Hubbub in a Holster

It is always dangerous to make policy changes in the wake of disaster. The President seeks to use the Newtown tragedy not so much to prevent the next one, but to advance his agenda. So his Rose Garden anger/blame speech over the Senate gun control failure conveniently failed to mention another vote related to the bill that only garnered 40 votes. There are problems with the bill which the President actually misrepresented in his fervor to call the NRA liars. When discussing the amendment's prohibition against a national gun registry, he failed to mention it only applied to the attorney general, and not other governmental agencies. As we move on to deal with the important mental health aspects of gun control, it is not hard to imagine HHS deciding it needs to consolidate information to cross-check with mental health records coming from a healthcare system falling under steadily increasing federal control. The Senate should move forward to resolve the issues with this bill. Speaking of post-disaster policy initiatives, it is ironic that a decade ago the liberal establishment railed against Bush anti-terrorist legislation, a lot of which President Obama promised to eliminate, then eventually decided to extend. He's a smart guy, and knows when to switch from principles to public relations. Obama is working very hard to fool the American public again. He's busy taking moderate stances on entitlements and painting the opposition as radicals out of touch with the mainstream. This is all about the 2014 Congressional elections. The divided legislature keeps him from an unencumbered implementation of his "equal outcomes" agenda. I suppose he was growing up in Indonesia and didn't get "equal opportunity" translated correctly--or didn't realize that it didn't exist there. If this occurs, one can only hope that the Congress will realize they need to get re-elected, and that need may trump the President's agenda.

Buffet's Move on Heinz Validates Einhorn

David Einhorn of Greenlight Capital is battling with Apple over methods of maximizing shareholder value. Einhorn argues that "Cash Distributors Can BE Great Growth Businesses For Decades." Examples of this are Coca Cola and IBM. Tim Cook of Apple calls the issue a "silly sideshow." Well, I'm an Apple shareholder, and I don't think so. I think the strongest support of Einhorn's idea to issue preferred stock is the Heinz acquisition recently structured by Warren Buffett at Berkshire Hathaway. In order to purchase Heinz, Buffett knew he'd have to pay a premium to market, but he didn't want to overpay. So a key element of his deal was a large preferred issue, which Berkshire will own. The $8 billion preferred yields 9%. There's a tax arbitrage here as corporations only pay a 5% tax rate on preferred dividends rather than a 35% tax rate on interest. In the case of Apple, a preferred issue would be very valuable to corporate investors. In the case of Heinz, Buffett is buying a company with great brands that don't require a lot of financial capital to grow. So the preferred is a way of taking returns out of the company so the owner (Berkshire) can redeploy those assets productively. Einhorn points out that Apple is allowing a third of its market cap to sit on the balance sheet earning sub-par returns, giving no opportunity for shareholders to redeploy those assets. Apple is similar to Heinz in that its branding has created a business that generates excess capital. In order to maximize the value of Apple, the company must allow shareholders to redeploy the profits of the business. Let's hope the management looks at the Heinz deal and realizes they can create a similar structure for Apple shareholders.