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Showing posts from July, 2006

Sarbanes-Oxley reform

A July 31 Financial Times article focuses on one politician's drive to reform the Sarbanes-Oxley legislation. Tom Feeney, a congressman in Washington D.C., says that certain provisions of SOX impose significant time and cost burdens on companies forced to comply.

This, he has learned, is hampering our ability to attract public corporations to our capital markets. From FT's article, "Advocate of SOX reform points to capital markets leak":

Mr Feeney's beef includes the usual criticisms of SOX: that its most burdensome provisions - enshrined in section 404 - are adding unnecessarily to companies' auditing costs and that it is tying up too much executive time.

But he warns it has also led to an "outsourcing of America's 100-year lead in capital formation" as companies shun US stock markets and seek listings in London and Hong Kong instead.

"Last year, while I was on a listening tour of bankers associations and the Chicago [derivatives] exchanges,…

Ethanol: Is It Viable

Here's something in the alternative energy category. An article entitled, "Ethanol: Is It Viable", examines the pros and cons of ethanol production and the outlook for the ethanol industry. Contributed to Financialsense.com by Salman Anwar.

For more on the subjects of ethanol and sustainable energy, you may also want to take a look at Robert Rapier's R-Squared blog. There you will find some interesting discussion about the merits and demerits of grain ethanol as a renewable energy source.

Rapier recently challenged Vinod Khosla, a well known venture capitalist and ethanol backer, to support his claims that ethanol production would lead the U.S. to energy independence. In a post entitled, "Vinod Khosla Debunked", Rapier outlined his objections to many of the statements made by Khosla and his fellow ethanol supporters.

In fact, he found Khosla's claims about ethanol's potential and the lobbying efforts of "Big Oil" to be so objectionable, tha…

Margin of Safety

Value investors: the August 7 issue of BusinessWeek contains an article on Seth Klarman's "out-of-print investing classic", Margin of Safety. The article is entitled, "The $700 Used book".

The book, published in 1991 but never revised or reprinted, now carries quite a premium in the used-book market. At the time of publication, copies at Amazon.com were offered from $700 up to $2,500. Currently, it seems the bid has been upped at the lower end of the scale; the cheapest copy on offer at Amazon lists for $1,285.95.

What's all the hype about? I'm not sure since I've never read the book. But Klarman's reputation as a successful investor has solidified over time, thanks to his Baupost Group's cumulative return, since inception, of 6,133% after fees.

Here's a link to one reader's notes on Margin of Safety, for those who'd like a preview.

A growing number of investors and investing enthusiasts seem to be flocking to the wisdom found in Kl…

Staying connected

Cool little tip I got from the ETR e-letter. People who travel with a laptop will find this especially useful, if they don't have this information already. Suzanne Richardson offers up a web service you can use to find wireless hotspots in your area. For more info, see Suzanne's tip on JiWire.com and similar services at earlytorise.com (scroll down to "It's Good to Know: Staying Connected").

$100 oil sure bet, Rogers says

Well the full title of this Bloomberg article is actually, "$100 Oil Sure Bet, Rogers Says; Merrill Lynch Demurs" (Updated PDF file).

See - fair and balanced. They got both sides of it. Me, I'm just a yellow journalist. It's sensationalism that the people want! Just kidding, I think we have enough of that already.

Anyway, Jim Rogers is down in Singapore, taking in the feel of Asia's leading cities as he prepares to sell his New York townhome and find a new place to hang his hat. Guess they tracked him down and got his 2 cents on oil while he was down there. So have a look!

You know what, I'm impressed

This young guy named Mike Price has a blog called Value Investing, and a Few Cigar Butts that you might want to check out. This kid is barely old enough to drive, but is already wading comfortably in the stream of Graham & Dodd investing.

I've read a few of Mike's posts and I'm impressed. He already seems to have a very solid command of sizing up publicly traded companies by their fundamentals and valuation. I think I might end up learning a few things about fundamental analysis from reading his site!

Kicking the Carbon Habit

Saw a reprint yesterday of an Op-ed written by William Sweet, in which he called for greater use of nuclear power in bridging our energy needs.

Sweet is the author of a new book entitled, Kicking the Carbon Habit: Global Warming and the Case for Renewable Energy and Nuclear Energy. Only a couple of reviews up on Amazon so far, but they are quite positive.

It seems plain that this will be an interesting & well thought out book, especially given the fact that the author has married the cause of renewable energy with a call for reexamination of nuclear energy. Another book that I'll have to have a look at.

Interesting sidenote: while typing out the first sentence in this post, I noticed that the song I happened to be grooving to was OMD's "Electricity". Here are the lyrics to that song.

Trading tips from Jesse Livermore

I like Investment U for their brief profiles of some of history's greatest thinkers and investors. Today, we link to an essay on one of the great figures in trading lore, Jesse Livermore.

Read on for, "Five Timeless Rules of Investing Learned From Jesse Livermore".

If you don't know who Jesse Livermore is, that's okay; they've included a nice little summary intro on his life and his trials as a speculator.

Also, if you have an interest in trading or market history, I would highly recommend reading Reminiscences of a Stock Operator, if you haven't already.

Martin Weiss on T-bills

Well, Martin Weiss of Weiss Research has a whole big picture scenario to go along with his recommendation to invest in Treasury bills, and that's interesting enough, so far as needing a reason for why you should put your money in them. But I'm more interested in his information on how to best take advantage of Treasury bill returns.

Dr. Weiss, editor of the Safe Money Report and the Money and Markets e-letter, feels that Treasury-only money market funds are the best way to own Treasury bills. Read about the advantages of owning T-bills through these vehicles, and get a list of his recommended favorites by clicking on "The Next Big Wave". Scroll down to the section on T-Bills, you'll see the advantages highlighted in red.

We'll use this as a starting point for talking about shorter term interest-earning vehicles. If anyone has some info they'd like to share on personal finance matters, please chime in. We'll add more info and make it into a little discu…

Hong Kong & the brave new world

John Mauldin's weekly E-letter, dated June 22, 2006 and entitled, "Goldilocks or Micawber?", brings us the recent thoughts of the GaveKal research team. What interests me about this latest missive is the section that is found under the heading, "Honk Kong Adapts to the Brave New World".

The authors begin their topic with a brief discussion of Hong Kong's recent tax debate. They believe that by looking to move towards a consumption tax model, Hong Kong's government is demonstrating its ability to think and adapt to new economic realities. The GaveKal team then outlines a future in which individuals and companies migrate towards low-tax/efficient service jurisdictions that will compete for their "business".

As an increasing number of companies move to the 'platform-company' model, or as people leave the big companies to work for themselves or smaller entities, it is likely that the top talent will want to work (or at least be taxed!), in …

New book on commodities

There's a new book on commodities out called, Commodities Rising, by Jeffrey Christian, Managing Director of the CPM Group.

Judging by Mr. Christian's recent interview with Financial Sense Newshour, it seems we'll get a more sober and detailed assessment of what to expect from commodities investing. The author takes the stance that most of the information being offered today regarding commodities is misleading or simplistic, and that investors need to be aware of that fact.

We should become more selective in our approach, says Christian, and not just attempt to buy a basket of commodities for a longer-term holding period. This, he feels, will turn out to be a losing strategy. This is rather contrary to the approach espoused by Jim Rogers, and this may be due to differences in the way they view the commodity cycles.

It's also interesting to note that both parties might be doing a bit of low-key selling: Rogers with his index approach to commodity investing (representing…

Free software... and libertarianism?

Interesting subject match, I know. I saw this post entitled, "Free software, the hacker community and libertarianism?" highlighted at Technorati, so I went clicked on the link to have a look. An interesting post from what looks to be an interesting site (with a humorous name: "Homeland Stupidity").

I don't know much about free software or open source debate, but I was interested to see how these subjects were tied in to the notions of liberty. They've taken an issue that is closely followed by a relatively small audience, and made it relevant to a wider base by associating their cause with a larger issue: freedom.

“When people don’t value their freedom, they will lose it,” he said. “When people don’t value their freedom, they won’t defend it. And to value their freedom they have to know about it.”

Anyone who values liberty can relate to that.

New profits in old mines

Mining investors and mine guys might find this piece from The Australian interesting. It's called, "New profits in old mines" and it talks about miners developing old, existing mines rather than exploring for new ones. Quote from the article:

many of our companies are going back to old prospects and old mines, and find it easier to revive them by drilling deeper and wider than getting bogged down by the long lead times involved in finding and developing new discoveries.

In other words, brownfield is cheaper than greenfield and it sure helps a lot to have files of old drilling records to get you started.

Check it out!

Stagflation threat looms (over Bush and Blair)

Stagflation seems to be a hot topic lately. I guess everyone's looking around and seeing a return to the 1970s, or at least a lot of people are starting to draw parallels between that decade and the present.

An article in The Australian looks at the economic situation in the US and argues that a coming stagflation will spell trouble for President Bush and his ally, Tony Blair (thanks again for the sweater, mate).From, "Honeymoon's over for Bush and Blair as stagflation threat looms":

In the past three years the US has been enjoying an unusual combination of low inflation and rapid growth. This happy combination cannot continue much longer.

In the months ahead, either inflation will continue to accelerate or economic growth will have to slow abruptly, to the point where unemployment starts rising and businesses start going bankrupt.

US voters could soon get a taste of higher inflation and higher unemployment, bringing back memories of "stagflation", a simultan…

Stocks for the long haul?

There's an excellent article up on Financialsense.com entitled, "Second Verse, Same As the First". Written by Doug Wakefield and Ben Hill, the piece examines the "buy and hold" mantra that has dominated public thinking regarding the stock market.

The fantastic hypothetical returns that were dangled in front of investors to illustrate the advantage of purchasing stocks and index/mutual funds were misleading, to say the least.

Ibbotson studies and books such as Dow 36,000 sought to convince investors that wealth could be attained through a disciplined program of buying and holding stocks over long time horizons. Only problem is that they seemed to have glossed over a few important points, namely: investors who are not as risk-averse as the models suggest, survivorship bias in the constructed indexes, effects of inflation on investments, etc.

I think the authors did a great job of addressing some of the ridiculous assumptions underlying scenarios that purported to…

End of the global economic boom?

Dr. Marc Faber addresses this topic in a recent MoneyWeek article entitled, "Why an inflationary bust is inevitable".

Here Faber discusses the role that liquidity played in creating this boom, and the idea that slowing this liquidity growth may bring about further declines in asset markets.

Aside from the Middle East, it is apparent that liquidity conditions around the world, while still expansionary, are less expansionary than in the 1999–2005 time frame.

Now, whenever central banks create excess liquidity, symptoms of inflation will show up somewhere. Sometimes wages and consumer prices will react the most to expansionary monetary policies (for example, the 1960s and 1970s), but in today’s world where, given the low wages in China and India, an almost unlimited labour arbitrage can take place, easy monetary policies drive asset prices such as homes, commodities, equities, art, and so on, higher, while wages and consumer prices rise only with a lengthy time lag (once commod…

The Inflation Tax

Ron Paul on "The Inflation Tax":

All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real- the individuals who suffer most from cost of living increases certainly pay a "tax."

The erosion of purchasing power and ensuing increase in the cost of living is a recurring theme in Ron Paul's speeches on inflation. And why not? These phenomena must have accompanied every inflation known to man. Representative Paul is attempting to make clear, to his constituents and the politicians who should be representing their constituents, that inflation acts as a hidden tax. Slowly but surely, even a "properly managed" fiat currency will lose its "value" (read: purchasing power) over time.

In …

Notes on the Middle East

I hope that this material will provide an informative overview on the current fighting in the region. Read and draw your own conclusions; I've never been much of an expert on war in the Middle East.

From Bloomberg, "Bush Counting on Israel to Quash Influence of Islamic Militants". An overview of the battle between Israel and Lebanon-based militant group, Hezbollah.

And John Mauldin has included commentary from Stratfor's George Friedman in his "Thoughts from the Frontline" letter. I'll include the link here.

Putin, Bush talk democracy

President Bush and Russian President Vladimir Putin addressed the subject of democratic reform in Russia today, while meeting ahead of the G8 summit in St. Petersburg.

Bloomberg's article, "Putin Tells Bush Russia Doesn't Need a Democracy Like Iraq's", conveyed a sense of verbal sparring between the two leaders during their press conference Saturday.

``I talked about my desire to promote institutional change in parts of the world like Iraq where there's a free press and free religion,'' Bush told a news conference with Putin after their talks. ``I told him that a lot of people in our country would hope that Russia would do the same thing.''

``We certainly would not want to have the same kind of democracy as they have in Iraq, I will tell you quite honestly,'' Putin shot back.

``Just wait,'' retorted Bush.

An article from the Houston Chronicle's website, "Remarks by Bush, Putin at news conference", gave the discussio…

Rosneft raises $10.4 billion

As reported in the International Herald Tribune:

The oil company Rosneft said Friday that its initial public offering had raised $10.4 billion, but a court challenge in Britain from Yukos, a Russian rival, threatened to delay its market debut.

Rosneft said the IPO, priced at $7.55 a share, gave Russia's third-biggest oil company a market capitalization of $79.8 billion, exceeding that of Lukoil, the biggest producer. It said the capitalization could rise to $80.2 billion including an overallotment in the offering.

The court challenge from Yukos will seek to postpone Rosneft's listing on the London Stock Exchange, where Rosneft is set to make its trading debut on July 19. For more on that story, see this Moneycontrol India article.

Investors are shying away from the deal, as Rosneft's IPO seems fail on two counts: 1) it is very richly priced and, 2) it is shrouded in controversy due to the means by which it acquired its main asset, Yugansk. For more on this side of the story,…

Skype protocol hacked

A Chinese company has apparently cracked the code behind Skype's VoIP calling service. From ZDNet's article, "Has Skype Been Cracked?":

Skype's model of being a communications island could be under threat, if reports that its voice and instant messaging client has been successfully reverse engineered are true.

According to Charlie Paglee, the chief executive of a Chinese-American Internet telephony (VoIP) company called Vozin Communications, engineers from a small Chinese startup have managed to crack Skype's protocol.

Writing on his VoIPWiki blog on Thursday, Paglee claimed he had been made aware of the development when a member of the team successfully called him on his Skype account from another VoIP client.

The article goes on to say that the introduction of a Skype clone could disrupt future revenues from ad based services. Skype was bought out last year by Ebay, who hoped to incorporate the novel communications service into their online auction/commerce bus…

Managing inflation expectations

Jim Puplava discusses the purposeful jawboning of the Fed's "Open Mouth Committee" in a segment from the June 1 Financial Sense Newshour broadcast. What is the purpose behind this non-stop barrage of talk and signaling to the markets? Jim shares his view:

I think what you saw happen and this was the Open Mouth Committee that you saw throughout the month of May, and parts of June, that scared the bloomers off everybody was inflationary expectations started to increase. The last thing you want as a Federal Reserve is for those inflationary expectations to take hold because then what you have is your money velocity starts to increase. People start buying and spending their cash faster because buy now because the price is going to go up.

That was what they were trying to control with the Open Mouth Committee and they were successful. They brought some of those inflationary expectations down, and that’s why they were so active.

The need to manage inflationary expectations is pa…

America's savings hoax exposed.

"America's savings hoax exposed", is the title of Paul Farrell's warning to America's future retirees. In this MarketWatch piece, Farrell examines the slide in our national savings rate over the past few decades. What is behind this problematic trend and what does it mean for you, as a future/current retiree?

The crux of Farrell's argument is that America's savers and investors are kidding themselves when it comes to their retirement preparedness. They either have too little set aside to live comfortably or are fooling themselves into thinking that their investments will perform well enough to enhance their wealth.

Here Farrell makes the very important point about inflation's effect on savings and investments while quoting a Dalbar Research study on investor behavior:

These guys have surveyed actual performance of mutual fund investors for two decades: The average investor makes less than inflation, thanks to fees, expenses, trading costs and taxes, b…

Oil sands development difficult, costly

Canada's oil sands projects are becoming increasingly problematic, thanks to escalating costs and growing environmental concerns. The recent boom that centers around this energy resource claims Fort McMurray as its home base, but as the Financial Times reports, this Alberta boom-town is experiencing growing pains. That's something the town seems to share with the local resource extraction projects.

Like the municipality, the oilsands industry is discovering the downside of a boom. Excitement over the spiralling oil price has given way to frustration over shortages of labour and equipment and soaring costs. The stampede has also driven up land prices for new oilsands projects.

The oil sands, or tar sands (depending on your point of view), have always been something of a difficult resource base to exploit. Extracting the heavy oil from thick mats of clay and sand is an energy intensive and land disrupting process. The tar sands deposits are actually mined open pit style or extrac…

Uranium fever + dangers of nuclear

Two articles taken from the news page of Caseyresearch.com. The first, "Lower grade uranium could hasten climate change pace", outlines studies which claim an eventual shift to lower grade uranium will void nuclear power's promise of reducing carbon dioxide emissions.

The second article is anchored firmly in the present, and highlights the resurgent boom in Uranium shares, due in large part to the renewed promise of nuclear's potential as low-emission energy source.

The current upsurge is also being driven by a string of merger and buyout deals among Uranium explorers and producers. See the full article here.

Lay's death could set Skilling free

So says the headline of this Globeandmail.com article. From Barrie McKenna's story:

Kenneth Lay's sudden death could prove to be an unexpected legal bequest to Jeffrey Skilling, his co-defendant in the landmark Enron Corp. fraud case.

Mr. Skilling's legal team will almost certainly invoke Mr. Lay's demise to try to reverse his own fraud and conspiracy conviction or demand a retrial, legal experts said yesterday.

That's because Mr. Lay's death Wednesday of an apparent heart attack effectively voids the entire case against the Enron founder, including the guilty verdict. Mr. Skilling, the former Enron chief executive officer who is appealing his own conviction, could now argue that much of the evidence against him stems from a case that no longer exists, argued lawyer Jacob Frenkel, a former federal prosecutor and white collar crime specialist.

I am not exactly following the ins and outs of this Enron case, but I wonder if this kind of thing will add fuel to the fire…

The week in commodities

Just wanted to run down some recent interesting news concerning commodities and related investments. Here's what we've got:

Oil

Prices have been edging higher lately, back up towards the $75 mark. Frederic Lassare of Societe Generale says that with another hurricane season around the corner, oil prices are poised to set a new record. This, combined with global tensions/risks "will send crude through $80 a barrel toward our technical target of $83".

Meanwhile, Rosneft prepares for its upcoming IPO and recent reports claim the issue is now oversubscribed. India's state-run ONGC Videsh is considering a $3 billion investment in Rosneft, giving it a 4.5-5 percent stake, according to a recent report at India eNews.com.

Many of the leading oil & gas firms have been considering an investment in Rosneft, but it is the Asians who seem most eager to buy in, despite the risk. China and India are clearly trying to step up their efforts to lock in their "energy security&q…

Tell me how to spend that money

"Who polices America's philanthropists?". This is the question posed by Financial Times writer Holly Yeager in an article entitled, "Concern over scrutiny of do-it-all philanthropists".

Recent large-scale commitments to philanthropic institutions made by the likes of Warren Buffett have "raised concerns about governance and regulation and fuelled a sense that increased public accountability might be necessary."

Of course, government regulation! Why didn't we think of that before? You there, don't look glum. They've been nice enough to let you keep almost half of your money. Now it's time for you to smile and sit up straight as the helpful policy makers tell you how to staff your charitable organization and make sure you actually spend some of that dough.

Just in case you're not convinced, we've lined up some experts to tell you how it is. Listen up, Moneybags!

Pablo Eisenberg, a senior fellow at Georgetown University's publi…

Ken Lay dies.

Former Enron chairman Kenneth Lay has died suddenly of a heart attack, according to news reports. David Callaway's commentary on CBS Marketwatch contrasts the polished media response to the news with the off-the-cuff grousing of the internet set.

Reaction on television was swift and gracious, with most pundits focusing on the so-called Greek tragedy of a man who rose to the sun by creating a new type of corporate empire that would change the world, only to fall to earth as temptation and corruption destroyed his dream. Reaction on the MarketWatch message boards and in the blogosphere was swift and merciless, with readers focusing mostly on jokes and nasty comments about his death. See Frank Barnako blog.

TheCallaway commentary notes that "by going out on his own schedule, Lay managed to cheat government prosecutors of their biggest victory in the war on corporate fraud". He also reminds readers that however deserving a prison sentence may have been, Lay did not deserve to…

Independence Day

I was looking for an example of writing that reflects my personal feeling about this day of commemoration. Something that encapsulates the true spirit of the American Revolution and the ideas of its grand figureheads and those who guided them. I believe I have found it in this essay from the Baltimore Sun, entitled "Celebrate the patriotism of dissent". A passage:

With the measured reason often necessary to balance Adams' passion, Jefferson instructed us that Independence Day is a day for celebratory reflection. It is a day not for chest-thumping martial ardor and jingoism, but for honoring and giving renewed life to the ideas that made the Declaration of Independence what it is: an "expression of the American mind," the philosophical foundation for our idealized way of life and a beacon for those everywhere who aspire to govern themselves democratically.

I hope everyone will take a moment today and read the full essay by Gregory D. Foster.

The case for commodities

A brief rundown of the commodity market in the wake of the recent correction. Commodity prices have shown some strong performance in the past week. Many individual commodities enjoyed notable gains last week, continuing the move off their recent lows.

Some of those gains were reversed on Monday, as base metals such as copper and zinc gave up some ground in a thin and volatile trading session. Nickel managed to close higher, as LME nickel inventories declined.

The Financial Times reported in their weekend edition (July 1/July 2) that the commodity sector had one of its "best first-half performances ever". So, is this outperformance the sign of a bubble, as we so frequently heard before and during the latest market correction, which hit commodities and many emerging markets worldwide?

Someone once famously remarked that we can only judge a bubble in hindsight. Assuming, for a moment, that we buy this line of reasoning, let us ask instead if the recent drop was a bull market-endin…