TAL Money Memo 4-28-09: A Non-Coffee Coffee Break
"Between two evils, I always pick the one I never tried before." Mae West
Andrew Cuomo, in a letter to Congress, wrote that in an interview with his Office, in early 2009, former Secretary of the United States Treasury Paulson largely corroborated Bank of America CEO Ken Lewis's account that he was blackmailed into finishing the merger with Merrill Lynch. (Reported by Henry Blodget, April 23, 2009.)
1. Another Mystery Dept: It was a dark and lonely night in late 2008. "Heavy Henry" Paulson leaned into Bank of America CEO "Square Pants" Ken Lewis, and said, You's goin' tru wid dis Merrill deal or my boys'll rub you and your board out, see?Square Pants whimpered and said, But, but there's been a Material Adverse Change in Merrill. They're broke. I don't want to buy them. My North Carolina Boys would be displeased. You can't make me.
Heavy Henry leaned in further and repeated: You's buyin' em. Stan O'Neal loaded em up wid CDOs, and got away clean. Thain will rig da bonuses good. Tings is good. Buy em, and der's TARP money for all of you… or you all git di ax.
Golly Gee, that deescalates things. I guess I can do it, said Square Pants.
2. Blodget also reported that Secretary Paulson told Cuomo that the threat was made at the request of FED Chairman Bernanke.
So, the Godfather goes into public service. Start with a former Treasury Secretary who threatened Congress with martial law to get TARP passed back in September. And Paulson says he was intimidated by an even meaner guy, "Huevos Bernanke," into committing several violations of Federal law. Paulson is trying to pin this on a FED Chairman who looks like Elmer Fudd? I don't know whether to laugh or cry. Time to run away from the big banks. The financial oligarchy is on display for all to see: http://www.theatlantic.com/doc/200905/imf-advice. Run away.
If I were a Bank of America borrower I'd be looking for another bank ipso pronto. Why would I have a relationship with a bunch of guys that have ducked all semblance of courage or shareholder responsibility. Ken Lewis had already taken millions home from his bank. And he caved so he could steal more? Find me a Japanese bank or a credit union, or a good mattress. Enough!
My Coffee Story
ENOUGH WITH THE FINANCIAL NEWS which is becoming increasingly bizarre. Ordinarily, I would run screaming away from my computer and hit the coffee machine. But I'm currently having to give coffee the quits because my liver has resigned from coffee detox duty. I'm just a TRIFLE ornery this week, and the good news is I haven't bitten anyone yet. Instead of coffee, I have a coffee story:
Back in November, 1985, I read about a drought in Brazil, the biggest coffee growing nation. Since I worked for Dean Witter at the time, I had stockbroker thoughts in the shower: "Ok, drought in big coffee country… coffee prices should go up. So? What companies would benefit?
Then I thought, who were the coffee drinkers? How old were they - mostly older people. Hey, maybe someday the then relatively young boomers (sigh) will decide to cut back on their milk, soft drinks, and KoolAid. And if that happens, the "youts" will move on to coffee Coffee has zip, lots of pickme uppums, and panache. There are coffee houses all over Europe, I'd been in many of them. There weren't many in the U.S. but I thought that could change. (Starbucks was founded in 1985, but Howard Schultz's baby was just a Seattle company then. Names like Seattle's Best, Caribou, and Coffee Bean were all just gleams in some promoter's eye then.)
At work, I looked in the S&P and Moody's books that my brokerage office had -back in the days when brokers used such things. Most of the big name coffee companies were owned by conglomerates. Maxwell House was owned then by General Foods, now by Kraft. Hills Brothers, and Farmers were also owned by big outfits. And several other coffee makers were privately held.
Who else? Aha, Chock Full o' Nuts! They sold beans, they had coffee shops, they'd been in business around New York City for decades. Their balance sheet was good. They were profitable, and the stock was selling between $6 and $7 a share, the kind of low price that retail custmers like.
So I worked the phone calling my "book," and in a week or so, I'd built a big position (for me at that point in my career) of maybe 9,000 shares of Chock. Then I did more thinking in the shower. (Einstein used to ask, "How come my best ideas come in the shower?") How can I generate some publicity for this company to "help" the price rise from my average cost of about $6.50 a share?
Bingo. I wrote a letter–to Louis Rukeyser at Wall Street Week, the first and best TV show that actually made Wall Street understandable to the public. Wall Street Week drew 10 million viewers a week in those days. My January 21, 1986 letter read as follows:
Dear Sirs:
I've read about the drought affecting the coffee growers in Brazil, and about the coming coffee prices increases. It's not my cup of tea to sit on the sidelines when investment ideas are brewing. I wonder if one of your panelists can get me in on the "ground" floor for some percolating profits in coffee companies.
Yours truly,
Ok, so it was full of puns, the lowest form of humor. I knew Rukeyser loved puns and would prefer to read a punny letter to a dull one anytime. I signed my name to the letter, and took it in for my manager to sign. ALL outgoing stockbroker correspondence had to be approved by the manager. Denny initialed my copy, and I mailed it. I had neglected to mention my occupation in the letter. Why create suspicions with the nice public television people.
February 7th, 1986, Rukeyser looked into the camera and read my letter out loud…then laughed and said, "Mr. McGowan, go to your room." (I saw the show and I have the transcript they sent me right here. That's what he said, honest.)
He lobbed the inquiry to Bill Gross, whom you may have heard, is a BOND guy, running the world's largest bond fund.
Bill looked into the camera and repeated my research about coffee being part of big conglomerates as if I'd handed it to him from an S&P Bible, and then went on to say, "I'd probably specialize and go with some smaller purer plays in the market place. Chock Full o' Nuts would be a good example. There's also Sara Lee, that has a European subsidiary that wholesales coffee too. (In fact, Sara Lee bought Chock in 1999, but that was long after my story.) Wall Street Week had just mentioned Chock Full o' Nuts to 10 million investors!!
God Bless you, Lou.
On the Monday after the show, Chock climbed to $8.50. On Tuesday, it hit $10 on increasing volume. On Wednesday, it reached $12. On Thursday, on huge volume, which I no longer remember, something like 10 times the volume back in November, the stock got to $14 a share. I sold all of my shares, and crawled under my desk to wait for the SEC.
They never came. My manager dropped by, winked, and congratulated me on having a good week, but the compliance authorities were a total no-show.
And I realized, I'd done nothing that mobs of other money managers hadn't done in the 
history of Wall Street: Build a position, create some buzz, sell out, and shout "Next!"
history of Wall Street: Build a position, create some buzz, sell out, and shout "Next!"Welcome to the world of Oliver Stone's Wall Street, and to Boiler Room. But in a good way for my customers… For two years afterward, one guy asked me if I had another one of those "Chock Full o' Nuts deals."
It's all in how you look at it. Please feel free to have a cup of coffee to think about the broader implications of my story.
I can't. Herbal tea anyone?
Michael McGowan,
The Financial Foghorn, and author of
"Financial Foghorn's Guide to Gold–
Get Rich, Get Happy, and Get to Heaven
with Monetary Metals."
PS. I wouldn't own a bank stock on a bet. That includes BAC. Nor do I own KFT, or SBUX. Chock is now owned by a private company, Massimo Zanetti.
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