Kid talks on Fiscal Cliff

1. John, why are tying yourself to the countertop?
    Dad, I will have some protection if we fall off today. I have more ropes for you and mom.

2. Dad, are you sure Jason will fall with us off the cliff today? He beat me last week.

3. Dad, what is fiscal cliff?
    That means we will have a smaller paycheck.
    Oh, do I get less stars in order to watch TV?
    I don't think so. You will get the same stars if you finish your homework.
    That is ok then.

4. Dad, is the cliff looks like the one we went to Yosemite last year?

5. I got to buy a parachute for the cliff.

6. Dad, are those guys on TV gonna to die after falling off the cliff?
    No, they are ok.
    Oh, then we will be fine too.

Win with Dow Underdogs

A well known strategy is called "Win with Dow Underdogs". This means buying a basket of the Dow’s worst-performing stocks and holding them for a year. Successful examples are not rare: Philip Morris in 1999 (down 54% in 1999 because of lawsuits, up 109% in 2000); Microsoft in 2000 (down 63% in 2000 because of tech bubble burst, up 53% in 2001), and many more.

The same strategy can be applied to this years Dow underdogs,

                      HPQ           -47%
                      INTC          -17%
                      MCD          -12%
                    CAT         -4.2%
                    DD           -2.3%
                    AA           -1.7%

All the rest 24 stocks are up in 2012 (max: 104% BAC, min: 0.05% CVX). Apparently, HPQ is the biggest underdog in 2012. Can HPQ turn around in 2013? There is no need to repeat why HPQ had come to this case. Equity market in 2013 is likely strong: number of up/down ratio is 24:6; central banks are pouring low cost capital into markets; HPQ would not have more write downs in 2013; HPQ is cutting costs, hopefully quick enough; etc, etc.

The point is that when everyone knows what the problems are, then we need to come to realize what value is there. HPQ can be two types of stocks: an asset stock and a slower growth stock. It may be too early to name it a turnaround stock. But its diversified portfolio promises the cash flow won't stop soon. On the other side, lower expectation stops capital wastes. So there is no immediate danger of bankruptcy and sustainable working capital. If investors were disappointed in 2012, then they had learned should keep expectation low in 2013. As the bar is lowered, it is easier to exceed.

Analysts had speculated whether HPQ could be the winner in 2013, largely from historical the Dow Underdog thesis. It seems sound from value exploration stand point.

Consumer protection and justice

How much a new patient can bring to hospital's revenue? New patient can easily be charged more than $200 dollars for "administrative fee" for signing on a few pages of patients' notices. Clerks at a medical center in Mountain View, California spent less than 5 minutes printing out a few pages of notices for patients to sign and charges $250 for new patient admission. Looking at the big building where the hospital is located, no wonder the bill is so high. The problem is that the $250 bill would never be told before patients come.

Doctors are also charging a high rate at hundreds of dollars per visit. Such charges are usually stomached by patients without further questions, as long as insurance companies approve hospital claims. However, a 60 Minutes interview with former HMA employees exposes pressure doctors and hospitals have to admit more patients, even they should not be admitted. All evidence drew to one conclusion, the health care association is driven by profit, not health care quality. Doctors are pressured to fill empty beds. Administrative officers are ordered to tone their allegations. Employees are fired because of short of revenue expectation. These are attorneys, directors, high ranking officers in the organization.

Of course, individuals in the interview had no power and resource to fight with HMA. But the Department of Justice can. If the 60 Minutes program discovered the case before DoJ was involved, the program would be praised. But there is no claim to indicate that. Therefore, we believe DoJ was notified from other resources. How many of us will go to DoJ because of a $200 new patient admission fee? How many of us know the DoJ is the place to go if bothered by the bill?

Quite often, individuals are left behind in fighting large organizations. Smaller investors write to the SEC to complain brokerage firms and would most likely be fooled attorneys. Even FINRA, the body regulating brokerage firms, is paid by the brokerage industry. How can logically such organization be on smaller investors' side? The SEC is indeed funded by the federal government. But the attorneys there are very reserved in confronting with big firms' attorneys because they may seek a job in these big firms some day in the future.

There are many levels of consumer protection programs, non-profit and government funded. Often the government ones are considered more powerful and authoritative. The government can sure do more. However, when their power is not on people's side, the power becomes evil.

An HPQ insider's insight

Former HP CEO Leo Apotheker, who authorized the acquisition of Autonomy, spoke up after the deal was blamed ill-fated. "No single CEO is ever able to make a decision on a major acquisition in isolation, particularly at a company as a large as HP --- and certainly not without the full support of the chairman of the board," he said in an email to Bloomberg. The chairman of the board is Ray Lane, still the chairman of the board. HP bought Autonomy for $8.8B when Apotheker was in charge.

Current HPQ CEO Meg Whitman blamed that Autonomy lied their financials to HPQ and requested recoup money as much as possible, even though Whitman also voted for the deal. However, Apotheker's tone is critically important and sharply contrast to Autonomy's founder, who denied any wrongdoings outright. The key message is that the deal was not single-handed approved by Apotheker, even though it is a lemon trade. In a sense, Apotheker admitted that the deal was not an ideal acquisition but he isn't the only one to be blamed.


HPQ has been consistently giving impression that it wasted investor's money.  The stock has lost 42% in 2012. Also, HPQ's board room scandal, leaked information, and slow to respond are infamous. For example, the current rumor that Ichan is accumulating HPQ may be coming from HPQ higher up and traders.

Long term speaking, HPQ has numerous issues to overcome. Many have questioned its survival in the future. Apotheker's comment reveals that there were disagreements at the highest level unresolved. Without cleaning up the house completely, the recovery path is hard and bumpy. On one hand, HPQ, after years dominance in technology, is a diversified portfolio. On the other hand, it has a long way to go. Therefore, HPQ's value is in its past, not the future. Thus, bets on its future are risky.

A law that must be stopped

President Obama said he would not be after the states that legalized the use of marijuana. He said that prosecution of recreational marijuana smokers shouldn’t be a priority for law enforcement, suggesting those who light up in Washington and Colorado have little to fear if they stay within the bounds of state laws. “We’ve got bigger fish to fry,” Mr. Obama said in an interview with ABC News’ Barbara Walters.

This is just dead wrong. 

The two states celebrated their unprecedented use medical marijuana in December. Even with seemingly rules that prevent trades between users such as people can't pass smoking marijuana to others otherwise will be stopped by policemen, use of marijuana was welcome by users that who knows they are for medical use or not. The president's comments basically put a full stop on the Department of Justice's puzzle if they need to go after these two states as use of marijuana is a felony against the federal laws.

If marijuana is simply for medical use, then it is a matter between patients and doctors. Unfortunately, it is not and monetary incentive is involved. In the state of Washington, marijuana is treated as alcohol and taxed heavily. Similarly, a 60 Minutes interview in Denver Colorado revealed that many local marijuana plants lobbied the state congress to pass the law so that they can earn big money. It is evident to say tax income is the main drive.

Marijuana is similar to opium, an addict drug. Hundreds of years ago opium was used by the Chinese in only "Smoking House". People couldn't smoke those at home or public places. Opium brought huge profit for British companies in India, where opium grew. While widely used opium in China sent trade between China and Britain to record level, Chinese health was weakened. Even today, Chinese still blames the drug is the culprit that caused the Opium War and the most evil drug.

So we can see how similar the situation is in the two states now and in China two-hundred years back. If the states can't control the use, how can they have policeman to check if two people passing smoke or not? Just a ridiculous assumption. Widely use of marijuana can only corrupt the society and people and needs to be stopped.