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  • Why I Said Goodbye To Lorillard, Inc. [View article]
    As previously stated in another post, the FDA is not free to do anything that it wants to do.

    The Act specifically prohibits the FDA from banning cigarettes and certain other tobacco products: "Because of the importance of a decision of the Secretary to issue a regulation—
    (a) banning all cigarettes, all smokeless tobacco products, all little cigars, all cigars other than little cigars, all pipe tobacco, or all roll-your-own tobacco products; or
    (b) requiring the reduction of nicotine yields of a tobacco product to zero,
    the Secretary is prohibited from taking such actions under this Act."

    So, the FDA cannot ban Marlboro cigarettes per se. But it can regulate what additives, if any, are permitted to be put into Marlboro cigarettes by Altria.

    Note that all other flavorings, spices, etc., were specifically prohibited by the Act, except menthol, and even as to menthol, the Act makes clear that it could be regulated ("Beginning 3 months after the date of enactment of the Family Smoking Prevention and Tobacco Control Act, a cigarette or any of its component parts (including the tobacco, filter, or paper) shall not contain, as a constituent (including a smoke constituent) or additive, an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pine- apple, vanilla, coconut, licorice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke. Nothing in this subparagraph shall be construed to limit the Secretary’s authority to take action under this section or other sections of this Act applicable to menthol or any artificial or natural flavor, herb, or spice not specified in this subparagraph.").

    Regarding your comment that "no regulatory body has ever been able to operate with such tyrannical freedom," have you had any dealings with the EPA since 2009?

    As for any requirement that the FDA show or prove "disproportionate harm," there is no such legal requirement, to my knowledge. In any event, the FDA in its PSE signaled that the presence of menthol posed the likelihood of "a public health risk above that seen with nonmenthol cigarettes."
    Feb 20 04:41 PM | Likes Like |Link to Comment
  • Why I Said Goodbye To Lorillard, Inc. [View article]
    Mr. Neil Wilcox, Chief Compliance Officer, is in the same camp. He announced at the LO CAGNY conference presentation before a group of analysts that he thought that there would be "no action on menthol for some time to come."

    Mr. Wilcox spoke respectfully of Mr. Mitch Zeller, Director of the FDA's Center For Tobacco Products. He characterized Mr. Zeller as fair, but "no friend of tobacco." And if you read some of Mr. Zeller's public statements, you will come away with the belief that he is extremely concerned about youth smoking and the mortality and disease associated with tobacco products, especially cigarettes. His recent appearance on the Diane Rehm show, which can be accessed here, provides some degree about his thinking on the issues of initiation, addiction, and cessation. For example, "any initiation of any tobacco product, combusting or non-combusting, by a kid is bad for society and bad for public health.” And also this, “The [WHO] report is a clarion call that the real harms are associated with the use of the combusted products and principally cigarettes. I think the challenge for all of us, regulators, other policymakers, educators, advocates is if cigarettes remain the fundamental cause of so much of the death and disease associated with tobacco use, what can all of us do to try to drive down the death and disease rate principally from cigarettes?” Well, one answer is fairly obvious.

    The energy directed towards menthol is nothing short of unbelievable. If you peruse the research papers at this one location, it appears that the reports stacking up against the industry are not favorable (

    For an example of how the industry is perceived by the courts, download and read the Sixth Circuit's opinion in the Discount Tobacco City case ( The courts are not going to be inclined to cut the industry any slack if the FDA dots the i's and crosses the t's.

    The Act prohibits the FDA from banning all cigarettes. But it expressly grants authority to regulate additives like menthol. It is difficult to believe that if the focus stated in the Act is on youth, initiation, and cessation, and if the data on these issues with reference to menthol is true, that the FDA won't use its regulatory discretion to chip away at this segment of the market.

    I'm not rooting for the ruination of LO, or any other company in the industry. I'm like a poker player sitting at the table, watching the cards that get dealt and assessing the risk that the guy across the table has a full house that is going to beat my pair.

    Good luck to all!
    Feb 20 01:26 PM | Likes Like |Link to Comment
  • Why I Said Goodbye To Lorillard, Inc. [View article]
    The FDA seemingly has evidence to support the "considerations" it is supposed to take into account (risk & benefits to the population, initiation, cessation) in promulgating a tobacco product standard concerning menthol. Query whether this evidence will be deemed "scientific evidence" by a reviewing court.

    The tobacco industry has signaled that it does not think the evidence or the PSE issued by the FDA is "scientific." What constitutes "scientific evidence"? Is it sufficient that scientific methodologies were used? Or does a study have to be peer reviewed and published?

    It is likely that the FDA will be careful to take steps to refute the contention that they relied on "unscientific evidence." However, it is interesting to note that the FDA does not have to create any evidence; all that is required by the Act is that they consider "scientific evidence" concerning 3 end points. To the extent that this evidence exists, and to the extent that the FDA shows that it "considered" it, then they "may" adopt a tobacco product standard. It would appear that the FDA has considerable discretion under the Act.
    Feb 19 03:24 PM | Likes Like |Link to Comment
  • Why I Said Goodbye To Lorillard, Inc. [View article]

    Thank you for your comment.

    One of the cases you mentioned, R.J. Reynolds Tobacco Co. vs. FDA, decided in 2012, is an important case that demonstrates that the FDA can overstep its authority.

    In Reynolds, the issue of certain “graphic warnings” proposed by the FDA ran headlong into a violation of free speech under the First Amendment. The D.C. Circuit Court of Appeals handed down a 2-1 decision that ruled that the FDA’s proposed graphic warnings were a “dramatic expansion of existing health warnings” that constituted government compelled speech in violation of the First Amendment.

    In addition, and most importantly, is that the FDA failed to produce any evidence, much less substantial evidence, that the graphical image warnings it proposed would cause a reduction in smoking. There was a total failure of proof in this regard.

    When all was said and done, this was the FDA’s undoing. They simply failed to offer any evidence that the graphical warnings were likely to reduce smoking rates. “The FDA’s Regulatory Impact Analysis essentially concedes the agency lacks any evidence showing that the graphic warnings are likely to reduce smoking rates… . [The] FDA failed to present any data - much less the substantial evidence required under the APA - showing that enacting their proposed graphic warnings will accomplish the agency’s stated objective of reducing smoking rates.”

    The FDA did not have their ducks on the pond “evidence-wise” in Reynolds. It is my belief that they will not fall into this trap again if they decide that menthol should be prohibited.

    It is interesting to note that the Sixth Circuit Court of Appeals reached the opposite result in another case, Discount Tobacco City et. al. vs. U.S., also decided in 2012. The Sixth Circuit upheld the FDA’s graphical warnings as constitutional. The tobacco companies pressed the same arguments in this case that they used in the Reynolds case before the Second Circuit. The case perhaps illustrates the deference that courts grant to an agency like the FDA when armed with Congressional authority.

    I agree that the FDA is not free to do anything it wants. But if they base their regulation on "substantial evidence," whatever they do is likely to stick, especially if the point is to achieve one or more purposes of the Act.
    Feb 17 06:15 PM | Likes Like |Link to Comment
  • Why I Said Goodbye To Lorillard, Inc. [View article]
    Maybenot and other commentators,

    Thank you for your comments.

    My attachment to LO goes back many, many years. I first acquired my stock back in the days of the old "Carolina Group" tracking stock that was issued. Long before that, however, my great uncle served as Vice-President of Manufacturing for P. Lorillard, and was responsible for establishing LO's primary manufacturing plant in Greensboro, N.C. It was not without a lot of thought and research that I decided to liquidate my position in LO.

    Before publishing this article, I considered that many would think that it was "alarmist" or "extreme." To those who so concluded, I recommend that you do what I did: (1) First, carefully read and understand the provisions of Family Smoking Prevention and Tobacco Control Act; and (2) dig into the actual studies concerning menthol considered by the FDA in its preliminary report.

    As a lawyer with 42 years experience in medically related matters, I have an appreciation for the conclusions reached by the FDA in their preliminary report. I particularly have an appreciation of the broad grant of authority given to the FDA by Congress in adopting the Family Smoking Prevention and Tobacco Control Act in 2009. This express grant of jurisdiction to regulate tobacco products stemmed from the U.S. Supreme Court's decision in FDA v. Brown & Williamson Tobacco Co., 529 U.S. 120 (2000), in which the Supreme Court declared that the FDA lacked jurisdiction to regulate tobacco products. The Act cures that problem.

    The statutory grant of authority is broad. The Secretary of HHS is given discretionary authority to promulgate a regulation, including a tobacco product standard, under the Act. The Secretary “may” adopt a tobacco product standard (i.e., no menthol additives) if the Secretary “finds that a tobacco product standard is appropriate for the protection of the public health.” In making such a determination, the Secretary is to consider scientific evidence as to the risks and benefits to the population as a whole; the increased or decreased likelihood that existing users of tobacco products will stop using such products; and the increased or decreased likelihood that those who do not use tobacco products will start using such products.” Note that the Secretary does not have to find that mentholated cigarettes are more toxic or injurious than nonmentholated cigarettes.

    As a legal matter, the express grant of authority given to the FDA is significant. This being the case, the Courts will give great deference to the FDA’s decision. The chances are good that whatever decision is reached by the FDA will stand. As stated by the Supreme Court in FDA v. Brown & Williamson, “Such deference is justified because ‘[t]he responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones… and because of the agency’s greater familiarity with the ever changing facts and circumstances surrounding the subjects regulated.”

    Again, thank you for your comments and interest.
    Feb 16 03:26 PM | 1 Like Like |Link to Comment
  • Market Outlook - Jumping Hurdles [View article]
    No one has a crystal ball... but I don't think this one is over yet. In fact, I don't think this one is anywhere near over. If history is any guide, we face a terrific correction, and a brief rebound is characteristic of a market that is geared for a substantial drop.

    For those that doubt the lessons of history, take a look at Chris Ciovacco's recent article and the charts included therein at

    The pattern of a "fall" followed by an "upturn" followed by a "plunge" seems to be written into the script.

    The cautious investor will be thinking, "I've seen this movie before."

    The market's ills still stand uncorrected from where I sit. For example, the Schiller PE is just a smidgen under 25, well above it's median and mean; price-to-sales still stands at 1.6, well above its mean and just below the 1.8 level seen in 2000; and the parabolic rise in the market we saw in Dec.-Jan. is a scary reminder of what can happen before a plunge occurs.
    Feb 10 10:20 AM | 1 Like Like |Link to Comment
  • New York Community Bancorp's Share Price Is Up 25% This Year - Why Is Short Interest Up Nearly 50%? [View article]
    There is a lot to keep your eye on when it comes to NYCB:

    1. The declining trend in net interest margin.

    2. The impact that rising interest rates will have on net income. The 2012 10k reported that NYCB had a negative interest rate sensitivity gap of 3.69% as of year-end 2012. They went on to say that a negative gap in a rising rate environment would produce a decline in net income. Query what the sensitivity gap is as of year-end 2013. It is noteworthy that 2 analysts reduced their EPS estimates for 2014.

    3. NYCB has candidly admitted that it has grown through acquisitions. That may not be so easy to do under Dodd-Frank. The regulatory costs and regulatory risks associated with Dodd-Frank cannot be expected to enhance NYCB's bottom line, IMHO.

    4. A market downdraft will not help things (e.g., March 2009).
    Feb 9 01:53 PM | Likes Like |Link to Comment
  • New York Community Bancorp's Share Price Is Up 25% This Year - Why Is Short Interest Up Nearly 50%? [View article]
    A cruise through NYCB's 10k for 2012 reveals a stunning array of governmental laws and regulations to which NYCB is subject. Not the least of these is the fact that Dodd-Frank is lurking just over the horizon.

    The 10k states that NYCB anticipates that it will cross the $50 Billion asset threshold either through organic growth or through an acquisition. When this happens, Dodd-Frank will kick in.

    The 10k lists this as a "risk factor" that could affect the company: "Pursuant to the requirements of the Dodd-Frank Act, the FRB has proposed rules applying stricter prudential standards to bank holding companies having $50 billion or more in total consolidated assets. The stricter prudential standards include risk-based capital and leverage requirements, liquidity requirements, risk-management requirements, annual stress testing conducted by the FRB, credit limits, dividend limits, and early remediation regimes."

    Any way you cut it, NYCB is going to be covered by Dodd-Frank, and will be hampered by gosh only knows what in the way of oppressive regulations, controls, and limits. This could include a cut in NYCB's dividend for any number of reasons.

    My bet is that the shorts are thinking (1) if a "correction" in the market, or (2) a slowing economy, doesn't get NYCB, then Dodd-Frank will.

    The stock has come down 7.1% since January 28, just before 4Q results were released. Stay nimble.

    Feb 8 02:16 PM | Likes Like |Link to Comment
  • Hess, Whiting Petroleum, Marathon Oil fined for crude-by-rail violations [View news story]
    More government with their boot on the neck of everyone through "regulations" put into effect by gosh knows which agency.

    If the government prevails, where does the money go? Down the drain, as usual? And who does the "paying"? The shareholders? The ultimate consumer?
    Feb 5 04:29 PM | 2 Likes Like |Link to Comment
  • Lorillard: Doing Everything Right But Still Facing Troubles [View article]
    I agree with arthur_bishop1972: "The only relevant topics for LO (and its investors) right now are the possible regulations on e-cigs and menthols, specifically how drastic they will be."

    And I also believe the handwriting is on the wall. By this I mean that the anti-smoking crowd and the FDA are going to act in concert to eventually abolish all tobacco related products in the USA come what may. If you go to the FDA site on tobacco, and read the submissions there by various parties, it is difficult to come to any other conclusion.

    Their efforts to date have not been without some degree of success. The data on the decreasing number of smokers is evidence of their efforts. And now that the FDA has explicit authority to REALLY go after smoking and tobacco usage, it will crank up the "regulatory machine" in a manner that will make past efforts pale by comparison.

    The FDA is seeking regulatory authority to bring e-Cigs under their "tobacco jurisdiction." Local governments are already passing ordinances banning the use of e-Cigs. The FDA can be expected to (1) ban menthol and other flavored tobacco products (the ostensible basis will be that they are a gateway to smoking by youth); (2) further curtail smoking by any means possible; (3) further curtail smokeless tobacco usage; and (3) severely curtail e-Cigs usage as a health hazard.

    I am not a smoker or a tobacco user. I own, and have owned, LO, MO, and RAI for years. I hate to see these companies leave my portfolios, but I fear that they cannot overcome the destructive regulatory tsunami that is coming their way.
    Feb 5 04:20 PM | Likes Like |Link to Comment
  • John Hussman: Pushing Luck [View article]
    It looks like what John Hussman has been trying to tell us is coming to pass before our very eyes!

    Fortunately, I started listening in earnest in December, and started building cash in all but one of my portfolios.

    I want to thank John Hussman for his excellent work. His efforts to inform investors as to the overvalued, overbought state of the market have been exemplary.
    Feb 3 03:28 PM | 1 Like Like |Link to Comment
  • Lorillard: A Strong Tobacco Company Poised To Dominate The Growing E-Cigarette Market [View article]
    An interesting commentary regarding "combustible tobacco" and e-Cigs was published in the New England Journal of Medicine, and can be viewed at

    The author states the "combustible tobacco" is the "chief killer" among the various forms of tobacco products. He goes on to point out that e-Cigs, as a non-combustible nicotine delivery device, is substantially less dangerous than combustible tobacco. Indeed, it may offer a pathway for those who have been unable to quit smoking to quit.

    The strategy of anti-tobacco groups is to eliminate combustible tobacco products from the marketplace. They will then turn their focus towards eliminating nicotine delivery in all forms, which will include e-Cigs.

    The eventual impact of these efforts on tobacco companies seems fairly clear. Absent diversification away from nicotine delivery devices of all kinds, these companies may face difficult times in the future due to government regulation that seems certain to follow.
    Jan 24 10:23 AM | Likes Like |Link to Comment
  • Alaska coastal oil drilling challenge revived by court [View news story]
    Once again the Red Brigade, masquerading as something "green," and assisted by the little Caesars in black robes, manages to stop progress dead in its tracks.
    Jan 23 11:29 AM | 1 Like Like |Link to Comment
  • FDA Could Send Lorillard Shares Up In Smoke [View article]
    Yep, on all counts.

    We are basically a "nation of followers." We have become content to let the government dismantle and destroy our personal liberties inch by inch, without resistance. Can you imagine a greater usurpation of liberty than Obamacare? Can you imagine what our founders would say if told that we have allowed our government to dictate to us what healthcare we can, and cannot, receive? What health insurance products must be offered by private companies, with all other products outlawed? Indeed, is there any aspect of our lives that is not regulated in some way by government?

    Ponder, if you will, this passage from the Declaration of Independence:

    "[A]ccordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security."

    We have proven that we are "disposed to suffer" rather than "right ourselves" by abolishing the oppressions and restrictions imposed upon us by government.

    But have we not reached a "long train of abuses and usurpations" in America?

    IMHO, the answer to that question is obvious. We are in a helluva mess in this country thanks to the political elite.
    Jan 18 03:20 PM | 2 Likes Like |Link to Comment
  • FDA Could Send Lorillard Shares Up In Smoke [View article]
    In addition to the FDA threat, LO is also threatened by the onset of regulations being adopted by several government entities prohibiting e-Cigs. If the FDA opts to severely curtail mentholated cigarettes, and if the regulatory tide against e-Cigs continues to grow, what will the impact be on LO? That's a rhetorical question. We all know that LO has a lot of its eggs in the "menthol basket," and a lot riding on e-Cigs.

    Chicago is the most recent example of a city that has decided to discourage e-Cig use by prohibiting usage. This may well reduce demand for LO's leading product in the e-Cig category. See

    I'm not a smoker. And I don't use e-Cigs. But how can a person's use of e-Cigs possibly be harmful to others?

    The short answer is that it cannot. But the little dictators in Chicago and other places have decided to ban the use of e-Cigs where tobacco consumption is prohibited because "it sends the wrong message." Frankly, I think that a bunch of politicians have no business involving themselves in what seems to be a matter of personal choice. Some would no doubt ban nicotine outright. Would caffeine be next?

    The music group Buffalo Springfield said it best:

    "I think it's time we stop, children
    what's that sound
    everybody look what's goin down…"
    Jan 17 10:11 AM | 1 Like Like |Link to Comment