The Malcolm Berko Blog

The night gray city streets search endlessly for their horizons

02-the-hungarian-dance“As bailout plans bloom don’t let the arts wither,” said Michael Kaiser, President of the John F. Kennedy Center for the Performing Arts, in a January 2009 Wall Street Journal opinion column.  Michael suggests that this financial storm that is wreaking havoc throughout the country has also “weakened the fabric of our nation’s arts ecology” so he proposes immediate emergency grants for arts organizations in America.  Michael, a serial lobbyist, has pleaded with members of Congress to carve a slice of the Federal bailout largess specifically for the Arts.  (Why not send Federal funds to goat herders in the Ukraine too?)  He also insists that “we need legislation that allows unusual access to endowments.”  He also demands that: “Washington must encourage foundations to increase their spending rates during this crisis as well as immediate tax breaks for corporate giving.”  As he eloquently states his case he disingenuously tells us that the ”arts” provide 5.7 million jobs which account for $166 billion in economic activity annually.  Michael would tell us these big numbers represent a country-wide montage of rag-tag, store front productions, theatre and dance groups, artist’s colonies and musical wunderkinds the majority of whom live living in modestly low rent districts and occasionally get a concert hall gig in Waukegan, Syracuse or Norman.

Well I’m part of the very silent majority who has finally decided to speak my piece.  I strongly object and I’m damn offended that Michael would use my tax dollars to support the “arts,” whatever the “arts” maybe.  Yep, times are tough and certainly a museum will close in Raccoon Lake an opera company will fold in Tampa, symphonies, stage and dance companies will probably shut their doors in Baltimore, Savannah, Corpus Christi and the Museum of Contemporary Art will (thank God) close in Los Angeles.  But Stinky Candolla, Bubba Reese Jones, Mookie Marshall and a couple hundred million other Americans don’t give a flying kite about listening to  Edward Bond’s Methuen Drama from a Punta Gorda stage or care a whit to hear Waltraud Mier singing Isolde at an opera company in Sheboygan or Maya Angelu recite her Victimization Poetry at a  Playhouse in Kokomo.  Listen up Michael and compeers - listen good.  Hundreds of millions of Americans don’t give a hoot or holler about your “arts.”  And because our opinions from the tribunal of approval, it’s patently dishonest to use our tax dollars to support the gourmet art preferred by a few million of your minions who read the New Yorker.  If a symphony in Kankakee can’t support itself with revenues from ticket sales . . . . let the bloody thing pull up anchor and float into oblivion.  That’s capitalism.  But taxing the majority so an audience of 287, fashionistas to the manor born can listen to Mahler’s Symphony #2, by a less than stellar St. Petersburg Orchestra, is patently pure, raw, stinking Socialism.

I’ve listened to some delightful Blue Grass bands that gave up their fiddles because they couldn’t sell enough tickets to buy blankets and keep warm on a cold night.  I know two artists whose style I appreciate, a lounge singer whose voice I admire, a sculpture of whom I think highly and a left wing thespian with whom I enjoy an occasional debate.  These folks can’t generate enough public support for their artistry because they’re talent is mediocre so they keep their day jobs to buy food and pay utilities and rent.  They didn’t seek money from the JFK Center for The Performing Arts or other organizations less auspicious but with similar goals.  That’s not the “real” American way!

I’m peeved, piqued and provoked you and your compeers of highfalutin gentility would use our tax dollars to support regional theatre groups, dancers, singers, painters etc. who are failures on the public stage.  Some suggest that Michael and others of elegant persuasion get their libidos bathed with adulation when they dole out our tax dollars to fawning performers, artists and writers.  Michael and his well meaning friends really believe that a portion of our tax dollars should help these performers/artists.  But several hundred million of us common folks really believe it’s all a bucket of night soil and that Michael and friends are dicked in the nob.  We (the average Joe) don’t receive a subatomic particle of benefit from the sub-par performances and mediocre entertainment skills of local theatre/art groups.  Proof of the pudding is defined by tickets sold.  And their failure to survive in Moline, Jonesboro or Peoria is proof that the pudding is lousy.

There’s a better way to support mediocre talent without taking money from common folks who lack the fashionable sophistication to appreciate Opera, Euripides, Shakespeare’s Henry the 4^th, Expressionism, Modern or Classical Dance, Ballet, Poetry readings and other forms of artistic haute couture.  Hells bells we prefer Line Dancing, Country & Western, Red Neck Humor, Jay Leno, Harrison Ford, Tony Bennett, Clint Eastwood, Julia Roberts, Josh Groban and Garth Brooks.  This is the entertainment that forms the tribunal approval – this is the entertainment that most Americans want . . . not the prissy-classy-cissy stuff that you gotta wear an evening dress, a tie and tux to watch.  The better way: tax the hugely successful entertainers who make more money than they can spend no matter how they slice their salamis:  Entertainers like Hannah Montana, Justin Timberlake, Madonna, Stevie Wonder, Elton John, Jim Carey, Sheryl Crowe, Beyonce, ad nauseum are enormously popular and their mass appeal fills concert halls, stadiums, attracts Network TV and fills movie theatres across the nation.  Their films, albums and appearances generate billions of dollars of revenues from ticket sales and endorsements.  These folks are prodigious cash generating machines and certainly a more appropriate source of “Funding for the Arts” than our using tax dollars from our paychecks.   I think Hannah Montana, who purportedly (with endorsements) sucked up over $100 million in gross income in 2008, wouldn’t object a whit, a tic or a jot to a 0.5% tax on her gross income ($500,000) to support the “arts!”  Jim Carey made $53 million, Madonna took in $133 million, Jay Leno, Meryl Strep, Matt Damon, Jackie Chan, Harrison Ford, Russell Crowe, and Oprah took in enough money in 2008 to buy San Antonio, Poland and the Island of Fiji!  Then if we include baseball, basketball, football and hockey jocks, pretty soon it adds up to real money.  All of these folks are in the entertainment business (the Arts) and I suspect they would, with alacrity, be happy as sunshine and rainbows to pay a few dollars in personal taxes to support the arts.

So, Michael Kaiser, President of the John F. Kennedy Center for The Performing Arts, perhaps it’s time to use your considerable influence with the successful people in the “Arts” and gently cozen them out of a few hundred million dollars a  year.   Certainly, Bill Cosby, Barbra Streisand, Brad Pitt, Tiger Woods, Kobe Bryant, C.C. Sabathia, etc, would be proud to assist their fellow entertainers.  Bon Jovi cares enough to raise money to help residents of South Africa, Rosie O’Donnell donates millions to her Children’s Education program, Oprah decided to spend $11 million for a girls school in South Africa, Barbra Streisand donated $1.5 million to the Bill Clinton Library, Angelina Jolie and her beau gave $2.5 million to an orphanage in Vietnam so they could adopt a kid, Jackie Chan donates millions to defuse land mines in Cambodia, Julia Roberts, Lawrence Fishbourne, Pierce Bronson and Jessica Lange are substantial contributors to UNICEF and Shirley MacLaine gladly gives millions to improve the lives of children in Botswana . . . . . certainly these wonderful, good people and their colleagues in the “arts” would wish to prove equally generous to their not so successful brethren.

Africa is the second largest and the second most populous continent after Asia.  Africa covers 21% of the total land area of our globe and is home to 1.4 billion people; nearly 27% of the world’s population.  It’s boundlessly rich in natural resources such as oil, coal, gas, water, uranium, gold, bauxite, platinum, timber, copper, etc., with thousands of miles of navigable coastline.  And Dr. Louis Leaky, the famed archaeologist who discovered the oldest human bones (Lucy) on our planet, tells us that Africa is the Cradle of Human Civilization dating back 3.2 million years ago.  And the esteemed geneticist, Dr. George Mendel, who was first to prove that dark genes are dominant and light genes are recessive, tells us that Africans are the original parents of all humanity.  From the beginning of humankind to the rise and fall of great civilizations, we, Lucy’s progeny, have evolved markedly since the dawn of our species.

But Africa, almost completely populated by Blacks, remains a tribal continent that hasn’t progressed much further than the Bronze Age of 8,000 years ago.  Today almost all of the 61 nations that comprise this continent are bumbling, pre-medieval satraps, with corrupt infrastructures that benefit only those in power.  This continent and its indigenous people have never contributed anything of value to civilization.  It’s a stockade for 1.4 billion people whose forbearers, some say, have failed to climb high enough on mankind’s evolutionary ladder.  Most Africans lack modern survival skills.  They are malnourished, diseased, intellectually stunted and rely upon the good will of technologically advanced nations for survival.  Many Africans still live in the jungles; hundreds of millions live in mud huts and millions more reside in city slums without sanitation, potable water, electricity and reproduce at alarmingly high rates.  Africa is said to be evolution’s toxic human waste dump.

But let’s quickly climb the evolutionary ladder to the Paleolithic Age 125,000 years ago when a few venturous African bipeds began to trickle to what we now call Europe, Asia, the Middle East and Russia.  Little is known of their migratory patterns or social structures but we can conclude these people developed new skills to sustain themselves and survive the harsh, marked differences in climate, terrain and diet.  The trickle slowly grew into a steady stream, flowing from the Stone Age 14,000 years ago and the Bronze Age 8,000 years ago from which we have evidence of exquisitely advanced civilizations in Sumeria and Mesopotamia.  During the Bronze Age these people, whose ancestors trekked from Africa, divided themselves into 12 independent City-States, the boundaries of which were defined by canals and special marking stones.  Each City-State was centered on a Temple dedicated to a favored God and each was ruled by a Priestly Governor.  These Sumarians and Mesopotamians called themselves “sag-giga” literally meaning dark-headed people and they were the first civilizations to practice intensive, year-round farming about 9,000 years ago.  This innovation allowed people to settle in one place, permitting greater population densities that required an extensive work force, division of labor, record keeping and development of a syllabary writing system.  These intellectually progressive civilizations employed architects, builders, artisans and leaders with common community goals to build aqua ducts for agriculture, food storage, temples for worship, roads, and structures for religion, government and commerce.  Eventually similar migratory and developmental records may be found in Europe, the Orient, Russia and the Mid-East where other afro-centric civilizations flourished and prospered.  But Africans who remained on their continent continued to embrace the Dark Ages while their adventurous and intellectually superior progeny prospered, explored and contributed to an advancing and modern world civilization.

Certainly during the last 700 years the world has enjoyed impressive progress in healthcare, communications, chemistry, architecture, agriculture, physics, transportation, education, mathematics, energy, climate control, etc.  All these extraordinary advances, all this genius derived from Europe, Asia, the Mid-East, Russia, and North America.  However nothing, not even a sub-atomic particle of this knowledge derived from an African architect, an African physician, an African physicist, chemist, geneticist, astronomer, engineer or mathematician.  So, considering that Africa has a population of 1.4 billion people – the world today has 6 billion people – isn’t it reasonable to assume that at least one African be prominent among the world’s great minds like, Galileo, Newton, DaVinci, Einstein, Faraday, Edison, Salk,  Shakespeare or Hawkings?  It’s clearly evident that Africa, even in the last 700 years has contributed nothing of value to the intellectual and industrial glue that binds humanity and modern civilizations.

Perhaps it’s time to say “screw” political correctness and tell American Blacks (not Black Americans) that they must confront a truth about themselves. The truth is as self-evident as wet is to water.  There are no great African minds because there are no great African minds.  It’s that simple!  While compelling and self-evident, this observation is deeply offensive to American Blacks.  And because this truth is offensive we are cautioned not to speak of it though respected academics and knowledgeable observers believe it to be valid.  There’s just no way to kindly say that African Blacks and direct descendants of African Blacks lack many of the intellectually tools which are more common to Whites.    But it’s a fact of life like butterflies, honeybees, a bounced check and a common cold.  And by multiple standards that our culture considers important, Blacks rank at the bottom of nearly every category.  Specific examples are not necessary to enumerate because empirical evidence is legion and obvious by almost all objective economic, social and educational measurements.  However, its neither politic nor good manners to discuss this publically, even in academic circles.

The first rule of problem solving is to admit that there is a problem.  But this problem is unlikely to be solved because, for many of the wrong reasons, we are taught to follow the Emily Post rules of etiquette that it’s bad manners to discuss racial differences in intelligence.  These Flat Earth Thinkers (FET) are so enamored of the prose on our Declaration of Independence that they would defend to death (ours – not theirs) the phrase:  “All Men are created equal.”  However common sense suggests, even to American Blacks (not Black Americans), that those 5 words represent the world’s biggest bucket of night soil.  There are numerous respected studies that demonstrate marked and tangential intellectual and physical differences between various humanoids on evolution’s tree.  Our ancestors began to climb the same evolutionary tree 3.2 million years ago.  Some took the quickest route and climbed straight up, many took detours, others climbed slowly and some just got tired and gave up.  Professor David Reich, PhD at Harvard’s Department of Genetics tells us (Harvard University Gazette 5-2006) that ancestral humans bred with chimps.  Reich shows that this hybridization places an evolutionary pressure on the X chromosome, causing it to change more rapidly than normal.  Reich’s research determined that mass interbreeding continued for several million years but began to “taper off” about 5.4 million years ago.  And while FET found this conclusion repugnant, Harvard anthropologist, David Pilbeam and others believe Reich’s work is “brilliant and exciting.”  Geneticists at Harvard and MIT have now concluded that human beings and chimps differ in only 1.5% of their genes and that human blood and chimp blood are very nearly identical.  And the resulting differences in intellectual capacity are substantiated by Professors Richard Hermstein and Charles Murry in their politically incorrect book: THE BELL CURVE (1994).  In chapter 14 these internationally esteemed scientists clearly demonstrated that racial differences in intelligence exist.  Their conclusions were vigorously attacked in a maelstrom of anger and vilification by FET and multi-culture idealists whose denials derive from an emotional concord rather than objective science.  And to acknowledge racial differences in intellect is considered heresy and offensive to FET values that “All men are created equal.”  To deny the disparity in racial intelligence between blacks and whites is to deny the earth revolves around the sun.  Galileo by the way was convicted of heresy by the Catholic Church in 1633 and was imprisoned for the last 8 years of his life.  Oh well, someone once remarked that all great ideas begin with a minority opinion.

If you’re reading this article the chances are that you may be intellectually honest.   Therefore you are willing to acknowledge that empirical evidence clearly demonstrates that Blacks have intellectually inferior skill sets that preclude them from participating effectively in our modern society.  You will also recognize that there are few great Black participants in finance, economics, neurosurgery, banking, architecture, management and so on.  And if you publically ask: “why is this so?” you will be roundly hooted down with screams and shouts of bigotry and racial discrimination by FET, multi-culturists, Jessie Jackson, Al Sharpton, and other Blacks who profit enormously by playing the “VICTIMIZATION” card.  A legendary trial lawyer once told me: “If the facts are not on your side, shout and pound the table.  But if they are on your side, use logic and reason.”

Once again I ask you to consider the social, economic and political infrastructures of Africa’s 61 nations.  Most are abysmal failures and anathema to civilized society.  So is it any wonder that since 1991, American cities (Newark, Philadelphia, Camden, Baltimore, Gary, Detroit, Washington, D.C. and other) that were governed by blacks have generally become smaller, older, blacker, poorer and more crime prone?

Take a snapshot of the U.S. Public School System in the 1930s, 40s and 50s.  Those public schools did a good job teaching the 3Rs until the FET, et. al.  convinced Congress to bus and integrate.  The public schools worked to accommodate Black culture, Black expectations, Black attitudes and sought to mix their alien predispositions into the White culture.  It was like pouring water into a straw and in the process it created an overflowing cultural shock causing millions of Whites to become victims of an insidiously deteriorating education system.  Why?  Well, because it is so much easier to teach to the lowest academic level rather than bringing Blacks up to our higher academic level.  And the consequence today is a growing phenomena called “THE DUMBING DOWN OF AMERICA.”  Waves of intellectually inferior Black students (whose culture, morality, and expectations are the antithesis to White values) descended like locusts on neighborhood schools.   And the problem compounded, as the FET ordered public schools to hire Black teachers and administrators most of whom lacked the requisite skills and capabilities.  In the process our public school system slowly imploded and segued into a pandemic failure.  Admit it!  If you had a choice between putting your children in a public school or a private school and had the money to pay for private schooling . . . which would you choose which is precisely what President Obama did?

If we cannot agree on the problem then we will become victims of a creeping rot in our culture, our industries, and our government.  And the cascading into the future will certainly quicken the dumbing down of our country.

Dear Mr. Berko:

Right at the top of the market in early 2000, I bought 100 shares of General Motors at $92. Today it’s $45. What’s wrong with the company? Do you think it will ever return to my purchase price or even $65 or $75 or $80 per share? Would you recommend that I buy another 100 shares at this much lower price? The annual reports are very positive and so are the quarterly reports I get. GM’s cars are good-looking and ride well. Sales are very good and GM will make $7.50 a share this year and the stock trades at a very low six times earnings. The current $2 dividend yields 4.5 percent and sales incentives are really bringing in new car sales. G.S. Syracuse, N.Y. Dear G.S.: I strongly doubt that General Motors Corp. (GM-$45) stock will get sufficient speed or momentum and return to your $92 purchase price in this decade. I think you and thousands of others who bought GM between January and June of 2000, when the price ran up to $95, bought shares in an overpriced, exceedingly mature, arthritic, cyclical, debt-heavy, Rust Belt company that hasn’t raised its dividend in seven years and whose net profit margins and return on shareholder equity continue to fall. Certainly, with rising interest rates and a consumer who is over his collarbone in debt and very nearly tapped out, it’s unlikely that 2005 new-car sales will approximate those of 2004 and 2003. Yes, I know that GM (which is also Saab, Isuzu, Opel, Vuxhall, diesel locomotives, small trucks, big trucks and trucks of all kinds, defense stuff, auto and truck financing, consumer mortgages, electronics, new parts, auto and life insurance, residential mortgages, auto service contracts, ad nauseam) does this stuff all over the free world. Perhaps that’s one of GM’s big problems. Like the time GM introduced a new car in Mexico called the Nova, unaware that “no va” in Spanish means “don’t go.” However, enormous fixed costs, impossibly aggressive unions, plus federal and state regulations that would warm a bureaucrat’s heart and unpredictable product demand are just a few of the mind-numbing characteristics that plague GM in every one of the 20-plus countries it does business. GM’s domestic cost structure (which is better than Chrysler and Ford) trails those of Honda, Toyota and other foreign competitors. And there’s nothing on the horizon that leads one to believe it will improve. While GM’s incentive-driven sales have aided current demand, they also put a brake on revenue growth for 2005 and 2006. High-volume sales (Ford’s and Chrysler’s too) have lowered used car prices and tanked new car values. Finally, GM’s daunting retiree obligations scare the bejabbers out of smart investors. There’s serious talk that GM might not be able to honor its commitment to those union workers who believed they were blessed with a sacrosanct, sweetheart retirement package. I like GM’s cars (I even own a GM auto) but I’d ask to be committed if I were ever crazy enough to buy the stock. This company is so huge that it is unwieldy, impossibly cumbersome, terribly bureaucratic, clumsy and clunky in its execution, unresponsive to consumer demand and almost impervious to change and improvement. GM has so many disparate parts, all moving in different directions that cogent concise, clear and effective management is almost impossible. General Motors, and all its moving parts, is a veritable Tower of Babel. Frankly, I think investors would be better off if GM were to pull an American Telephone & Telegraph and divide itself into six or seven different companies, each with its own product, executive suite, board of directors and listings on the New York Stock Exchange. Perhaps GM would have a Chevrolet division, a Pontiac/Oldsmobile/Saturn division, a Truck division, a Finance division, a Cadillac division and an Industrial Equipment division. Each division should be autonomous, independently competitive and responsible for its own future. This might be the only way to maximize shareholders’ value and possibly the only way you will ever see your purchase price again. Without a divestiture of this nature, GM is just a bungling, bumbling, awkward giant of a company that will continue to lumber along, taking the path of least resistance. Because I believe that you will never get your money, I suggest you sell the stock and place the proceeds in greener pastures.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net. © Copley News Service Visit Copley News Service at www.copleynews.com.

Dear Mr. Berko: At age 28, I’ve become the unexpected beneficiary of a $500,000 life insurance policy that my dad left me. I need to invest the money but do not have any knowledge about investments. Can you recommend a book that will help me to become a good investor?
I recently met a stockbroker through the insurance man who handled my dad’s policy. The broker seems very personable, knowledgeable and professional. He gives classes on the stock market at his firm’s office and I’ve been invited to attend his classes to learn everything I need to know about the market so I can invest wisely. Which do you recommend, the course or a book?
T.G.
Delray Beach, Fla.
Dear T.G.: Asking me to recommend a book on the stock market so you can become a successful investor is like asking me what book one should read to become a good basketball player. You can read a thousand books on basketball and become one of the most knowledgeable people on the court but that doesn’t mean you can be a skillful player.
Knowledge is no substitute for skill. Being skillful at what you do requires a lot of good experiences and good experiences are the result of a lot of bad mistakes. So it is with books on the stock market. You may become knowledgeable. Yet it takes experience to become good (or skillful) at investing, but most of us can ill afford bad mistakes along the way to achieving good experience.
There are literally thousands of books on the stock market: books on technology stocks, growth stocks, charting, trading, income stocks, oil & gas stocks, options, convertibles, income statements, bank stocks, balance sheets, load mutual funds, no-load funds, closed-end funds, exchange traded funds, real estate investment trusts, public limited partnerships, cyclical stocks, penny stocks, ad nauseam. I could go on for pages.
Frankly, every one of those books is as boring as a Japanese Kabuki dance and none of them is worth a box of rocks unless you can turn that information into experience. It’s hard to believe that with a subject as popular as money and $13 trillion in securities trading on the Big Board that I can’t find an easy-to-read, fun-to-learn, Johnny-On-The-Dot book for a double sawbuck at Borders or Barnes! For the most part, stock market books are about as useful as books that promise to show you how to make big money in real estate.
I feel you’d be better served attending investment classes at your community college. Most often those classes are taught by stockbrokers and because stockbrokers are salesmen they often put some personality into the subject. A typical course is usually five to seven sessions (evening or afternoon) and each session can last between two to three hours and the cost is often minimal. A classroom ambience, the spontaneity, the questions and answers, the give and take and the personalization often create a superior venue for learning. An investment course can also be a social occasion. It gives you a good reason to get out of the house and, who knows, you might even meet an eligible mate.
Now, while this broker may appear knowledgeable and professional (and no doubt he is) you must be mindful that he’s also a salesman and probably a very good one. Becoming the beneficiary of a $500,000 life insurance policy is not a daily occurrence and it might be right for me to assume that this “knowledgeable and professional broker” could be extremely anxious to have you as a client. So it’s incumbent upon me to warn you to be wary.
Therefore I will recommend one book. It’s a book by Charles Ellis, a former big shot at Donaldson, Lufkin & Jenrette, a Wall Street insider and a close buddy of William Donaldson, who is chairman of the Securities and Exchange Commission. The book is titled “Winning the Loser’s Game: Timeless Strategies for Successful Investing.” The 66-year-old author has written numerous books (all boring) but in this book, he is an iconoclast and tells the reader not to take advice from the brokerage industry. He tells you not to trust brokers.
“Don’t be confused about stockbrokers. They are usually very nice people but their job is not to make money for you. Their job is to make money from you.” Now where have you heard this refrain before? Ellis notes that the typical stockbroker visits with some 200 customers a year who collectively have about $5 million in the stock market. In order to make $100,000 a year, that broker has to generate $300,000 in commissions, which is 6 percent of that $5 million in assets. As a result, Ellis says, “the broker cannot afford the time to learn what is ‘right.’ He has to keep the money moving - and it will be your money.”
Take your course. Enjoy it as much as you can. Learn as much as you can. But, at age 28, you might not have enough experience to make your own investment decisions. So before you invest a penny, peso or pound, I recommend that you join an investment club where the members put that knowledge to practical use.
Investment clubs are often great social get-togethers and good learning experiences. So after you’ve taken that course and when you’ve completed a year as an investment club member and after you read the Ellis book, please write me again.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
© Copley News Service
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Dear Mr.

Berko: Please give me your opinion on Bank of America. I hear it might be bought out by another large bank. Can you identify that bank and can you tell me what the purchase price might be? I’d like to own the stock and a takeover possibility makes owing the stock even more attractive. Please respond as soon as you can because I’m depending on your answer before I make a decision and I don’t want to miss out on a potential takeover opportunity.
W.L.
Columbus, Ohio
Dear W.L.:

Bank of America Corp. (BAC-$84) could possibly be a takeover target but its gotta be an awfully big bank. I doubt that Citigroup Inc. (C-$45), which is ranked No. 1, or J.P. Morgan and Chase Co. (JPM-$37), which just bought Bank One and is ranked No. 2, can be the “takeroveree!” If BAC is a takeover target, the most likely suitor will be a British, French or German bank. And while Japan has some of the largest banks in the world, I strongly doubt that any Japanese bank will be a contender due to insurmountable cultural differences and a difficult language barrier.

I kind of doubt that it will be a German bank, certainly for the same reasons. Just look at what happened when Daimler Benz took over Chrysler. While those companies are in the same business, they are as different as cheese and chalk. So if BAC is a target, it will probably be an English or a French bank. The English banks that could have an interest in BAC might be Barclays, HSBC Group, Lloyds TSB Group or Royal Bank of Scotland.
The only French bank that may be capable of buying BAC would be BNP Paribas, which has indicated a strong interest in having an American presence. BNP Paribas recently paid $1.2 billion for Community Bankshares, which has more than 500 branches in 18 states. In fact, BNP’s chief executive officer, Baudouin Prot, has told the press that BNP plans more acquisitions in the United States and Europe. In 2001, BNP paid $2.5 billion for the very profitable Banc West.
BAC, with 21.2 million household accounts and 2.2 million commercial accounts, would make an attractive takeover target for a European bank seeking to enlarge its customer base. And BAC is an impressive operation, with some of the strongest profits in the banking business.
But BAC’s merger with Fleet Bank is causing concern on Wall Street. While the merger will create a banking behemoth with almost $1 trillion in assets, there is worry that earnings quality could be clouded by $750 million of anticipated merger-related changes. Some of the suits on the Street feel that BAC may have overpaid for Fleet and that Fleet does not bring enough to the table to justify the steep price paid by BAC. I think they’re wrong.
Now I’m guessing that a takeover price for BAC, if it does become a player, would be between $96 and $105 billion, and possibly higher as the planned merger between J. P. Morgan and Bank One looks like it may add some spice to share price. Wachovia Corp. (WB-$44) is on the prowl and may propose to several mid-sized banks in the next dozen months. Germany’s Deutsche Bank is rumored to have its eyes on several moderately large U.S. banks. And England’s HSBC, which already owns a nice portfolio of American banks, wants to spread its wings over a larger slice of the U.S. banking pie. According to the suits Amsouth Bancorp. (ASO-$25), Mellon Financial Corp. (MEL-$29), KeyCorp (KEY-$30) and City National Corp. (CYN-$65) may be likely targets.
Buyout or not, I think BAC may be a swell addition to your portfolio. Not including the Fleet acquisition, BAC’s assets this year are likely to rise from $730 billion to $780 billion and its loan portfolio should grow by 10 percent to 11 percent. Return on assets may be down from a strong 1.48 percent to 1.44 percent. And while most banks have a loan-to-asset percentage between 58 percent and 65 percent, BAC loans-to-assets are just 51 percent, which certainly gives BAC a lot more room to increase its loan portfolio. Meanwhile, BAC’s $3.60 dividend, yielding a sweet 4.3 percent, could grow very nicely over the coming years as I suspect its loan portfolio and profits will too.
Buy 100 shares as a long-term investment but not as a short-term frump. BAC may be the closest thing in the United States to a true nationwide bank. BAC is the strongest participant in some of the most prolific, dynamic and impressive growth regions in the country. The addition of Fleet Boston, gives BAC have half again as many locations as its closest rival. With the addition of Fleet Boston, BAC’s dominance could increase greater than the sum of its parts.
Many of my clients and I have positions in Bank of America.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
© Copley News Service
Visit Copley News Service at www.copleynews.com.

Dear Mr. Berko: Please tell me about the Chicago Merchandise Market where many of the world’s commodities are traded. I am thinking of buying 50 shares and would like your investment advice on this company.
T.S.
Kankakee, Ill.
Dear T.S.: The Chicago Merchandise Mart is a huge building that sells home accessories (furniture, carpets, appliances, etc.,) to retailers. It’s been around for eons and is not a public corporation. It’s the Chicago Mercantile Exchange Inc. (CME-$144.25) to which you refer. This is a designated market for high-powered junkies who get their rush and thrills trading futures contracts on options and options on futures, such as interest rates, stock indexes and commodities.
CME’s most visible products are the Eurodollar, the Standard & Poor’s 500 and other S&P index contracts, as well as Russell and Nekkei Index Contracts.
The CME also trades hogs, pork bellies, feeder and live cattle, butter, milk, fertilizer, lumber and the Goldman Sachs Commodity Index. CME trades the Mexican peso, the Russian ruble, the Swiss franc, the yen, the Canadian dollar, the British pound and other foreign currencies. CME trades interest rate futures, total return asset contracts (TRAKRS) and weather contracts.
CME, the largest futures exchange in the United States, came public in 2002 when it became the first U.S. financial exchange to demutualize into a shareholder-owned corporation.
Almost all of CME’s contracts trade electronically and CME pioneered global electronic trading for its derivative contracts. CME owns its own clearinghouse so it settles every contract it trades. Last year, the CME processed and cleared an average of 720,000 contracts each day, acted as custodian for about $37 billion in collateral and moved a daily average of $2.4 billion of settlement funds through its clearing system.
The CME’s customer base is almost exclusively professional traders, financial institutions, institutional investors, major corporations, large manufacturers, producers, dairy farmers, cattle and pig ranchers, multinational entities and governments. And of course, there’s the civilian trader (a Merrill, Dean Witter, PaineWebber, Goldman Sachs, A.G. Edwards or Lehman client) who thinks he has the genius to compete with the big boys and ignominiously fails almost every time.
In 2000, this customer base contributed $243 million in revenues that generated $59 million in net income or $1.78 a share. Last year, those pros generated $545 million in revenues that contributed $122 million in net income of $3.66 a share. Last year, the CME declared its first dividend of 63 cents a share, which has subsequently been raised to $1.04 today. This year, Wall Street thinks that CME will increase its net income to $4.95 a share and in 2005 the Street expects CME to earn between $5.62 and $6.55 a share.
CME has no debt, just 33 million shares out, a growing book value ($17) and a comfortable stash of cash. It came public at $25 in 2002 and has increased fivefold in value since. Because of the nature of its business and because of the continuous additions of new commodity trading products and because the CME is held in high esteem by the world financial community, I believe it will continue to grow its revenues and earnings at a good pace.
The nature of the CME’s business is resistant to uncertainly because its business is dependent upon economic and political changes in the world’s communities. Since there are institutions, corporations, government and people who need protection against the price changes created by uncertainties, the CME business model is a splendid fit.
CME enables a farmer to know exactly what his fertilizer costs will be next year, helps a home builder guarantee construction prices in nine months, permits a lender to lock in interest rates, enables big multinational companies to eliminate currency losses and assists portfolio managers to lighten account exposure and reduce a portfolio volatility.
I think the CME has splendid long-term potential. At this lofty price, I’ve got to assume that its board might call for a stock split.
There isn’t a hint of monkey business at the CME and the combined earnings of the chief executive officer and chief operating officer are under $4 million a year. The guys and gals who make up the board appear to be straight-up and candid folks. To the best of my knowledge, there’s no scalping, the clearing facilities are above suspicion, trading takes place only at designated hours, and the highest paid employee is Craig Donohue who is the CEO and earns $1.6 million a year.
But I would not be comfortable with the stock that has doubled in price during the last 12 months. And I would not be comfortable buying a stock that sells at 35 times earnings.
Looking at it another way, I would not be comfortable paying $4 billion to own a corporation that will have a net income of $200 million this year, which is just a 5 percent return. I can earn 6 percent with zero risks, so it doesn’t make good business sense to put money at risk and earn 5 percent.
If CME could fall in price to the $100-$110 level, I’d be a comfortable investor, but not at the currrent price.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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Dear Mr. Berko: I have several questions I hope you can answer.
Can you please explain in simple language why the stock market tends to fall when interest rates rise? And can you please explain why the price of a municipal bond will fall when interest rates rise?
I have two $10,000 face value municipal bonds that have a 28-year life and pay 4.5 percent. Should I sell those bonds? And if interest rates rise should I sell my stocks?
I bought about $121,000 of stocks last fall, which are worth $148,000 today. The economy seems good and it looks like Federal Reserve Board Chairman Alan Greenspan intends to increase rates because he thinks unemployment is too low and U.S. business profits are too strong.
Why would the stock market be so unsettled now if things look so good? Inflation is low and unemployment is just 5.5 percent and the market should be up.
I really need your help on what to do.
G.T.
Gainesville, Fla.
Dear G.T.: We must be a nation of pessimists. You say that the unemployment rate is 5.5 percent rather than 94.5 percent of all Americans are employed and you probably say that the glass is half-empty rather than half-full. I prefer the latter because it’s a positive statement. Odd and funny people, we!
The economy is gaining strength, worker productivity is impressive, corporate revenues and dividends are reaching record levels and job growth is strong. Yet the stock market seems to be in turmoil. The spoiler behind all this good economic news is Federal Reserve Board Chairman Alan Greenspan.
The stock market usually moves in inverse proportion to interest rates. Low rates reduce the cost of capital and increase corporate profits, so the stock market usually rises. Conversely, high interest rates increase the cost of capital, which reduces corporate profits and the stock market usually falls.
The cost of a barrel of oil has the same effect on the market. Low oil prices reduce the cost of conducting business (think of the airlines) while high oil prices increase that cost. If, during the past few years, we had low oil prices along with low interest rates, the stock market might have risen much higher much sooner.
Now to answer your municipal bond question. Let’s assume for illustrative purposes that in July 2003 you invested $10,000 in an insured municipal bond maturing in 30 years with a fixed coupon of 4 percent. This bond will pay you $400 in interest every year. Now let’s assume that it is July 2005 and because Greenspan has raised interest rates, a 30-year AAA municipal bond has a fixed coupon of 8 percent. Therefore, a $10,000 investment would pay you $800 in annual interest for 30 years. It wasn’t that long ago, under the aegis of Greenspan, that municipal bonds were yielding 10 percent.
When interest rates rise to 8 percent, the resale value of that 4 percent municipal bond will fall like an apple from a tall tree. No one of sane mind would pay you $10,000 for that 4 percent bond (which earns $400 in annual interest) when one can invest $10,000 and earn 8 percent, or $800 in annual interest. So the resale value of your 4 percent bond must fall to a point where an investor can earn today’s current rate of 8 percent. Therefore, this bond will drop in value to $5,000 because 8 percent of $5,000 earns $400 in interest income. If the buyer wanted to earn $800 in interest income, he could purchase two 4 percent bonds at $5,000 each or one bond paying 8 percent.
I think your 4.5 percent municipal bond in today’s market, even though it’s tax-free, is patently ridiculous. And I’d sell those two bonds quickly. Don’t look back, just do it.
You have a dandy portfolio of pale-blue chip issues that should provide you with better-than-average long-term dividend and principal growth.
But to sell or not to sell, is that not the question? Issues like Synovous, Developers Diversified, Royal Dutch, Kaneb Pipeline, ConAgra, Plains All American, Sara Lee, Pfizer, Citigroup, Anheuser-Bush, Staples, Colgate, Bank of America, Family Dollar and others, which you bought in the fall of 2003 at lower prices should be lifetime keepers.
Each has superb dividend growth, excellent revenue growth, dependable earnings growth and they trade at compelling and attractive price-earnings ratios. I would consider it blasphemous to sell a single share of those issues.
Markets like to anticipate events and I think the Dow has factored in at least one rate increase, maybe two into the current averages. After all, the Dow is still in negative territory for 2004 so in some cases, it is too late to sell at top dollar.
The real question is: How many more times will Greenspan raise rates and how quickly will he raise them?
Greenspan tells us that rates will rise gradually, but I trust his word about as much as a lab rat should trust a research biologist. Many of us recall 1994 when Greenspan promised a gradual increase in interest rates. Ha! In 11 months he raised rates from 3 percent to 6 percent, the bond market plunged and the Dow got all wussy.
Either way, the bond market and the stock market will always do what it is expected to do but never when they are expected to do it. If Greenspan acts in the future as he has in the past, then I think the Dow may be in for some rough riding.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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Dear Mr. Berko: I’ve been thinking about buying 300 shares of Dell Computer again. I recall a few years ago, when Dell was trading around $55-$57, I wrote and asked if I should buy 200 shares. You almost bit my head off while telling me, “No!” Well, I’m back with the same question now that the stock is 20 points lower. Do you think this is a good entry point for the stock?
B.E.
Fort Walton Beach, Fla.
Dear B.E.: During the past month, I’ve received an enormous amount of mail asking if now is the right time to buy Dell Computer. I remember your letter of a few years ago. I’m sorry I was a bit rough, but I felt that was the only way I could get through to you. And as you can imagine, most papers would not have printed many of my comments, some of which may have sounded like blasphemy.
However, I still think Dell Inc. (DELL-$37) makes a fabulous computer. But I’m going to tell you a little secret. Dell’s computers, for the average Joe and Jane, aren’t any better than a Compaq, E-Machine, Apple or Gateway. Oh, certainly the spacey geeks and myriad emotional Dell-Heads will go ballistic with indignation. However, for 99 percent of us the difference between a Dell and the others is like the difference between a Ford, Chevrolet or Chrysler. You plug ‘em in the same way, their keyboards are almost identical, the insides are similar and each takes you where you want to go.
In fact, Dell kind of reminds me of the automobile companies, the stocks of which are about as exciting as watching summer reruns of “The Waltons.” Dell will continue to grow its revenues and earnings but it’s basically a mature company.
The shares currently trade at a 35 price-earnings ratio, which, in my opinion, is too high by half. Its net profit margins are faltering (from 8 percent a few years ago to 6.2 percent this year) and return on shareholder’s equity has crashed from 52 percent a few years ago to an expected 38 percent this year. Those are still good numbers, but as those numbers came tumbling down so did Dell’s P/E from a high of 74 a few years ago.
Margins in this industry are laser thin and Dell is cutting corners to squeeze costs into profits. But so are Gateway, Hewlett Packard, Apple, etc. However, Dell is going a few steps farther and toilet training the U.S. consumer to accept inferior service. The next time you need Dell’s customer service you’re gonna ring a call center 12,000 miles away and speak to someone in India who will respond to your question by reading the answers from a prepared text.
But Dell’s big problem in a few years will be competition from Korea, China, India, Malaysia and Taiwan. Just as the Asians have toppled the Big Three automakers from their sacrosanct ivory-tower kingdoms, they will enjoy similar successes knocking Dell, Apple, Gateway, etc. from their pinnacles of power. As sure as God makes sweet, red strawberries, the current $36 share price, down from the high $50s a few years ago, reflects that uncertainty.
Still, Dell’s next few years appear quite sanguine. The company’s high-margin products - such as servers, storage and notebooks - continue to gain momentum. Dell’s low-cost, direct sales are hurting its competitors. And Dell’s push into consumer electronics seems to be having some initial successes.
So Dell’s interim prospects look bright and top-line growth should respond quite favorably. Revenues could increase about 45 percent from this year’s $48 billion to $71 billion by 2008 and earnings may increase as much to $2 a share. But in my opinion, Dell is not worth 35 times earnings, which would put its share price at $70.
While demand for computers will continue to grow, I believe that the power behind this demand will be fueled and driven by new technological innovations in personal computers and laptops. So be mindful, that while Dell is an innovator in the manufacturing and selling process, the company does not have the technological experience or strength to take its products to the next generation. So, this time, I will very nicely tell you that Dell doesn’t ring my bell.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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Dear Mr. Berko: I bought 1,000 shares of Delta early last year at $7.25 and sold it a couple months later at $12.50. I bought it again in August at $10 and sold it at $14.75. I think Delta has a good chance of pulling out of its slump and I’d like to roll the dice again.
This time, I’m thinking of buying 2,000 shares. The first 1,000 shares I would keep long-term and wait a year or two for the company to completely recover and the second 1,000 shares I’d like to buy at $6 or $7 and sell when I can make three or four points. Could I please have your thoughts?
W.E.
Oklahoma City
Dear W.E.: Delta Air Lines Inc. (DAL-$6.50) has a chance of survival but it’s a small chance and I’m not sanguine about its future. In fact, Delta recently engaged Davis Polk & Wardwell, a prestigious bankruptcy firm based in New York, to help it explore options.
By the end of this year, DAL will have lost almost $4 billion and will have laid off more than 16,000 employees. The airline has just enough cash to last it through the summer and it looks like the rats are leaving a sinking ship.
So far this year, DAL’s chairman and chief executive officer, Leo Mullin, bailed out, Frederick Reid the president and chief operating officer jumped overboard and then Michele Burns, the chief financial officer, pulled up anchor. Adding insult to injury, Delta’s chief labor negotiator, Terry Erskine (a man of legend status and considered the most capable, knowledgeable and respected in the industry), stopped rowing and pulled in his oars.
According to sources close to Erskine, union work rules and wage demands border on the zealotry of suicide-bombers. It seems that DAL pilots, many of whom receive Air Force pensions, are the most intransigent of all. Many are making $300,000 a year plus benefits and their union is as flexible as a brick. Delta’s pilot expenses are the highest in the industry. However, excluding their salaries, DAL’s cost structure is competitive among major airlines and actually is improving.
Delta may survive. If it does, it will survive as an injured carrier in need of a lot of rehabilitation. DAL’s rehab will require a Herculean effort and even then I’m not confident it will be half as healthy as before.
Delta’s pension obligations are intensifying, placing the carrier several hundred million dollars in the hole. Its onerous debt load of almost $13 billion and its $300 million of preferred stock hangs on DAL’s neck like an anvil. Low-cost carriers like Jet Blue, Southwest and Air Tran are eating DAL’s lunch and enjoying seconds.
Because you “like to throw the dice,” I won’t tell you not to purchase 1,000 shares of DAL. But when the honchos in the executive suite bail out, that’s a message you should read a bit more thoroughly.
If DAL survives I doubt it will survive in its present form. The business models and operations manuals of large carriers like American, United, USAir, etc. are almost prehistoric (at least pre-cellphone days) and are akin to using watered-down, low octane gas in an engine that needs super, high-octane fuel. So these carriers will just sputter and sputter until they finally are forced to fold their wings and follow Eastern, Pan Am and Braniff into airplane heaven.
Delta could have a couple of temporary spikes in its share price and you may shill a few points from its $6.50 price, but I think there are better birds in the sky or finer fish in the sea on which to “take a shot or drop a hook.” Delta, American, etc. are relics that belong in the Smithsonian. There is a new breed of carrier that could be putting the old guard out of business.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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