merrill Lynch would not have bought from Enron an interest in the barges docked off the coast of Nigeria but for former Enron CFO Fastow's oral assurance that Enron would broker a sale of the barges at a tidy profit for Merrill Lynch the following year. Fastow did indeed broker a sale of Merrill's interest in the barges the following year to one of his infamous "off-balance sheet partnerships" that ultimately hid a total of roughly $40 billion of Enron debt.
According to the government's theory of the case, if Fastow's oral assurance to Merrill Lynch was binding on Enron, then the sale of the barges was not a true arm's length sale and, thus, Enron's accounting for the transaction as a true sale was fraudulent. Accordingly, the government reasons that it is irrelevant that the subsequent written agreements between Enron and Merrill Lynch contained a provision that made Fastow's oral assurance unenforceable. The contract was false and a part of the sham because Merrill Lynch would not have done the deal but for Fastow's oral assurance.
Other than Mr. Fastow's probable testimony of dubious credibility (he is cooperating with the government under his plea bargain), the government's primary evidence of the alleged sham nature of the deal appears to be the "nervousness" that Merrill executives openly expressed about the deal in emails both before and after Merrill consummated the transaction. The government interprets that nervousness as evidence that the Merrill executives knew that the deal was a sham and that they could be caught participating in a fraud with Enron.
However, there is a more reasonable interpretation of Merrill's nervousness regarding the deal -- that is, they really were nervous about the business risk of the deal, not because they thought it was a sham and a fraud, but because they knew that they could not rely on Fastow's unenforceable oral assurance that Enron would broker a sale of the barges the following year. Accordingly, their nervousness was that they might be making a bad investment that would result in having to hold the barges for a long term rather than short term they preferred. Stated another way, the Merrill executives were nervous because they knew that this was a real deal in which the deal documents controlled the rights of the parties, and that Fastow's oral assurances to get them out of the investment could not be enforced if Enron failed to live up to them.
But for the current highly adverse environment for any Enron-related defendant, my sense is that the prospects for a successful government prosecution in this particular case would be low. Even with the current anti-Enron bias in the community, this is going to be a tough case for the government. For example, during the pre-trial hearing yesterday, U.S. District Judge Ewing Werlein -- a former civil trial attorney and a scrupulously fair judge -- was clearly troubled by the government's failure to turn over to the defense potentially exculpatory evidence that the government has in its possession. At another point in the hearing, Judge Werlein was openly skeptical of the government's theory that it should be allowed -- without providing pre-trial expert reports to the defense -- to elicit expert opinions at trial from three proposed former Arthur Andersen auditors who the government has named as fact witnesses in the case.
Moreover, inasmuch as there are six defendants in this case, the defense team is formidable. Dan Cogdell and Tom Hagemann -- two members of Houston's excellent criminal defense bar that was the subject of a previous post here -- were outstanding yesterday during the pre-trial hearing, as were New York's Daniel Horwitz and Lawrence Zweifach. The prosecution team that assistant U.S. attorney Matthew W. Friedrich is leading will have its hands full at trial with this group of defense attorneys.
Jury selection in the Nigerian Barge case begins on June 7, and the trial will probably last about 4-6 weeks. Stayed tuned to developments in this one. A successful defense in this case could go a long ways toward leveling the one-sided playing field in favor of the Enron Task Force that has existed to date in regard to the handling of the Enron-related criminal prosecutions.
Posted by Tom at 10:04 AM | Comments (0) | TrackBack (1)
May 27, 2004
Uh, oh
Will Carroll is a doctor whose hobby is analyzing sports injuries. He also writes for the Baseball Prospectus and runs his own blog here. In his Baseball Propectus column today, he writes the following ominous news from the Stros:
The Astros may have completed a two-game sweep of the Cubs, but losing Andy Pettitte for any length of time would certainly be a high price to pay for that sweep. Pettitte left after four innings with elbow soreness, later clarified to be "forearm tightness." While Pettitte insisted after the game that the pain was in a different area than the elbow injury earlier this season, his reactions on the mound were very similar. A shot of the dugout showed him rubbing not his forearm, but his elbow. Team physicians will examine Pettitte Thursday morning.
Update: In this Chronicle article, the Stros attempt to put the best face on the initial diagnosis (strained forearm) as possible, but the reality is that Pettitte has a gimpy elbow and throwing pitches only aggravates the injury. Accordingly, I expect Pettitte to go back on the disabled list again at least once and maybe more during the remainder of this season.
Posted by Tom at 1:04 PM | Comments (0) | TrackBack (0)
Say what?
In this article bemoaning Andy Pettitte's latest injury, the Chronicle's John Lopez rues the lack of viable alternatives to replace Pettitte in the Stros' rotation and makes the following observation:
Carlos Hernandez, whom the Astros had hoped to be progressing by this point of the season to become an option, has not distinguished himself at Class AAA New Orleans.
Having followed Hernandez's progress at AAA New Orleans while recovering from labrum surgery, Lopez's observation surprised me. So, I took another look at Hernandez's current statistics.
While operating under a strict pitch count, Hernandez is 4-0 in nine starts, has an ERA of 2.54, has struck out 26 in 51 innings, and has given up only 18 walks. In other words, Hernandez's stat line is as good as any pitcher on the Astros staff right now and better than most.
Inasmuch as Hernandez is still building arm strength, his velocity has not yet returned completely, and that is reflected in his relatively low strikeout totals. However, Lopez's suggestion that Hernandez is not doing well at New Orleans reflects that he didn't check the facts. This is a common characteristic of the Chronicle baseball writers, best reflected in their unquestioning support of such abysmal players as Brad Ausmus and Jose Vizcaino, and their oblivious acceptance of manager Jimy Williams' dubious decisions.
Posted by Tom at 8:43 AM | Comments (0) | TrackBack (0)
Scott Turow on Martha Stewart
In this NY Times op-ed, novelist Scott Turow takes the position that Martha Stewart got exactly what she deserved and that Martha's defenders are way off base:
They have repeatedly noted that Ms. Stewart was charged only with lying after the fact about the stock sale, but not with securities fraud for the transaction itself. The Wall Street Journal editorial page, for example, said there "was something strange about prosecuting someone for obstructing justice over a crime that the government doesn't claim happened." And some feminists have suggested that Ms. Stewart was being penalized for being a powerful woman.I don't buy any of it. What the jury felt Martha Stewart did -- lying about having received inside information before she traded -- is wrong, really wrong. And the fact that so many on Wall Street have unashamedly risen to her defense is galling -- galling because what she did actually harms the market. Wall Street leaders should be expressing chagrin that a corporate tycoon, who was also a member of the New York Stock Exchange board, could feel free to fleece an unwitting buyer.
H'mm, let's think clearly about Mr. Turow's analysis. We agree that it was wrong for Martha to lie, although it should be pointed out that Martha's lie was her contention to government investigators that she was innocent of the crime of insider trading, for which the government did not charge her.
But then, after noting Martha's lie, Turow criticizes Martha because she engaged in illegal insider trading, the charge for which she was not prosecuted. Martha's defenders -- notably Professors Bainbridge and Ribstein -- have defended Martha because the government elected not to charge her with the real crime (i.e., insider trading) and instead prosecuted her for merely claiming her innocence of that charge. Consequently, Turow jumps from the premise that Martha's lie was wrong to the proposition that she was guilty of insider trading. Maybe so, but the government did not prove that.
Turow then asserts the following:
It's true that Martha Stewart was not accused of securities fraud for selling her ImClone stock, because, the prosecutors said, historically no one else had been charged criminally with insider trading in similar circumstances.
Well, then that should apply also to prosecuting someone for proclaiming their innocence of a charge, which "historically no one else had been charged . . . in similar circumstances."
Finally, Turow plays the class warfare card, reasoning that Martha's defenders suggest different treatment for her because she is rich and famous:
Perhaps the most troubling aspect of the whole case, to me anyway, is how the arguments in defense of Ms. Stewart show a widespread mentality that is all too comfortable with unwarranted privilege. It is yet another example of how justice is very different for the rich and poor.Consider: While it's not insider trading for Martha Stewart to make some $50,000 using stolen information because she did not have the duty not to steal it, something very different would happen to you if you were caught with, say, a stolen watch in your hand. In that circumstance, the law virtually presumes you are guilty. For decades, American juries have been instructed that when a person is found in unexplained possession of recently stolen property, it is proper to infer that the person knows it is stolen, and thus almost certainly is guilty of receiving stolen property.
Likewise, while it's technically not insider trading for someone to sell shares of stock for more than what he knows, through inside information, to be their true market value, the converse, your buying or selling that hot watch at a steep discount, will almost inevitably get you convicted for trading in stolen property. When we're talking about these petty kinds of crimes, most often committed by the poor, the law does not bother with airy discussions of fiduciary duty. I can't take seriously those who want to believe that the starkly differing contours of the law in these roughly parallel circumstances are unrelated to the economic circumstances, and social standing, of the typical violators.
Turow's reasoning here is utterly muddled. "Roughly parallel circumstances" between selling stock on inside information and stealing a watch and then hawking it? These circumstances are completely different -- Martha bought her stock and then sold it; the thief stole the watch and sold it. Martha's profit is the difference between the sale price of the stock and her purchase price, net of taxes. The thief's profit is the gross sales price.
For these circumstances to be "roughly parallel," either Martha would have had to steal proceeds from the sale of stolen stock (for which I'm sure she would have been prosecuted) or the thief would have had to buy the watch and then sell it to an unsuspecting buyer for a higher price even though the thief knew information about the watch that made it less valuable. Despite Turow's self-righteousness, there are not many prosecutions over the allegedly fraudulent sale of a watch.
Even on the one correct point that he makes, Turow has it turned around. Yes, justice is very different for the rich and poor. In this particular case, someone without Martha's fame would have had her wrist slapped, been required to disgorge her profits (as Martha did), and that would have been the end of it. That was not the end of it in this case because Martha is a high profile target and she did not handle the scrutiny of the transaction well.
Indeed, reasoned defenders of Martha do not defend her because they believe in a different standard for the rich than the poor. Rather, they defend her because the same standard should apply to both.
Turow should stick to writing novels.
Posted by Tom at 8:05 AM | Comments (0) | TrackBack (1)
May 26, 2004
Pettitte injured as Stros sweep Cubs
Andy Pettitte strained his left forearm after pitching four innings, but the Stros' recently maligned bullpen pitched well as the Stros beat the Cubs for the second straight night at the Juice Box, 7-3. Pettitte gave up a run on two hits, and the Cubs were only able to muster two runs off of one (Mike Gallo) of the Astros' five relievers. Miceli, Lidge and Dotel were throwing smoke in the last three innings as they struck out six of the last nine Cub batters in the game. The Stros listed Pettitte as day-to-day, but with that type of injury, I would be surprised if he doesn't miss a start to two.
Lance Berkman hit his seventh yak in the last nine games, and both of the Jeffs -- Kent and Bags -- also cranked dingers. The Stros raked Greg Maddux hard as it is starting to look like Maddux -- who, along with Roger Clemens, is one of the best pitchers of his generation -- is going to have a hard time maintaining a spot in the Cubs rotation when all of their flamethrowers come off of the disabled list.
The Stros take a day off on Thursday and then begin a three game weekend series at the Juice Box with the Cards on Friday night behind Clemens. The Stros are 26-20 and a game behind the Reds in the NL Central race.
Posted by Tom at 10:53 PM | Comments (0) | TrackBack (0)
WSJ on the Presidential election
The Wall Street Journal ($) is doing a particularly good job in reporting on the polling pertaining to the upcoming Presidential election. This article reports on the WSJ's latest data and analysis. The entire article is highly informative reading, and the following summarizes the WSJ's analysis:
George W. Bush and John Kerry may be speaking to all of America, but their campaign advisers are focusing on a narrower slice of the population and targeting the candidates' messages to voters in states that were decided by a narrow margin in 2000. These battleground states may tip the outcome again in November.To take the pulse of voters in many of these key states, Zogby Interactive, a division of polling and research firm Zogby International, is conducting online polls twice a month through Election Day in 16 states selected by WSJ.com. Participation in the polls is controlled and the results are weighted, Zogby says, to make them representative of what a poll of the overall U.S. voting population would find.
Results of the first poll, conducted May 18-23, show Mr. Kerry leading in 12 of the 16 states in this poll, including five states that Mr. Bush won in 2000. Mr. Bush leads in four states, including one -- Iowa -- that voted Democratic in 2000. The 12 states in which Mr. Kerry leads have a total of 148 votes in the Electoral College, while the four in which Mr. Bush is ahead have 29 electoral votes.
Mr. Bush won eight of these 16 battlegrounds in his 2000 victory, but if the election were to be held tomorrow, it looks unlikely that the president would fare as well. But more than half of the states that Mr. Kerry leads fall within the polls' margins of error. All of the states that Mr. Bush leads are within the margins of error.
In short, although the election is five months away, Mr. Bush is in trouble. However, Mr. Kerry is not a strong candidate and is having difficulty capitalizing on Mr. Bush's problems. Looks like a close race is shaping up. Stay tuned.
Posted by Tom at 9:30 AM | Comments (0) | TrackBack (0)
Update on the Clarett case
On Monday, the Second Circuit Court of Appeals issued this decision denying former Ohio State running back Maurice Clarett's challenge to the National Football League's rules that prevented him from participating in this year's draft. Here are the prior posts on the Clarett case.
For a variety of reasons, the Second Circuit's decision is questionable, including its complete dodge of the issue that Americans are generally free to make their own decisions on employment opportunities, even if those decisions are bad ones. As usual, Professor Sauer over at the Sports Economist has the best analysis on the decision, in which he observes the following:
The decision is evasive on two major counts. First, apart from mentioning the NFL's claim that the rule protects young players from physical harm, the decision wastes nary a sentence on the issue. The reason is clear - since labor law trumps antitrust, there is no need to judge the reasonableness of the restraint. Second, in announcing this in unabashed terms, the court tiptoes around the real issue here:
In the context of this collective bargaining relationship, the NFL and its players union can agree that an employee will not be hired or considered for employment for nearly any reason whatsoever [emphasis added] so long as they do not violate federal laws such as those prohibiting unfair labor practices ... or discrimination.
That the restriction is discriminatory is obvious. But youth is apparently not a protected class, unlike minorities or the elderly. I find this odd.
Posted by Tom at 9:08 AM | Comments (0) | TrackBack (0)
As if North Korea didn't already have enough problems
Randy Parker over at ParaPundit has this interesting post in which he points out that the shortage of females in China -- coupled with North Korea's crippled economy -- presents the real prospect that Chinese men will import substantial numbers of North Korean wifes in the coming decades. Read the entire post, as Mr. Parker notes that the social and economic implications of this development are potentially ominous, but also potentially positive:
The shortage of women in China may end up posing an existential threat to the Pyongyang regime more powerful than anything US policy makers are likely to do. North Korean leaders might react to this threat by engaging in market liberalization reforms aimed at raising North Korean living standards enough to reduce the level of desperation of North Korean women.The regime in North Korea faces a more general economic threat from China because of rising wages in China. The higher the wages go the greater the incentive for Northeast China factory managers and other businesses to turn to the black market to supply cheap North Korean labor. This will pull both men and women out of North Korea. Will that destabilize the regime more or less than the selective removal of women from North Korea?
Hat tip to Marginal Revolution for the link to this post.
Posted by Tom at 8:44 AM | Comments (0) | TrackBack (0)
UT team develops ambidextrous computer chip
This Wall Street Journal ($) article reports on the development of an experimental computer chip at the University of Texas that is like a chameleon in that its able to change its function according to the task at hand.
Steve Keckler, a UT computer scientist and a leader of the design effort, believes that the chip can be configured to perform as a specialized chip for devices such as cell phones and digital music players or even serve as a powerful central processor in a desktop or other general-purpose computer. The team hopes to have a prototype of the device finished in about a year and ready for commercialization by the end of this decade. The Defense Advanced Research Projects Agency, a Defense Department agency, is funding the UT team's development.
If the chip works as planned, it will run at a top speed of 10 gigahertz and perform one trillion operations (meaning individual computing tasks) per second. In comparison, Intel Corp.'s current top-speed Pentium 4 processor runs at 3.4 gigahertz and delivers 6.8 billion operations per second. The anticipated performance has led the design team to dub the device a "supercomputer on a chip."
The UT team has nicknamed their design "Trips," for Tera-Op Reliable Intelligently Adaptive Processing System. The term tera-op refers to the targeted one trillion operations per second. The system would divide individual processing cores on the chip into tiny sections that could change automatically for several predetermined functions. The idea is that the processing cores would morph as instructions flowed in. Each chip could contain many processing core, which would enable a single chip to perform multiple functions simultaneously while optimizing for each. Conventional chips generally do only one thing at a time. Moreover, the distributed architecture of the UT team's design would reduce clock delays, which limit the performance of conventional chips.
Posted by Tom at 7:34 AM | Comments (0) | TrackBack (1)
Spitzer v. Grasso
This Holman Jenkins, Jr. WSJ ($) Business World column examines New York attorney general Eliot Spitzer's latest propoganda campaign . er, I mean, lawsuit in which he seeks to recover a substantial portion of the rather large $200 million in compensation, pension and related benefits that the New York Stock Exchange Board of Directors bestowed on Richard Grasso, the former president of the Exchange. The entire column is good reading, and here are a few tidbits to pique your interest:
The board was chock full of the country's leading business people, folks like Goldman Sachs Chief Henry Paulson, Bear Stearns' James Cayne and former New York Comptroller Carl McCall. They voted unanimously to approve Mr. Grasso's pay knowing full well its magnitude, Mr. Spitzer's subsequent attempt to lay down a smokescreen for their benefit notwithstanding. Mr. Spitzer lauded himself Monday for taking on the national problem of overpaid CEOs. By leaving the board out of his suit, though, he's given directors everywhere an all-purpose defense. To wit, I was too dumb, lazy, clueless, indifferent, gullible etc. to know what I was doing.
Mr. Jenkins then examines the nature of the NYSE, the reason that its members paid Mr. Grasso so well, and why they turned on him quicker than a New York minute:
The NYSE is owned by seat holders who show up on the premises every business day. Their livelihood depends on the place. They elect its board. They know what a telephone is for. They have every means and incentive to wield their collective clout to make sure their interests are being served.Now some NYSE "specialist" firms will tell you they were afraid of Mr. Grasso; they didn't really know what was going on. If pressed on why they bungled a matter so close to their own interests, they shrug their shoulders like an errant teenager and say they aren't sure why they didn't keep a closer check on things.
So we'll answer for them: They stood back because Mr. Grasso was serving their needs marvelously. Consider the years 1995 through 2000, when the handful of small, little-known businesses that control floor trading pocketed profits of $2.12 billion. The average yearly return on their invested capital: a princely 21.35%. Mr. Grasso's retirement payoff after 35 years at the exchange may have been gross and unsightly, but it was a small fraction of the riches he helped to preserve for the New York Stock Exchange's most privileged constituents.
It's also perfectly obvious why they turned on Mr. Grasso in his moment of political mugging. Anything that brings scrutiny on the inner workings of the exchange, willy nilly, is an invitation to powerful customers who've been fighting to eliminate the specialists in favor of a cheaper, more transparent electronic trading system.
Finally, Mr. Jenkins then turns to the motivation of Mr. Spitzer, who has made quite a name for himself extracting "settlements" from various businesses:
New York's Attorney General, heir to a local real estate fortune, has specialized in presenting his wealthy business targets with both a problem and a solution, the latter involving writing a big check with their firm's money. He may not exactly provoke gratitude (except among CEOs more than usually afflicted with Stockholm Syndrome) but he's seen as someone with whom business can be done.His political ambition is zeppelin-like, lurching over Manhattan in unmoored, alarming fashion. He was obviously eager here to limit his political risk by portraying the NYSE's famous board as victims rather than culprits in the Grasso pay scandal. But no judge or jury will fail to understand that he's giving them a pass for his own political interests.
Mr. Grasso understands this too, and has semaphored that he will drag them into court, forcing them to choose between pleading gullibility, inattention and incompetence or undermining Mr. Spitzer's case. True, even a court victory might not get Mr. Grasso his good name back, but more than a few would applaud his show of resistance to a budding demagogue.
Spitzer's case against Grasso is beyond absurd. No one held a gun to the head of the NYSE Board or its compensation committee when it approved Mr. Grasso's compensation and related benefits. The NYSE is not bankrupt, so its creditor interests are not in a position to challege the Board's decisions regarding management compensation. Perhaps the Board members made a bad, lazy or incompetent decision in compensating Grasso to such a liberal extent, but that's a reason to replace Board members, not to persecute Grasso.
Spitzer's purge on Wall Street has become so misguided that Mark Haines of CNBC joked the other evening that "the government might as well throw all of Wall Street in prison and release anyone they find innocent." Mr. Jenkins hits the nail on the head in pointing out that the real purpose of this lawsuit is the promotion of a demagogue's agenda rather than the protection of any public interest.
Finally, the always insightful Professor Bainbridge comments on this foolishness here. Professor Ribstein's equally interesting observations about this mess are here.
Posted by Tom at 6:48 AM | Comments (0) | TrackBack (1)
May 25, 2004
Stros break losing streak
Roy O had his game face on tonight and gave up only three singles in seven innings as the Stros broke their five game losing streak in beating the Cubbies, 5-0. Lance Berkman cranked his sixth dinger in eight games, a two run shot off of Astro-killer Carlos Zambrano to the Conoco Porch in the left center of the Juice Box.
Andy Pettitte takes the hill on Wednesday evening as the Stros go for the two game sweep against the Cubs' Greg Maddux. After an off day on Thursday, the Rocket opens the weekend series with the Cards at the Juice Box.
Posted by Tom at 9:34 PM | Comments (2) | TrackBack (0)
A logical SPR policy
Blogging time is restricted for a couple of days, but Arnold Kling's TCS piece on the Strategic Petroleum Reserve is quite good, as is his blog's follow up piece. Arnold sums up his theory regarding the SPR as follows:
It should be the responsibility of the private sector, not the government, to obtain insurance against oil market disruptions. The SPR has introduced government into the oil market as a destabilizing speculator.
Arnold also provides an excellent explanation of the concept of backwardation in regard to the price of oil.
Posted by Tom at 6:43 AM | Comments (0) | TrackBack (0)
May 24, 2004
Stros leaking serious oil
The Stros limp home tonight after losing their fifth straight game and fourth straight to the Reds, 7-5. Berkman is the only player hitting consistently well, and no one is pitching lights out at this point. Not a good combination, and the schedule is not favorable. The Stros begin a two week stretch of playing the Cubs and the Cards with Roy O taking the hill against the Cubs on Tuesday night in the Juice Box.
Posted by Tom at 10:20 PM | Comments (0) | TrackBack (0)
Shell, this is getting monotonous
Shell reduces reserve estimates again. Here is the WSJ ($) article on the latest reduction.
Here are the previous posts on the Shell reduction of reserve controversy.
Posted by Tom at 12:11 PM | Comments (0) | TrackBack (0)
Justice opens criminal inquiry into Ernst & Young tax shelters
This Wall Street Journal ($) article reports on the Justice Department's decision to open a criminal investigation into Ernst & Young LLP's promotions of potentially abusive tax shelters. This investigation follows on the heels of a separate criminal investigation into sales of certain tax shelters at KPMG LLP. Here are prior posts on Ernst and KPMG's recent legal troubles.
The investigation of Ernst reflects the continuation of the Justice Department's continued effort to crack down on tax evaders and their professional advisers, including accounting firms, law firms and financial institutions. A plethora of tax-shelter sales spurred by the late-1990s economic boom and stock-market rally is estimated to have reduced federal tax revenues by billions.
Earlier this year, the Manhattan U.S. attorney's office notified KPMG that it had begun a criminal investigation into the firm's promotion of certain tax shelters that the IRS has deemed potentially abusive. The initiation of a criminal investigation into Ernst's similar activities comes at a time of growing concern in the business community that there already are too few major accounting firms (it's the "Big Four" now) to audit the world's largest companies.
The criminal investigation of Ernst is somewhat surprising in that Ernst last summer reached a civil settlement -- which included payment of a $15 million penalty -- with the IRS to resolve allegations that it failed to register its tax-shelter strategies with the government and maintain lists of investors who participated in them. Ernst disbanded the division that had been involved in developing and marketing its most aggressive tax shelters and, as part of the IRS settlement, Ernst also instituted organizational changes aimed at ensuring future compliance with federal and state tax laws. As a result, it was thought that the IRS settlement concluded the government's action against Ernst for past shelter-related matters.
Posted by Tom at 6:27 AM | Comments (0) | TrackBack (0)
More on hedging fuel costs
Following on this Professor Ribstein post and this reply post here over the weekend regarding most airlines' failure to hedge fuel costs, this NY Times article reports that the hedging of fuel costs also varies widely in other fuel intensive businesses. One reason is that the practice is risky:
In a vexing illustration of the risks associated with hedging, though, not every company has been so fortunate.For instance, the PanOcean Energy Corporation, which produces oil in West Africa, lost $1.4 million in the most recent quarter by essentially agreeing to sell oil for about $30 a barrel when the price of oil climbed much higher - just below $40 a barrel last Friday. PanOcean made the bet as part of a loan agreement with its bank.
"It's a crap-shoot, isn't it?" said David Lyons, chief executive of PanOcean, no stranger to risk after developing a natural gas field in Tanzania in East Africa to complement operations in Gabon. "Personally I feel hedging activities are overdone, but it's something our financial agreements require us to do."
Many companies find it less risky (albeit more incompetent) simply to avoid hedging and pass along the increased fuel costs to their companies:
Many choose instead to raise costs for their customers, contributing to concerns about rising inflation.One company opting for a fuel surcharge instead of hedges is Waste Management, the Houston-based garbage collection company with a fleet of 20,000 trucks around the nation. Heather Browne, a spokeswoman for Waste Management, said fuel costs still remain a relatively small amount of the company's revenue, about 3 percent of $11.5 billion.
Nevertheless, hedging fuel costs is increasingly important for fuel dependent companies that serve a limited geographical area:For companies with a more limited geographic reach and more dependent on the fuels that are becoming a bonanza in the oil patch, hedging is increasingly considered a necessity. Southwest Airlines exemplifies this trend, with 80 percent of its fuel needs hedged for this year and 2005, and 30 percent for 2006 at prices below $30 a barrel.
Alaska Air, which operates Alaska Airlines and Horizon Air, is also among the few that hedged a large share of its fuel consumption, about 40 percent this year and next, at prices from $25 to $27 a barrel. But even that was not sufficient, the company acknowledges.
"We're not at the Southwest level," Bradley D. Tilden, Alaska's chief financial officer, said in an interview. With the company consuming about 400 million gallons of jet fuel a year, each penny increase in the price of the fuel costs the company $4 million a year, he said. Jet fuel prices have climbed to $1.17 a gallon from 76 cents a gallon this time last year.
Nevertheless, many major airlines remain slow to hedge:
Other airlines are struggling with the prospect of large losses after hedging fuel needs at relatively high prices, like Continental Airlines, which secured 80 percent of it fuel consumption at $40 a barrel this quarter and 45 percent at $36.40 a barrel for the third quarter.Delta Air Lines and Northwest Airlines did not hedge at all this year and American Airlines, the nation's largest carrier and a unit of the AMR Corporation, hedged less than 10 percent of its fuel needs for the second half of the year, according to a report by Lehman Brothers. Prying information from companies that placed erroneous bets on the price of fuel is sometimes akin to pulling teeth.
Finally, the NY Times piece observes correctly that the risk of hedging is not a reason to avoid it:
"People get their feelings hurt when they hedge poorly," said J. C. Whorton, executive vice president of StratCom Advisors, a company that provides risk-management services. "But it's most often the case that those companies that fail to hedge at all have done a very poor job."
My prior post noted Warren Buffett's distaste for investment in the airline industry because of its traditional lack of profitability. Could it be that the airline industry is simply an example of Mr. Buffett's following observation about troubled businesses?:
"When a manager with a great reputation takes on a company with a poor one, it is the company's reputation that survives."
Professor Ribstein is inclined to agree with Mr. Buffett.
Posted by Tom at 5:15 AM | Comments (1) | TrackBack (1)
May 23, 2004
Reds whack sleepwalking Stros again
The listless Stros made the forgetable Corey Lidle look like Tom Seaver today as the Reds mowed down the Stros for third straight day, 7-0. The Stros have now lost four straight and their boat is clearly taking on some serious H2O.
Tim Redding will try to salvage a game in Cincy for the Stros in Monday night's game. Roy O opens the Cub series on Tuesday night at the Juice Box.
Posted by Tom at 3:54 PM | Comments (0) | TrackBack (0)
The very big business of private equity
William J. Holstein is the editor of Chief Executive magazine and, in this NY Times piece, interviews Donald J. Gogel, the chief executive of Clayton, Dubilier & Rice, one of the oldest private-equity firms in the world. The entire interview is interesting, but particularly insightful are the following observations that Mr. Gogel makes regarding the disincentives of investing in public companies:
Q. This suggests that a lot is happening away from public scrutiny because these companies do not have to worry about regulatory compliance.A. The public glare has a number of difficult or challenging aspects. One is the focus on quarterly earnings. It's hard for many publicly traded companies to make strategic investments that have long-term paybacks. It's hard to penalize what may be two or three quarterly earnings reports. The markets won't tolerate that. There is also the fact that compliance can be distracting.
Q. Are you saying a private-equity firm can do a better job cleaning up an underperforming asset than a public company can?
A. The private-equity teams that come in, when they're successful, can create a new culture and introduce new leaders. They can create a sense that this is a new team and a fresh start. There's a definite cultural transformation. Incentives and executive compensation can change. We can recruit people because the compensation systems can be skewed toward long-term results. We can attract people because they don't want to be in public companies.
Q. Why don't they want to be in public companies?
A. I think the Sarbanes-Oxley Act and other requirements of the public arena inevitably have a cost. I wouldn't overstate the cost. It's one of several factors. But we are able to recruit some C.E.O.'s and other executives to run our companies because they say to themselves, "Boy, if I could do this in private, it would be a lot better. My own performance would be better and the company would be better."
Q. But, again, from a public policy point of view, how can we know that privately held companies are being governed well?
A. Our investors know as much, if not more, about our investments and returns than do public companies' investors. We have a more limited audience, so it's easier to communicate with them. A firm like ours might have 75 or 80 investors. That's a target audience that's easier to communicate with.
There's a lot of continuity because many investors have been with us for a long time. But a public company's shareholding base could change literally in the fraction of a second. We have the advantage.
From purely my anecdotal experience, virtually all business executives who I know would much rather work for a company funded with private, rather than public, equity.
Posted by Tom at 9:11 AM | Comments (0) | TrackBack (1)
Chad Campbell shoots another 61
Whenever the subject of a discussion is great Texas golf courses, two courses should always be included in the discussion -- Jack Burke, Jr. and the late Jimmy Demaret's Champions Golf Club in Houston and Colonial Country Club in Ft. Worth, nicknamed "Hogan's Alley" after the late Ben Hogan, a Ft. Worth native and arguably the best ball-striker in golf history.
Both of these golf courses are steeped in history and are phenomenal challenges. Champions is long and relatively wide open off the tee, but has huge greens that place a premium on getting the ball close to the hole on approach shots. Colonial is short and tight, with postage stamp greens.
Chad Campbell is a 30 year old West Texan from Andrews, Texas. After graduating from UNLV in 1996, Campbell worked his way through the mini-tours for five years before getting his Tour card in 2001 and, since that time, has established himself as one of the best ball-strikers on the Tour.
Last October, Campbell shot one of the best rounds of the year on the Tour when he shot an incredible 61 (10 under par) at Champions during the third round of the Tour Championship, which he went on to win the following day for his first Tour victory. Campbell won his second Tour victory earlier this year at Bay Hill.
Yesterday, in 25 mph wind conditions (i.e., extremely difficult for most golfers; no big deal for a West Texas boy), Campbell shot an equally incredible 61 (nine under par) at Colonial to bolt into a third round tie for the lead.
Campbell's 61's on these two great golf courses is the equivalent of pitching two perfect games in baseball. Campbell is now firmly established as one of the Tour's rising stars and may now be the best Tour player who has not yet won a major golf tournament. The only flaw in his game at this point is inconsistent putting, but if he gets that part of his game to a more consistent level, watch out. Chad Campbell has serious game.
Posted by Tom at 8:49 AM | Comments (0) | TrackBack (0)
Reds outlast Stros
Sean Casey and Ken Griffey hit run scoring doubles off of normally reliable Brad Lidge in the bottom of the eighth on Saturday night in Cincy as the hard-hitting Reds sent the Stros to their third straight defeat, 8-7. The win moves the Reds into a first place tie with the Stros and the Cubs in the NL Central. All three clubs have a 24-18 record.
The Rocket struggled in this start, giving up six runs and nine hits in six innings, including four walks. Despite Clemens' strong start this season, his elevated walks total is a clear sign that his performance level is trending downward.
The Stros' stroked 15 hits and were led by red-hot Lance Berkman, who hit his fourth dinger in the last five games and had two doubles. Of course, manager Jimy Williams continues to bat Berkman fifth in the order when he is a far superior hitter to any other Astro and thus, should be batting in the postion in the order that would maximize his plate appearances.
In fact, Williams' dubious decision-making is becoming a big problem for the Stros. Despite near deification among local reporters as being a real "baseball guy" (whatever that means), Williams in reality is a mediocre manager, as has been explained earlier here and here. Late in this game, Williams again allowed his irrational prejudice in favor of veteran players to hurt the Stros' chances of winning.
In the top of the ninth, consecutive hits by Kent, Berkman and