Losing an Intellectual Giant: Dr. Roy Menninger

Dr. Roy Menninger

By Michael Hooper

Dr. Roy Menninger, 97, an intellectual giant, former CEO of the Menninger Clinic, died Thursday, Oct. 24, 2024, at Stormont-Vail hospital. 

Dr. Roy is perhaps the wisest, most respected man I have ever interviewed, a person with a history of improving and shaping psychiatry in our world. He was a highly accomplished CEO, who worked with some of the finest minds in psychiatry as president of the Menninger Clinic from 1967 to 1993.

I met Dr. Roy Menninger around 2001-2002. I was writing stories for the Topeka Capital-Journal about the Menninger Clinic’s impending departure from Topeka. Dr. Roy talked about the difficult financial challenges facing Menninger after managed care changed the amount of money that clinics could charge customers. In the old days Irving Sheffel said they would bill the insurance companies for the cost of care and the insurance companies paid it. But that changed. 

Fundraising became increasingly important. There was a professional fundraising staff, but sometimes the potential donor wanted to meet with the top leader.

One of the many fascinating people Dr. Roy met over the years was a donor from Los Angeles, her name was Liliore Green Rains, an heiress to an oil and land-development fortune from her father, Beverly Hills developer Burton Green. Dr. Roy befriended Mrs. Rains. She gave smaller amounts to the Menninger Foundation. 

Dr. Roy and his wife Beverly visited Mrs. Rains in her lovely home filled with many pieces of art in Los Angeles. Dr. Roy gave her confidence that her gifts would help people suffering from mental illness. After she died, Mrs. Rains left $40 million to the Menninger Foundation. That gift benefited the organization for many many years.

The Menninger Clinic started in Topeka in 1925 and employed more than 1,000 employees before leaving in 2003 for Houston.

Like others in Topeka, I was sad to see the Menninger Clinic move away, but it seemed that Dr. Walt Menninger, then president, and Dr. Richard Munich, then chief of the medical staff, wanted the organization to be tied to a top-tier university system that would support education and research. The clinic in Houston partnered with the Baylor College of Medicine, creating its Menninger Department of Psychiatry and Behavioral Sciences.

How we view mental illness today is in large part due to the efforts of people like Dr. Roy Menninger and his father Dr. Will Menninger, his uncle Dr. Karl Menninger and Dr. Roy's grandfather Dr. C.F. Menninger. The treatment of mental illness is no longer a taboo thing or something to be hidden or something that we should be ashamed of but rather it’s something we should actually have compassion toward and open our hearts toward helping people suffering from these illnesses.

Dr. Roy said something recently that was really profound. Menninger provided training in therapy to every employee, and that included the grounds keepers, cafeteria workers, and housekeepers. All of these people, along with the professional staff, combined together to help reduce tension and increase healing. 

“ I think it’s what made us unique,” Dr Roy said.

"I particularly appreciated your reference to Drs. Karl, Will  and CF," Dr. Roy wrote to me. "Though I am happy to take some credit for the institution's progress after 1967, in truth, in a very essential way, my  working philosophy was rooted in  the values and perspectives of my forebears. My views were encouraged and nurtured by the intellectual excitement and the satisfactions of  all those working there, which was a consequence of widely shared values – our appreciation of the worth and integrity of every person, staff as well as patients, the impact of the mutual teaching and learning on all of us, and the vision that our work was effective and valued by both patients and staff. I think it was a rare environment. Given the current constraints on both time and money, it is hard to see how a world like that one could be created or even sustained now. And that is a sad fact. The consolation, at least for me, is the realization that the values that infused our world persist in the lives of those we helped and the helpers who helped them."

He wrote a paper recently describing his history in psychiatry. 

Dr. Roy had great patience. He was willing to sit down and talk to some of the most difficult patients, including a schizophrenic patient who was catatonic. He sat with this patient every day for several weeks during his residency in Boston. Sometimes he would just read the newspaper to her. And during that time he only got one real acknowledgment or response, she lifted her finger. His patience with this person shows the real heart of a man, not a machine, but a man with compassion and empathy, even in the face of few results.

I last saw Dr. Roy on Oct. 9. He was lucid, wise and thoughtful, a great listener and curious about everything. He was in book club where he listened often and spoke infrequently, sometimes not at all, but when he did speak, he was articulate, perceptive, and thought provoking.

Dr. Roy touched and inspired many lives. May he rest in peace.

Here is a link to his obituary

Investor Opportunity: Casey's General Stores Grows in Texas

By Michael Hooper

I recently added to my position in Casey's General Stores (CASY) even though the stock is near historic highs.

I learned, over 30 years of investing, to sell the losers and buy more of the winners. CASY stock has been a winner for many years. I started buying the stock in spring 2020 during the Covid stock market crash. 

Casey's stock is up 42% year-to-date and up 133% over the past five years. The stock closed Friday, Oct. 18, 2024, at $390.15 per share.

Recently I've been watching the company strategically plan and grow in Texas.

Casey’s is acquiring Fikes Wholesale with 198 retail stores and a dealer network. Most of those stores, 148, are in Texas. The $1.15 billion acquisition will close by year’s end. 

A year ago, Casey’s had made its first move into Texas with the purchase of 22 Lone Star Food Stores. The Fike’s deal also includes 50 stores in Alabama, Mississippi and Florida, bringing to 20 the states with Casey's stores after the acquisition is complete.

“To say we would have 1,000 stores in Texas someday is not a huge stretch,” said Darren Rebelez, president, and CEO, and chairman of the board of Casey’s. He and other managers spoke about the company’s operations and outlook during Analysts Day Oct. 15 in Ankeny, Iowa, headquarters for Casey’s. I listened to their presentation for an hour and 45 minutes online. The CEO and the executive team seem very knowledgable about opportunities to grow the business and improve margins.

Rebelez said management like the Fike's deal because of its large format stores, with 4800 square feet, with kitchens; and they're in great geographies, in the target market of Texas and the growing Alabama/Florida panhandle.

Casey's has more than 2600 convenience stores in the Midwest and is third-largest convenience store retailer and the fifth-largest pizza chain in the United States.

Casey’s stock is up $100 per share since I wrote about the company in this piece in January recommending investors buy the stock.

After such a runup, I still believe investors should own the stock, however they are buying today at a higher than normal price/earnings ratio. The P/E ratio on the stock has risen from 21 to 28 this year. The historical average P/E ratio for this stock is 22, according to ycharts.

As a result of the big run up, I believe the stock is more of a hold than a buy, however, I have recently purchased more shares at $365 and $387 per share. 

I believe the stock is in the trading range from $362 per share to $392 per share. Take a look at this chart:

CASY chart for 15 days of trading

See how the stock fell to about $362 per share at the far left and then started climbing up and hit $375 and then went down below $370, dipped into the $360s and then ran up to $396 and suddenly dropped substantially to the $377, when I bought more shares.  I figure the stock will go back to $392 again and perhaps $400 per share eventually.

I recommend buying and holding this stock for 3 to 5 years to get the most benefit out of the current strategy.

Casey’s strategy is buying stores at 6 to 9 times earnings, renovating with new kitchen for fresh baked goods like their popular pizzas and donuts. This is a high margin business that makes the convenient store more profitable.

"There are 150,000 convenience stores in America. Food is our differentiator," Rebelez said.

Indeed, about 2/3 of Casey’s gross profit, stems from in-store sales, customers buy a lot of pizza and beer. Cigarette sales are on the decline, but that doesn't hurt Casey's because of its diverse merchandise offerings, including its own company label snacks and water.

Rebelez said employees recently rebuilt the sandwich lineup with its new Spicy Crispy Chicken Sandwich, Crispy Chicken Sandwich and Quarter Pound Angus Beef Burger. These sandwiches are in the warmers, freshly prepared every day, ready to eat. Sales for sandwiches have increased substantially as some customers choose a whole meal rather than just a snack.

Casey’s has been averaging about $0.35-$0.40 per gallon margin on the sale of gasoline. That brings in millions every day.

The company's growth model is about 50 percent acquisition and 50 percent new builds, but this changes depending on economic conditions. Cost of construction has gone up considerably in recent years.

"M&A or organic growth, we can do it either way," Rebelez said.

Casey's serves a lot of small towns but also has quite of few stores in larger cities like Topeka, which has five Casey's locations. A sixth location is going into Campus Center at 17th Street and Washburn Ave., across the street from Washburn University.

In 2019, Red Mountain Group, Inc. of Santa Ana, Calif., purchased Campus Center shopping center in Topeka located at 1634 SW Washburn Avenue. In spring, the group started renovating the retail space while preparing the land at the corner for a new building for Casey's General Stores. That store will attract a lot of customers because of its prime location.

Stocks like Casey's trade at a high multiple for a reason. I think the reason is a proven plan of growth.

Casey's strategy: 

--delivering Quintle EBITA growth of 8-10% per year.

--Accelerate the food business

--Grow the number of units

--Enhance operational efficiency.

Casey's has consistently achieved 8+% Ebita growth for over 10 years, Rebelez said. Not many retailers have done this. O'Reilly Auto Parts has done this.

I believe management have figured out the growth strategy after years of experience. CASY stock is near all time highs but I want more shares. If there is a pullback of 5% to 10%, I'm going to buy more. I might buy more anyway. My experience with winning stocks is they don't go down much, and if they do, they tend to climb back up and eventually go higher.

Evercore ISI Group analyst Michael Montani recently said he maintains an outperform rating on Casey's General Stores and raised his price target from $435 to $440.

Omaha's Explosion of Creativity

Color by Michael Hooper

By Michael Hooper

A small encounter in the physical world can be a gigantic moment of the heart.  I recently spent three wonderful days getting reacquainted with an old friend named John Giles. He and I met through a mutual friend Arlen Lazaroff, a Nebraska poet and artist who was active in the poetry circles in Omaha from 1985 to 1995. 

Lazaroff and Giles were part of an explosion of creativity happening in the music, art and literary scene in Omaha at the time.  Poets and writers often met at The Antiquarian Book Store run by Tom Rudloff in the historic Old Market neighborhood. I often went to the Old Market several times per year in those days, particularly when I lived in Omaha's Hanscom Park neighborhood and worked at the Papillion Times in 1987. The Old Market had a Bohemian ambiance in those days, with its record stores, bars and restaurants, including the French Cafe.

Rudloff was a scholar and linguist who owned a five-story building full of books, records and art. With bushy eyebrows and a deep voice, he was a charming man who was curious about everything. He often sat with other book people on couches and chairs near the entrance. When you entered his salon, he asked if you would like a cup of coffee. Rudloff encouraged Erich Christiansen in his study of philosophy. I bought The Sun Also Rises by Ernest Hemingway. Arlen found great records in the music room for his growing collection of psychedelic rock. Among others in this movement were Margery Coffey, and Richard Chilton, Randy Galaska, and Eadweard Rhawn York.

Margery Coffey was the Godmother of this emerging crowd. She and Richard Chilton live on the Winnebago Reservation and had adopted a lifestyle of creating art and literature. Coffey's paintings of native Americans are highly regarded by critics. I love her blue period when she painted lonely souls at a nursing home in Alma, Neb. The faces of her subjects seem haunting and tragic. Coffey is not afraid to tell the truth. Human life is a tragedy. We're born. We live. We die.

Perhaps the greatest emerging poet at the time was a young woman named Renee "Talonia" Novy.

Talonia had big frizzy hair, soft brown skin and mysterious eyes. Her race, she said, was a mix of European, African, Bohemian and Jewish. She often performed at Kilgore’s, a coffee shop popular among the poets at the time. Arlen took me to Kilgore’s one night, where I saw Talonia perform in a raging, majestic fashion, as if she were floating on stage. Broken promises, shattered dreams and lust for living, her poem Fast Against the Train speaks volumes to the intense emotion she gave to living.

Tragically, Talonia, 29, and her 7-month old daughter Jamesin Novy-Sullivan died after getting struck by a motor home on Interstate 680 in Omaha in 2003.

These Nebraska poets, including Giles and Lazaroff, were involved in the Youth for Peace movement. The group traveled all the way to Washington DC to deliver their message of peace, meeting with Senator Bob Kerrey of Nebraska.

They loved creating art and music in a collaborative way. Arlen recorded with musicians like David Nordin and Dereck Higgins, a musician who has been an Omaha pioneer with rock bands over the years. My favorite was Digital Sex with Higgins, Stephen Sheehan and John Tingle. 

311 of Omaha, and Lincoln's For Against and The Millions were popular bands in the late 1980s and early 1990s.

Saddle Creek Records was founded in Omaha in 1993 as Lumberjack Records by Mike Mogis and Justin Oberst; Bright Eyes and The Faint were among its recording artists.

The Reader

John Heaston, editor of The Reader, was active in these groups, he supported them by publishing their news and events in his magazines. 

"Johnny championed my work," said visual artist Eadweard Rhawn York. "He featured me twice on the front page."

John Giles worked for Heaston in publishing articles in Sound magazine. Indeed they published an article of mine about a seminal poetry gathering on the Platte River, where we built a fire and read late into the night and danced to jazz in the early 1990s.

The Omaha Press Club was going to roast Heaston in May but he died the day of the roast, said his friend Kris Kluver. The roast, led by his brother Ben, went on anyway. Those who spoke spared nothing. Heaston would have loved it, Kluver said.

Heaston, 53, died after a four-year battle against leukemia. John Giles says he got to see him before he passed.

Scherzkopf

In the early 1990s, Eadweard Rhawn York tried to get press in The Omaha World-Herald. But he kept getting rejected. The Bemis Gallery also rejected the local artist, preferring instead to favor artists from New York and Europe. So York created a character named Scherzkopf (which means joke head), who was supposedly a rising German artist. York painted multiple paintings and attributed them to Scherzkopf. He sent out press releases and photos of his work. The Omaha World-Herald became interested and wrote a story about the German artist based on the press releases. When the art show was displayed, a reporter tried to interview the German artist only to find out it was York the whole time. Needless to say York was banned from the OWH after that.

Margery Coffey encouraged artists to publish their works and she helped several poets create chap books through her own publishing firm, Black Prairie Dog Woman Studios, featuring the works of Dennis Hastings, Arlen Lazaroff, and John Giles. Margery and Richard Chilton published many works on their web site Jackalope Arts. Looking over the statistics of the web site usage, it turned out a lot of hits were coming from France, Giles recalled.

Sometimes it's hard to be loved in your own country. 

Roar by John Giles

In the 1990s, Arlen and I wrote a book called Shattered on the Plains, about eccentric men and women in Kansas and Nebraska.

The act of creation. That was what this movement was all about. Margery and Arlen made the front page of The Omaha World-Herald

when their art was censored in Fremont, Neb. Fremont conservatives were offended by Arlen's art featuring a nude man and woman with the phrase, "The End of Sex is a Family."

John Giles and I have been talking about doing an art retreat for a couple of years now, and it finally came together this summer when we spent three days together at our cabin in northern Minnesota, working on art projects, and discussing our mutual history with these fascinating people in the late 1980s and early 1990s. 

Michael Hooper and John Giles

I took John to a hayfield near a grove of trees by our cabin. The sun was shining, the wind was blowing, we felt so alive. It was in that moment, he told me his full name was John Matthew Giles. As a preschooler he was called Matthew. When he went to first grade, he said there were four other Matthews in his class so he went home that day and asked his mother for another name and his mom said, "well your Dad calls you John." The next day he told his teacher, "I am John."

John and I ate fruit and drank water and then went swimming in the lake. We stayed in the water for a long time, the water felt so refreshing.

That night John Giles painted a figure emerging from blackness with big lips and hypnotizing eye.

He painted in low light inside of a garage in the night time so there was not much to be seen, only imagined and his imagination went wild.

The spirit of creation brought us together again, after a separation of almost 20 years. 

I am grateful for the time with my friend creating new memories and remembering the glorious time we experienced in the late 80s and early 1990s with all that great art, poetry and music coming out of Nebraska. What an incredible time to be alive.

Meditations on the US Stock Market, the Economy, and the Presidential Election

A $4 pint of beer at Long Pine Store.

By Michael Hooper

I’ve heard grumblings from people who are worried about a recession coming to the United States.

I know a portfolio manager who has been predicting a recession for two years now.

He says consumers have increased their debt levels at a time of higher interest rates. They no longer have Covid money from the government, and credit and car loan delinquencies are rising. Yet the recession has not happened.

Against all odds, the consumer is very resilient. 

Looking at government data and railroad reports, I can see there should be no discrepancy here, the economy is positively growing.

Real gross domestic product increased at an annual rate of 2.8% in the second quarter of 2024, according to the advance estimate released by the US Bureau of Economic Analysis. In the first quarter real GDP increased 1.4%. That was a reduction from the 3.4% growth in the fourth quarter of 2023.

The 2.8% increase in the second quarter 2024 in real GDP reflected increases in consumer spending, private inventory investment, and non-residential fixed investments, the government said. Imports, which are a subtraction in the calculation of GDP, increased. Consumers spent more in both services and goods. Within services, the leading contributors were healthcare, housing and utilities and recreation services. Within goods the leading contributors were motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment, gasoline and other energy products.

Railroads in America have been hauling more freight in the first half of 2024, according to the Association of American Railroads. In the first 29 weeks of 2024 US railroads reported a combined US traffic of 13.5 million carloads and intermodel units, an increase of 2.2% compared to last year year.

It appears to me that a lot of traffic is coming from shipping containers and trailers, as intermodel units were up 8% while carload numbers were down 4%. These intermodel units carry lot of freight from China and around the world.

The Fed has been fighting inflation for the past two years. And they’ve been largely succeeding as inflation has dropped to around 3% from a high of 9%. The fed’s goal is 2% inflation yet the Fed has given indications it will start lowering interest rates soon; that has helped propel the stock market to all-time highs.

The S&P 500 is up 14.8% year to date; the Dow Jones industrial average is up 7.6% and the NASDAQ is up 16.3% YTD. About 25% of my portfolio is invested in the S&P 500.

The unemployment rate spent much of the last two years around 3%, but has moved up to 4.1% in the latest estimates from the Bureau of Labor Statistics. I’m not too worried about this increase because 4.1% unemployment is still a fairly healthy economy. This just means that employers will have more to choose from in their next hire.

Jobless people suffer, especially those who have multiple debts, including credit card and car payments, student loans and mortgage payments. Because interest rates are so high, a lot of home owners are refusing to sell their properties because their next home will likely carry a higher interest rate mortgage. People who have to move for a job face tough choices.

I had opportunities to leave Topeka but I turned them down because after moving three times in three years, I felt like I’d be losing by starting over somewhere else. The real estate agent who sold us our house stopped sending us annual flowers after about five years. She figured it out. We weren’t going anywhere.

It’s tough to say at this juncture who is going to win the presidential election, but in all likelihood, I think Donald Trump will be our next president. I hope not. I think the man is despicable, and I’m voting for Kamala Harris. She’s a solid woman who has demonstrated courage and tenacity as a prosecutor and has learned the ropes of what it takes to be a president by working as vice president for Joe Biden for the past three and half years.

We may see a dip in the stock market ahead of the election, as third quarters are often negative. People fear the unknown, sell stocks and put the proceeds in money markets. I think the stock market will likely recover in the fourth quarter after the election is over.

One thing for sure I will not be betting against America. Business cycles come and go. Bear markets and recessions happen. But overtime the US economy seems to pick itself up and move ahead. The U.S. economy is full of inventors, entrepreneurs and creative people who come up with new and innovative ways for people to spend money.

When Warren Buffett bought BNSF Railway in 2010 he said it was “an all-in wager on the economic future of the United States.” At the time the economy was recovering from the financial crisis of 2008-09. His bet on America proved to be a good one, as the economy grew substantially over the past 14 years. He paid $44 billion for BNSF Railway; the railroad is probably worth $145 billion today, based on the market cap of Union Pacific Railway, its chief competitor.  

Warren Buffett did not make his money shorting stocks. He studied losers, just to avoid them, but he made his money investing in winners. I think the US economy is a winner, so I’m betting on it.