It has happened in a record way. A hedge fund has raised $2 billion from every day investors. Yep, I have said it a million times, once the hedge fund pirates find a way to tap into the average investors pockets the party is over.
What did Marshall Wace do exactly? Well they created a company that does absolutely nothing. Raised $2 Billion (1.5 Billion Euros) from average stock investors through a public offering, took 1% for themselves for the party, then doled out all the money to their own hedge funds.
What do their own hedge funds do? Who cares. They beat the market last year so that is all that matters right?
Read it here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aAa0mAF57TTs&refer=home#
At about the same time a company called Citadel Investment Group LLC, a Chicago-based hedge fund controlled by Kenneth Griffin, sold $500 million of five-year notes in the first-ever sale of bonds by a hedge fund.
Did you read that last part, yea, the first-ever sale of bonds by a hedge fund. Can you guess who bought those bonds?
I hope you don't have a pension fund with money in the global pyramid scheme called "hedge funds" because the clock is ticking and when the music stops there are going to be some people with nowhere to put their ass.
Then of course the US government will "hold hearings" on what happened. Of course no person will be fired at the SEC, they will likely get an officer from Morgan Stanley to "fix the mess" cause the thousand or so attorneys they have working there are complete worthless idiots who could not find their way out of a monopoly game.
Friday, December 08, 2006
Sunday, September 03, 2006
Trickle Down or Else (part 3) Where is Your Pension Money?
I read an article a couple days ago that was titled “Private Equity Woos Top Talent” published in the Financial Times. Two years ago there were articles about Hedge Funds wooing top talent from none other than Private Equity. Where is Private Equity getting it’s talent? Public companies. There is a brain drain going on now in public companies. We have the Hedge Fund industry taking stakes in public companies then unseating boards and replacing them with their own people. We have the Private Equity companies doing wholesale buyouts of public companies and once again replacing the public company’s boards with their own people. At the same time we have an aging baby boomer population in retirement age and not nearly enough mid and upper level management with the appropriate skills and experience in the marketplace to take all of these “new” positions.
If you were an executive of a public company in the US and Private Equity was willing to suck you in to the world of unregulated finance, highly leveraged companies with huge cash payouts to the takeover groups heads, salaries and compensation not scrutinized by elected boards and nosey share holders, no need to comply with regulations when signing off on company financials, wouldn’t you take it?
So where are these Private Equity funds getting much of their financing? You would never guess, the American taxpayer, worker, teacher, fireman: in other words the average public servant. Yep, that is exactly where they are getting lots of money, these people’s pension funds. According to an article in the FT published 28 August entitled “How US public funds fuel Private Equity”,
The public funds charged with securing the future of America’s pensioners are a crucial driver of the current boom in the private-equity industry. By channeling an increasing portion of the nation’s retirement pool into buy-out funds, the public custodians are feeding the cycle of takeovers, restructurings and sell-offs that define private equity.
“We are the big bucks now,” says Jay Fewel, an Oregonian who has been running the private-equity division of his state’s investment office since 1989. This year, Mr. Fewel has already made commitments worth $3.5bn to buy-out firms.
Pension funds in the US are slowly but steadily disappearing. The pension reform bill passed by the corporate government of the US all but spells out how to do away with the system all together while doing nothing to shore up the existing nearly bankrupt Pension Guarantee obligations of the US Government. As airlines and auto industries amongst others have been reeling from the fallout of exorbitant oil prices, the US Government has been impotent in figuring out how to divert some of the completely ridiculous profits being made by oil companies into shoring up the pension systems that have been dumped on them by industries directly affected by the rising energy prices.
At the same time, Private Equity funds are raking in money form the more secure forms of pension systems, the ones financed by the public servants and workers of stable industries.
This is dangerous for more reasons than I care to mention here, suffice to say, Bush failed to put the entire Social Security system in the hands of corporate raiders and other financial criminals but the retirement system now called Pensions has already handed over much of the cash and they will go down with the ship when these crooks over leverage themselves to the point where their little unregulated empires collapse. Of course, there will be no legal ramifications since they are not public companies and hold no legal obligation to anyone and will simply state they are failed businesses and no person ever went to jail for simply failing in business. As stated in the same article:
Recourse to legal action, so often used by corporate America when business deals go sour, is rarely open to participants in private-equity funds, because the limited legal liability significantly curbs their chances of winning in court.
Indeed, the power of investors in private-equity funds is very limited and has been shrinking further of late, according to industry participants. With investors eager to offer capital to their funds, private-equity managers have begun imposing tougher conditions on public pension funds.
Lawyers say that private-equity firms have been demanding stricter rules to prevent public funds revealing details of their investments and performance. At the same time, they have fought demands for greater accountability and transparency.
There will be no turning back the billions of dollars they have made in the process of crippling the companies they manage by issuing debt and raiding the corporate coffers either. Only the Pension Funds that have poured money into them will be reeling from the loss of their investments and screaming at the Federal Government Pension Guarantee system to bail them out.
Everyone will be scratching their head saying how did these “secure” pension systems go bankrupt? Suffice to say for now, this is not on anyone’s radar.
A final note from the desk of reality:
“Clearly they (public equity executives) are in a different economic stratum: they have limousines waiting to pick them up from meetings – and we cringe at paying three bucks for our lattes,” says Ron Schmitz, Oregon’s tall, heavy-set chief investment officer. “They are pretty good about not rubbing it in and we do get treated like peers,” adds Mr. Schmitz, who took the post in 2003 after running funds for Illinois and Blue Cross/Blue Shield, the health insurer.
According to one private-equity headhunter, the entire budget of Oregon’s investment office is at the lower end of what a senior partner at a large buy-out shop might expect to make in a year – even before any share of the profit from deals is doled out.
If you were an executive of a public company in the US and Private Equity was willing to suck you in to the world of unregulated finance, highly leveraged companies with huge cash payouts to the takeover groups heads, salaries and compensation not scrutinized by elected boards and nosey share holders, no need to comply with regulations when signing off on company financials, wouldn’t you take it?
So where are these Private Equity funds getting much of their financing? You would never guess, the American taxpayer, worker, teacher, fireman: in other words the average public servant. Yep, that is exactly where they are getting lots of money, these people’s pension funds. According to an article in the FT published 28 August entitled “How US public funds fuel Private Equity”,
The public funds charged with securing the future of America’s pensioners are a crucial driver of the current boom in the private-equity industry. By channeling an increasing portion of the nation’s retirement pool into buy-out funds, the public custodians are feeding the cycle of takeovers, restructurings and sell-offs that define private equity.
“We are the big bucks now,” says Jay Fewel, an Oregonian who has been running the private-equity division of his state’s investment office since 1989. This year, Mr. Fewel has already made commitments worth $3.5bn to buy-out firms.
Pension funds in the US are slowly but steadily disappearing. The pension reform bill passed by the corporate government of the US all but spells out how to do away with the system all together while doing nothing to shore up the existing nearly bankrupt Pension Guarantee obligations of the US Government. As airlines and auto industries amongst others have been reeling from the fallout of exorbitant oil prices, the US Government has been impotent in figuring out how to divert some of the completely ridiculous profits being made by oil companies into shoring up the pension systems that have been dumped on them by industries directly affected by the rising energy prices.
At the same time, Private Equity funds are raking in money form the more secure forms of pension systems, the ones financed by the public servants and workers of stable industries.
This is dangerous for more reasons than I care to mention here, suffice to say, Bush failed to put the entire Social Security system in the hands of corporate raiders and other financial criminals but the retirement system now called Pensions has already handed over much of the cash and they will go down with the ship when these crooks over leverage themselves to the point where their little unregulated empires collapse. Of course, there will be no legal ramifications since they are not public companies and hold no legal obligation to anyone and will simply state they are failed businesses and no person ever went to jail for simply failing in business. As stated in the same article:
Recourse to legal action, so often used by corporate America when business deals go sour, is rarely open to participants in private-equity funds, because the limited legal liability significantly curbs their chances of winning in court.
Indeed, the power of investors in private-equity funds is very limited and has been shrinking further of late, according to industry participants. With investors eager to offer capital to their funds, private-equity managers have begun imposing tougher conditions on public pension funds.
Lawyers say that private-equity firms have been demanding stricter rules to prevent public funds revealing details of their investments and performance. At the same time, they have fought demands for greater accountability and transparency.
There will be no turning back the billions of dollars they have made in the process of crippling the companies they manage by issuing debt and raiding the corporate coffers either. Only the Pension Funds that have poured money into them will be reeling from the loss of their investments and screaming at the Federal Government Pension Guarantee system to bail them out.
Everyone will be scratching their head saying how did these “secure” pension systems go bankrupt? Suffice to say for now, this is not on anyone’s radar.
A final note from the desk of reality:
“Clearly they (public equity executives) are in a different economic stratum: they have limousines waiting to pick them up from meetings – and we cringe at paying three bucks for our lattes,” says Ron Schmitz, Oregon’s tall, heavy-set chief investment officer. “They are pretty good about not rubbing it in and we do get treated like peers,” adds Mr. Schmitz, who took the post in 2003 after running funds for Illinois and Blue Cross/Blue Shield, the health insurer.
According to one private-equity headhunter, the entire budget of Oregon’s investment office is at the lower end of what a senior partner at a large buy-out shop might expect to make in a year – even before any share of the profit from deals is doled out.
Sunday, August 27, 2006
Trickle Down or Else (Part 2) The Media Pigs
Read this article today from the Chicago Tribune written by Gail MarksJarvis. It was about Pension Reform. She writes about the archaic new law, how it's difficult to decipher for accountants, even more so for employees, how it is likely to put a stop to many pension programs, and how it is going to pinch S&P 500 companies and their stockholders.
Nowhere in her article does she talk about "reality". How the S&P 500 companies are more cash rich than any time in history, how executives running these companies are literally becoming filthy rich off their rich salaries and options grants (many of them illegally issued to time market prices) and how the S&P 500 companies have used record amounts of cash to buy back record amounts of stock over the past 2 years.
So I had to write her a little letter which is spelled out below. Just another Pig in the media frothing at the mouth while licking the asses of corporate America...
Hello Gail,
I read your article about the pending need to shore up pension obligations by as many as 1/5 of the S&P 500 companies.
I get exceeding frustrated by articles that do not paint a complete picture of reality when dealing with issues like pensions.
Does every business journalist go to a school that teaches "pensions are bad and should be reported as a burden to corporate America" at all times?
Does anyone ever think about good pensions may = happy employees who are more productive and better employees because they feel more secure about their future and happy to work for a company that is helping them with their retirement? (especially since their "government" is in the process of raiding their treasury) This attitude could go a long way to change the reporting slant on issues like pensions.
Additionally, I am amazed that your article completely ignores another exceptional reality of the cash flows of the S&P 500 companies over the last couple of years, that more cash than any time in history is in the bank accounts of S&P 500 companies and more of these companies are spending records amounts of their money from these inflated bank accounts to buy back their own stock.
Here are some figures:
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don't know (suffice to say there is at least another $250 billion there).
Mind you these companies spent more than $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
Did you get that part about buying back stock to PAY THEIR OFFICERS for their rich manipulated stock option grants? I mean, who gives a damn about the American Citizen / worker anyway?
What exactly is wrong with America and the "reporting" that goes on? For starters we have a "corporate government" and "corporate media" who no longer sees the American citizen as a person but a consumer and employee. There is no longer any institution left to protect the American Citizen and you people in the media have been brought up with a mindset that is so twisted you should all be sent to a small village somewhere in the Andes Mountains and learn what is important in life before you are allowed to write shallow, twisted and one-sided articles like yours on Pension Reform.
Sincerely,
Nowhere in her article does she talk about "reality". How the S&P 500 companies are more cash rich than any time in history, how executives running these companies are literally becoming filthy rich off their rich salaries and options grants (many of them illegally issued to time market prices) and how the S&P 500 companies have used record amounts of cash to buy back record amounts of stock over the past 2 years.
So I had to write her a little letter which is spelled out below. Just another Pig in the media frothing at the mouth while licking the asses of corporate America...
Hello Gail,
I read your article about the pending need to shore up pension obligations by as many as 1/5 of the S&P 500 companies.
I get exceeding frustrated by articles that do not paint a complete picture of reality when dealing with issues like pensions.
Does every business journalist go to a school that teaches "pensions are bad and should be reported as a burden to corporate America" at all times?
Does anyone ever think about good pensions may = happy employees who are more productive and better employees because they feel more secure about their future and happy to work for a company that is helping them with their retirement? (especially since their "government" is in the process of raiding their treasury) This attitude could go a long way to change the reporting slant on issues like pensions.
Additionally, I am amazed that your article completely ignores another exceptional reality of the cash flows of the S&P 500 companies over the last couple of years, that more cash than any time in history is in the bank accounts of S&P 500 companies and more of these companies are spending records amounts of their money from these inflated bank accounts to buy back their own stock.
Here are some figures:
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don't know (suffice to say there is at least another $250 billion there).
Mind you these companies spent more than $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
Did you get that part about buying back stock to PAY THEIR OFFICERS for their rich manipulated stock option grants? I mean, who gives a damn about the American Citizen / worker anyway?
What exactly is wrong with America and the "reporting" that goes on? For starters we have a "corporate government" and "corporate media" who no longer sees the American citizen as a person but a consumer and employee. There is no longer any institution left to protect the American Citizen and you people in the media have been brought up with a mindset that is so twisted you should all be sent to a small village somewhere in the Andes Mountains and learn what is important in life before you are allowed to write shallow, twisted and one-sided articles like yours on Pension Reform.
Sincerely,
Thursday, August 17, 2006
Firing Squad
This was the opening sentence of an article by Andy Webb-Vidal in the FT today,
“Bankers traditionally face firing squads in times of revolution.”
Coincidentally, I received another offer to open a new credit card account by none other than a bank, Washington Mutual. Now I opened this offer since I know this bank. What I found is enough to make me want to stage a revolution.
For any of you clueless wonders of the American public who thinks your government is full of a bunch of “do gooders” as opposed to “evil doers”, you need not read on. For the rest of you, you may be familiar with the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’’. Note in this title the portion called “Consumer Protection Act”. Well let me tell you, that is a distinct testament to our spineless, impotent legislative branch watering down a title to make citizens “consumers” think this 195 page act has something to do with protecting them. Nothing can be further from the truth. The only “protection” enhanced by this act is to set aside some rules about the accidental dumping of personal data in the public domain and some watered down requirement they send some bull shit pamphlet disclosing how the credit card companies are going to fuck the consumer by sharing their information with anyone and everyone who is willing and able to pay for it.
Anyway, I got my pamphlet late in 2005 telling me I had given up my rights to sue the credit card companies, that I could be charged any damn fee they want to charge for whatever damn thing they feel compelled to charge me for and that I could not be screwed many more times than previously possible by the credit card company.
I have been surprised by the boldness of the credit card companies offers now. This is the Washington Mutual “offer” for credit.
Interest: 9.99-19.99%
Now what exactly does this mean? Before the Bankruptcy law the interest rate was set. There was a real rate and a real index if variable. (Most were not.) However, terms are now spelled out in a way that allow credit card issuers to bull shit you and be vague as possible about what they are offering.
This is what they say about the interest rate:
“...will depend on Washington Mutual's evaluation of your application and credit history”
What BS! They would not be sending this shit to you if they did not know your credit history!!!
Other APR’s: Cash Advance 23.99%
Default APR: Prime rate plus 23.74%, currently 31.74% !
I love this one. Somewhere there has been a complete destruction of any kind of Usury Laws in the US. I am waiting for the return of “debtors prison”. If you don’t know what this is you really should look it up and learn NOW because this is what we are returning to. Anyway, that is 31.74%! What bank on the planet needs to earn 31.74% on a damn loan when the inflation is currently running about 6% (including energy and food, 2 things our government conveniently leaves out when advertising the inflation rate in the country, another evil and deceiving thing your evil doer government does) and the cost of money in the average savings account in the US is under 2% (not including money market accounts).
I love this: For every purchase outside of US border you will pay them 1% of the transaction. It’s back to travelers checks for me. They can be had for no fee now that people don’t need them.
What I really love about the Default APR is the myriad number of ways the bank can impose this fee. See this text from their “offer”.
Each time you default on this or any Washington Mutual credit card account because you fail to make at least the minimum payment when due, exceed your credit line, make a payment to us that is not honored by your bank, or are reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to a maximum of the Default APR.
Yes, that is any time you default on any WM credit card but also if you are reported “delinquent on an account with ANY OTHER creditor”. Now isn’t that a gas? Tell me these people don’t know your credit history before they send you one of these offers.
Don’t forget, the enticement to transfer that balance from another credit card will cost you 3% of the transfer or $75 maximum. So if you are transferring $7500.00 you are paying 1% again to transfer the balance. Anything up to $2500 is costing you 3% off the top so better figure out what you are really saving if you are getting some interest free months to pay off that debt because you may find you are not saving what you thought.
We live in a capitalist economy where our government has confused the separation of government and economy. There is no longer a separation in the US. We don’t really have Democrat or Republican parties, we have a capitalist party government. It is a one party government not unlike a communist party government and there are no longer any choices to what kind of governance you have. If you are not a capitalist in the US, especially a right wing capitalist under Bush, you are not fit to work in his government nor contract with his government, nor live with the fear you will be followed and harassed by his government.
What does this sound like to you?
Finally, the last paragraph of Andy Webb-Vidal’s article sums up the lack of controls on anything companies (super citizens) can do in the US, “In a socialist economy you assign resources as a result of the will of who governs, but in a capitalist economy resources are assigned as a result of risk analysis.” Well, in the case of American capitalists, you assess risk then multiply by three then get the government to back you up while you screw the citizens with the judicial branch behind you.
Just a final note:
Last year, penalty fees alone (issued by credit card issuers, banks) generated $12 billion in revenue. "Banks [are] raising interest rates, adding new fees, making the due date for your payment a holiday or a Sunday on the hopes that maybe you'll trip up and get a payment in late," said Mr. McKinley.
So not only do you multiply by 3 but you add in a moving target!
“Bankers traditionally face firing squads in times of revolution.”
Coincidentally, I received another offer to open a new credit card account by none other than a bank, Washington Mutual. Now I opened this offer since I know this bank. What I found is enough to make me want to stage a revolution.
For any of you clueless wonders of the American public who thinks your government is full of a bunch of “do gooders” as opposed to “evil doers”, you need not read on. For the rest of you, you may be familiar with the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’’. Note in this title the portion called “Consumer Protection Act”. Well let me tell you, that is a distinct testament to our spineless, impotent legislative branch watering down a title to make citizens “consumers” think this 195 page act has something to do with protecting them. Nothing can be further from the truth. The only “protection” enhanced by this act is to set aside some rules about the accidental dumping of personal data in the public domain and some watered down requirement they send some bull shit pamphlet disclosing how the credit card companies are going to fuck the consumer by sharing their information with anyone and everyone who is willing and able to pay for it.
Anyway, I got my pamphlet late in 2005 telling me I had given up my rights to sue the credit card companies, that I could be charged any damn fee they want to charge for whatever damn thing they feel compelled to charge me for and that I could not be screwed many more times than previously possible by the credit card company.
I have been surprised by the boldness of the credit card companies offers now. This is the Washington Mutual “offer” for credit.
Interest: 9.99-19.99%
Now what exactly does this mean? Before the Bankruptcy law the interest rate was set. There was a real rate and a real index if variable. (Most were not.) However, terms are now spelled out in a way that allow credit card issuers to bull shit you and be vague as possible about what they are offering.
This is what they say about the interest rate:
“...will depend on Washington Mutual's evaluation of your application and credit history”
What BS! They would not be sending this shit to you if they did not know your credit history!!!
Other APR’s: Cash Advance 23.99%
Default APR: Prime rate plus 23.74%, currently 31.74% !
I love this one. Somewhere there has been a complete destruction of any kind of Usury Laws in the US. I am waiting for the return of “debtors prison”. If you don’t know what this is you really should look it up and learn NOW because this is what we are returning to. Anyway, that is 31.74%! What bank on the planet needs to earn 31.74% on a damn loan when the inflation is currently running about 6% (including energy and food, 2 things our government conveniently leaves out when advertising the inflation rate in the country, another evil and deceiving thing your evil doer government does) and the cost of money in the average savings account in the US is under 2% (not including money market accounts).
I love this: For every purchase outside of US border you will pay them 1% of the transaction. It’s back to travelers checks for me. They can be had for no fee now that people don’t need them.
What I really love about the Default APR is the myriad number of ways the bank can impose this fee. See this text from their “offer”.
Each time you default on this or any Washington Mutual credit card account because you fail to make at least the minimum payment when due, exceed your credit line, make a payment to us that is not honored by your bank, or are reported as delinquent on an account with any other creditor, we may increase the APRs on your account up to a maximum of the Default APR.
Yes, that is any time you default on any WM credit card but also if you are reported “delinquent on an account with ANY OTHER creditor”. Now isn’t that a gas? Tell me these people don’t know your credit history before they send you one of these offers.
Don’t forget, the enticement to transfer that balance from another credit card will cost you 3% of the transfer or $75 maximum. So if you are transferring $7500.00 you are paying 1% again to transfer the balance. Anything up to $2500 is costing you 3% off the top so better figure out what you are really saving if you are getting some interest free months to pay off that debt because you may find you are not saving what you thought.
We live in a capitalist economy where our government has confused the separation of government and economy. There is no longer a separation in the US. We don’t really have Democrat or Republican parties, we have a capitalist party government. It is a one party government not unlike a communist party government and there are no longer any choices to what kind of governance you have. If you are not a capitalist in the US, especially a right wing capitalist under Bush, you are not fit to work in his government nor contract with his government, nor live with the fear you will be followed and harassed by his government.
What does this sound like to you?
Finally, the last paragraph of Andy Webb-Vidal’s article sums up the lack of controls on anything companies (super citizens) can do in the US, “In a socialist economy you assign resources as a result of the will of who governs, but in a capitalist economy resources are assigned as a result of risk analysis.” Well, in the case of American capitalists, you assess risk then multiply by three then get the government to back you up while you screw the citizens with the judicial branch behind you.
Just a final note:
Last year, penalty fees alone (issued by credit card issuers, banks) generated $12 billion in revenue. "Banks [are] raising interest rates, adding new fees, making the due date for your payment a holiday or a Sunday on the hopes that maybe you'll trip up and get a payment in late," said Mr. McKinley.
So not only do you multiply by 3 but you add in a moving target!
Wednesday, August 16, 2006
Private Equity Update
So far in 2006 there have been 660 takeovers in the U.S. by private equity firms, according to TrimTabs Investment Research in Santa Rosa, California, and Bloomberg data.
Uh, did that say 660? This poses an interesting dilemma. Is the stock market as we know it dead?
Every day I read about Private Equity and Hedge Funds. Hedge Funds now account for at least 25% of the daily volume on the stock exchanges. They often carry a heavy stick buying substantial stakes in companies then forcing boardroom shuffles and drastic actions by the companies they target. Then there are the Private Equity Funds raising billions of dollars at a time and looking for companies to buy out, leverage and soak for cash.
It seems the big money is getting directly in the game. Why buy stock in a company that has a 5-10% return on equity a year as a public firm when you can take it private, hack it to death and rape it for 30% up front then spit it back out later if you care to?
What does this mean for the average investor? Well, lets say for the past couple of years the stock market has been stagnate after a short recovery from the crash of 2000-2001. The average Joe is working his but off to make a few percentage points from the market and if he is not awake he can have losses on the books rapidly.
For the “special” money investor, they can play the Hedge Fund industry and pay unregulated managers to do whatever necessary to rake out a higher return than the average Joe. This means heavy trading, shorting and raiding companies or trading derivative products not understandable or accessible to the average Joe in efforts to make a profit.
Or they can dump a few million in a Private Equity Fund and go along for the ride leveraging balance sheets to buy out firms and raking them for cash to show high returns.
I am reminded of the late 1990’s when it became obvious that the US Legislative Branch Government had also become irrelevant. The congress and senate became tabloid news creators falling over themselves to “dirt out” one of their opponents while the world around them spun at ever faster speeds. All the engineers dumped on the street after the cold war ended fed the technological revolution and internet phenomena. Meanwhile, the international political vacuum created by the end of the cold war was completely ignored by the idiots, many of which would stand up and brag they did not own an passport, while the international business groups were going gangbusters in the newly created “markets” of eastern Europe and Asia.
By 2001 America had a wake up call on the international soup of shit that was being dumped on the developing world and to this day the impotent idiots that make up the government (X the right wing evangelical war lords of the White House) have not figured out a damn thing. They are hell bent to knee jerk reactions to every situation, cannot think beyond their noses and are bought hook line and sinker by industry. So the US is now being governed by paranoid idiots and right wing zealots.
Back to the stock market. If the stock market as we have known it since the early 20th century is truly becoming irrelevant to anyone with real money then are we seeing the internet trading companies and news junk blasted by dozens of info.net organizations as nothing more than a way to suck money from the suckers who have visions of 20th century stock traders that could make money in “the market”?
This is a real question to ponder and one to take very seriously as the “investment community” evolves.
As is true in the world of economics “bad money drives out good” could mean an end to the relevance of the “good’ol market” and a new dominance of “new money schemes” that I have said many times over are heading for a fall in the not to distant future. It will be not till then that our impotent government full of knee jerk idiots will wake up and realize the future of the average Joe has been stolen from him just like Daddy Bush had raided the treasury and stolen our citizens future security.
Uh, did that say 660? This poses an interesting dilemma. Is the stock market as we know it dead?
Every day I read about Private Equity and Hedge Funds. Hedge Funds now account for at least 25% of the daily volume on the stock exchanges. They often carry a heavy stick buying substantial stakes in companies then forcing boardroom shuffles and drastic actions by the companies they target. Then there are the Private Equity Funds raising billions of dollars at a time and looking for companies to buy out, leverage and soak for cash.
It seems the big money is getting directly in the game. Why buy stock in a company that has a 5-10% return on equity a year as a public firm when you can take it private, hack it to death and rape it for 30% up front then spit it back out later if you care to?
What does this mean for the average investor? Well, lets say for the past couple of years the stock market has been stagnate after a short recovery from the crash of 2000-2001. The average Joe is working his but off to make a few percentage points from the market and if he is not awake he can have losses on the books rapidly.
For the “special” money investor, they can play the Hedge Fund industry and pay unregulated managers to do whatever necessary to rake out a higher return than the average Joe. This means heavy trading, shorting and raiding companies or trading derivative products not understandable or accessible to the average Joe in efforts to make a profit.
Or they can dump a few million in a Private Equity Fund and go along for the ride leveraging balance sheets to buy out firms and raking them for cash to show high returns.
I am reminded of the late 1990’s when it became obvious that the US Legislative Branch Government had also become irrelevant. The congress and senate became tabloid news creators falling over themselves to “dirt out” one of their opponents while the world around them spun at ever faster speeds. All the engineers dumped on the street after the cold war ended fed the technological revolution and internet phenomena. Meanwhile, the international political vacuum created by the end of the cold war was completely ignored by the idiots, many of which would stand up and brag they did not own an passport, while the international business groups were going gangbusters in the newly created “markets” of eastern Europe and Asia.
By 2001 America had a wake up call on the international soup of shit that was being dumped on the developing world and to this day the impotent idiots that make up the government (X the right wing evangelical war lords of the White House) have not figured out a damn thing. They are hell bent to knee jerk reactions to every situation, cannot think beyond their noses and are bought hook line and sinker by industry. So the US is now being governed by paranoid idiots and right wing zealots.
Back to the stock market. If the stock market as we have known it since the early 20th century is truly becoming irrelevant to anyone with real money then are we seeing the internet trading companies and news junk blasted by dozens of info.net organizations as nothing more than a way to suck money from the suckers who have visions of 20th century stock traders that could make money in “the market”?
This is a real question to ponder and one to take very seriously as the “investment community” evolves.
As is true in the world of economics “bad money drives out good” could mean an end to the relevance of the “good’ol market” and a new dominance of “new money schemes” that I have said many times over are heading for a fall in the not to distant future. It will be not till then that our impotent government full of knee jerk idiots will wake up and realize the future of the average Joe has been stolen from him just like Daddy Bush had raided the treasury and stolen our citizens future security.
Sunday, July 30, 2006
Man Group to bypass Exchanges...
Man Group? Who is this you ask? From the Horses mouth:
Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers.
Man Investments is a global leader in alternative investments. It has spent two decades understanding investor requirements, identifying opportunities, and developing leading edge products and tailor-made solutions for private and institutional investors. Each of Man’s core investment managers – AHL, Glenwood, Man Global Strategies and RMF – has distinct expertise in one or more alternative asset classes: hedge funds, leveraged finance and convertible bonds. Man continues to explore opportunities across the alternative investment spectrum in order to enhance its client offerings. Hedge funds are the cornerstone of the business, and Man offers a range of risk/reward profiles through its funds of hedge funds, structured, style products and single manager products. Man Investments manages around $54 billion (as at 1 June 2006) and has a powerful global distribution network.
In the hedge fund asset class, which is the major part of the business today, Man offers funds of hedge funds, structured, style and single manager products. Its track record stretches back two decades and defines the standard for excellence in an industry whose central goal is to provide diversification away from traditional equity and bond investments. Man has a powerful global presence and an extensive network of distribution partners.
Man Financial, the Brokerage division, is one of the world's leading providers of brokerage services. It acts as a broker of futures, options and other equity derivatives for both institutional and private clients and an intermediary in the world's metals, energy and foreign exchange markets with offices in key centres. Man has consistently achieved a leading position on the world's largest futures and options exchanges, with particular strengths in financial futures and the energy markets.
OK, if you don't get the definition work on it. This is one of the largest Hedge Funds on the planet and they are involved in everything. They purchased Refco, the collapsed futures broker in 2005 and have since rebuilt that business substantially. Their portfolio is thus:
Funds under management of $26.1 billion at 31 March 2003, including
$11.1 billion in RMF , which was acquired on 30 May 2002. Excluding
RMF, funds under management were $15.0 billion, up 40% from last year
So what is all the boring detail about? They just nabbed 70% of Eurex US, a really bad name chosen by Deutsche Borse when they tried to create a competitive futures exchange to the CBOT in 2004.
Why is this an issue? Simple, Man will be looking for equity partners from their brethren to join them in essentially doing something quite original; Bypassing the CBOT in the trading of their products.
I am no genius in this area but I smell a big fish. You will have a huge unregulated industry (Hedge Funds) creating its own trading floor to trade its own products.
Grabbing more retail clients and more money is the easy part, avoiding the balance sheet and position limit restrictions that apply in over-the-counter derivatives trading is the hard part. Now it is done.
Who is going to regulate this activity? How in the regulation field has the resources to understand and keep up with this industry? The SEC in the US was just told by US courts to back off the Hedge Fund industry so they are not even allowed to require Hedge Funds to register existence!
Now the Hedge Fund industry is going to MAKE THE RULES for it's own trading in "products" that few outside the industry understand, even fewer understand the implications of failures in this industry and even fewer still have any ability to set limits on what this industry has the capability to do.
Just a note: Notice there is no national orientation mentioned in it's self made description except to note it's primary listing on the London Stock Exchange. Also, note the repeated use of the word "world's" and the reference to "global". These organizations that control about $1.5 trillion (no one actually knows) have NO ALLEGIENCE TO ANY NATION OR CITIZEN other than making money, as much as possible, for the wealthy clients who are allowed by various governments to invest in them.
Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers.
Man Investments is a global leader in alternative investments. It has spent two decades understanding investor requirements, identifying opportunities, and developing leading edge products and tailor-made solutions for private and institutional investors. Each of Man’s core investment managers – AHL, Glenwood, Man Global Strategies and RMF – has distinct expertise in one or more alternative asset classes: hedge funds, leveraged finance and convertible bonds. Man continues to explore opportunities across the alternative investment spectrum in order to enhance its client offerings. Hedge funds are the cornerstone of the business, and Man offers a range of risk/reward profiles through its funds of hedge funds, structured, style products and single manager products. Man Investments manages around $54 billion (as at 1 June 2006) and has a powerful global distribution network.
In the hedge fund asset class, which is the major part of the business today, Man offers funds of hedge funds, structured, style and single manager products. Its track record stretches back two decades and defines the standard for excellence in an industry whose central goal is to provide diversification away from traditional equity and bond investments. Man has a powerful global presence and an extensive network of distribution partners.
Man Financial, the Brokerage division, is one of the world's leading providers of brokerage services. It acts as a broker of futures, options and other equity derivatives for both institutional and private clients and an intermediary in the world's metals, energy and foreign exchange markets with offices in key centres. Man has consistently achieved a leading position on the world's largest futures and options exchanges, with particular strengths in financial futures and the energy markets.
OK, if you don't get the definition work on it. This is one of the largest Hedge Funds on the planet and they are involved in everything. They purchased Refco, the collapsed futures broker in 2005 and have since rebuilt that business substantially. Their portfolio is thus:
Funds under management of $26.1 billion at 31 March 2003, including
$11.1 billion in RMF , which was acquired on 30 May 2002. Excluding
RMF, funds under management were $15.0 billion, up 40% from last year
So what is all the boring detail about? They just nabbed 70% of Eurex US, a really bad name chosen by Deutsche Borse when they tried to create a competitive futures exchange to the CBOT in 2004.
Why is this an issue? Simple, Man will be looking for equity partners from their brethren to join them in essentially doing something quite original; Bypassing the CBOT in the trading of their products.
I am no genius in this area but I smell a big fish. You will have a huge unregulated industry (Hedge Funds) creating its own trading floor to trade its own products.
Grabbing more retail clients and more money is the easy part, avoiding the balance sheet and position limit restrictions that apply in over-the-counter derivatives trading is the hard part. Now it is done.
Who is going to regulate this activity? How in the regulation field has the resources to understand and keep up with this industry? The SEC in the US was just told by US courts to back off the Hedge Fund industry so they are not even allowed to require Hedge Funds to register existence!
Now the Hedge Fund industry is going to MAKE THE RULES for it's own trading in "products" that few outside the industry understand, even fewer understand the implications of failures in this industry and even fewer still have any ability to set limits on what this industry has the capability to do.
Just a note: Notice there is no national orientation mentioned in it's self made description except to note it's primary listing on the London Stock Exchange. Also, note the repeated use of the word "world's" and the reference to "global". These organizations that control about $1.5 trillion (no one actually knows) have NO ALLEGIENCE TO ANY NATION OR CITIZEN other than making money, as much as possible, for the wealthy clients who are allowed by various governments to invest in them.
Open letter to Anheuser Busch...
I heard on the news recently that you are closing the Rolling Rock Brewery in Latrobe, PA and moving the production to New Jersey.
I know that US manufacturers have been shipping manufacturing jobs overseas for decades to cut production costs. They have effectively convinced our impotent government to create every conceivable piece of legislation to aid in this effort and have sold US citizens on the idea that this is required to compete effectively in the production of goods. Anyone who knows anything about the economics of this argument knows the reality, US companies are interested in producing product as cheaply as possible to improve their bottom line and show their stockholders an increase in profits every quarter. Period. They have no concern for the future of their nation or citizens or any of that jingo flag waiving garbage. They only waive the flag when it suits the sale of another idea to improve their bottom line or to make others look like the “bad guy”.
This is evident today. Our impotent government (driven by corporate created “trade” associations and “think tanks”) points to China as the bad guy (like Japan 25 years ago) because of our huge trade deficit with them while conveniently leaving out the reality that every day hundreds of US companies are hiring China manufacturers to produce their goods so they can import them to the US and elsewhere at cheaper costs. China has never been accused of having innovative original thoughts in today’s modern economic reality. They have a central government policy that requires various jurisdictions around the country to import manufacturing and export goods. That is about the extent of it.
In your case we are talking about BEER, a product made from WATER and under no threat from cheap Chinese imports! Your company does not have to follow the model of other manufacturers. You can produce your product in the US and maintain jobs in areas around the country where products have been produced for decades. But it seams you follow the Coca Cola philosophy. Buy, destroy, replace.
When I was a youngster I went to Latrobe frequently. My mother’s side of the family was from the area. Although I don’t remember anyone working directly for Rolling Rock, I do remember the beer as being a local brew consumed by the local people. I have no idea how widely distributed it was back then but I assume it was not very large. The locals however had stories about their beer, jokes about it and generally treated Rolling Rock as part of their “family”, something that hung through the booming industrial years earlier in the century to the post industrial years and was richly integrated in their society.
When I returned to the Washington, DC area from a four year stint in the USAF in 1987 I went to a restaurant / bar downtown with my friend Joe. The first thing the waitress said as she approached the table was “I am sorry but we are out of Rolling Rock today.” I will never forget that moment. I almost fell out of my chair. Was this the same Rolling Rock I remembered from my child hood days in rural parts of Pennsylvania? I could not believe the beer had become so popular.
In the nearly 20 years since the popularity for the brand has waned in the DC area although it is still widely available. I don’t have any statistics on market share or any other measure of the sales of the brand. However I do know to shut down the plant where the beer has been produced for nearly 70 years is to kill Rolling Rock and all it stands for.
Your company obviously follows the same mentality of other conglomerate manufacturers. You have no affinity for history or tradition. You have no respect for the citizens or workers of America. You have no interest in cultural values or real affiliation with products or brands. Your company is run by number crunchers with blinders and all incentives are tied to the bottom line. Your marketing arm will create the “Anheuser-Busch commercial truth” in all of it’s products and blatantly disregard any true history or affiliation with its products.
American companies don’t understand the damage they have done to their own businesses by removing any pride an American worker can have in the production or consumption of goods. They have destroyed all attachment by citizens to the production process, turned us into consumers of products made in humane less factories in foreign nations run by autocrats, dictators and communists. American conglomerate companies are starting to look like mini Socialist Societies essentially carrying out the dehumanizing aspect of capitalism discussed at length by Karl Marx.
You are missing a major point of society, that human thought is partly determined by social and economic forces, particularly those related to the means of production. You are treading on thin ice and will play an important part in the destruction of your own society. I hope you get very rich very fast and figure out how to convert your mass wealth into something other than dollars because the time is near when the reckless acts of American corporations for the last ½ a century are going to bite all of us in the ass and there will be NOTHING to stop it.
You make BEER. Your main ingredient is WATER. You have taken a product with proud production and rich community history and dehumanized it. You may try to “rehumanize” it through some kind of marketing campaign but you cannot deny the destruction of a social and historically significant part of the lives of the people in the Latrobe Pennsylvania area and the history that made Rolling Rock.
I will go out of my way to never consume a product produced by your company again.
I know that US manufacturers have been shipping manufacturing jobs overseas for decades to cut production costs. They have effectively convinced our impotent government to create every conceivable piece of legislation to aid in this effort and have sold US citizens on the idea that this is required to compete effectively in the production of goods. Anyone who knows anything about the economics of this argument knows the reality, US companies are interested in producing product as cheaply as possible to improve their bottom line and show their stockholders an increase in profits every quarter. Period. They have no concern for the future of their nation or citizens or any of that jingo flag waiving garbage. They only waive the flag when it suits the sale of another idea to improve their bottom line or to make others look like the “bad guy”.
This is evident today. Our impotent government (driven by corporate created “trade” associations and “think tanks”) points to China as the bad guy (like Japan 25 years ago) because of our huge trade deficit with them while conveniently leaving out the reality that every day hundreds of US companies are hiring China manufacturers to produce their goods so they can import them to the US and elsewhere at cheaper costs. China has never been accused of having innovative original thoughts in today’s modern economic reality. They have a central government policy that requires various jurisdictions around the country to import manufacturing and export goods. That is about the extent of it.
In your case we are talking about BEER, a product made from WATER and under no threat from cheap Chinese imports! Your company does not have to follow the model of other manufacturers. You can produce your product in the US and maintain jobs in areas around the country where products have been produced for decades. But it seams you follow the Coca Cola philosophy. Buy, destroy, replace.
When I was a youngster I went to Latrobe frequently. My mother’s side of the family was from the area. Although I don’t remember anyone working directly for Rolling Rock, I do remember the beer as being a local brew consumed by the local people. I have no idea how widely distributed it was back then but I assume it was not very large. The locals however had stories about their beer, jokes about it and generally treated Rolling Rock as part of their “family”, something that hung through the booming industrial years earlier in the century to the post industrial years and was richly integrated in their society.
When I returned to the Washington, DC area from a four year stint in the USAF in 1987 I went to a restaurant / bar downtown with my friend Joe. The first thing the waitress said as she approached the table was “I am sorry but we are out of Rolling Rock today.” I will never forget that moment. I almost fell out of my chair. Was this the same Rolling Rock I remembered from my child hood days in rural parts of Pennsylvania? I could not believe the beer had become so popular.
In the nearly 20 years since the popularity for the brand has waned in the DC area although it is still widely available. I don’t have any statistics on market share or any other measure of the sales of the brand. However I do know to shut down the plant where the beer has been produced for nearly 70 years is to kill Rolling Rock and all it stands for.
Your company obviously follows the same mentality of other conglomerate manufacturers. You have no affinity for history or tradition. You have no respect for the citizens or workers of America. You have no interest in cultural values or real affiliation with products or brands. Your company is run by number crunchers with blinders and all incentives are tied to the bottom line. Your marketing arm will create the “Anheuser-Busch commercial truth” in all of it’s products and blatantly disregard any true history or affiliation with its products.
American companies don’t understand the damage they have done to their own businesses by removing any pride an American worker can have in the production or consumption of goods. They have destroyed all attachment by citizens to the production process, turned us into consumers of products made in humane less factories in foreign nations run by autocrats, dictators and communists. American conglomerate companies are starting to look like mini Socialist Societies essentially carrying out the dehumanizing aspect of capitalism discussed at length by Karl Marx.
You are missing a major point of society, that human thought is partly determined by social and economic forces, particularly those related to the means of production. You are treading on thin ice and will play an important part in the destruction of your own society. I hope you get very rich very fast and figure out how to convert your mass wealth into something other than dollars because the time is near when the reckless acts of American corporations for the last ½ a century are going to bite all of us in the ass and there will be NOTHING to stop it.
You make BEER. Your main ingredient is WATER. You have taken a product with proud production and rich community history and dehumanized it. You may try to “rehumanize” it through some kind of marketing campaign but you cannot deny the destruction of a social and historically significant part of the lives of the people in the Latrobe Pennsylvania area and the history that made Rolling Rock.
I will go out of my way to never consume a product produced by your company again.
Sunday, July 09, 2006
How much is Your Hedge Fund worth?
It seems no one knows. The Wall Street Journal recently reported the industry assets (this is real cash mind you, not the value of their leveraged influence on the financial system) at roughly $2.4 trillion. Then a week later said, "Whoops, we missed the mark." in so many words. The SEC claims $1.2 trillion is closer to reality and the $2.4 trillion total reported previously by the SEC after tallying up some 2500 hedge funds assets came from some "double counting".
OK, so let me get this right. The hedge fund industry has invested $1 trillion dollars in itself! If there is $1.2 trillion dollars in the hedge fund industry but when you count the total dollars that trickle down from hedge fund to hedge fund you get $2.4 trillion something tells me we have a "house of cards". The industry is investing in itself and raking in big fees.
Now the oldest trick on Wall Street is to create a "product" that rises in value faster than the market. Draw in lots of money. Attract the attention of bankers etc. Borrow lots of money. Feed the Lion. Pay out huge rewards to early investors. Run into a "cash squeeze". Default on those loans that helped you to extend the party. Collapse. Don't forget the big one... Leave the founders filthy rich while everyone else scrambles for the crumbs. You might throw an indictment in here and there.
I can rightly say with ease and confidence: Any "industry" that produces nothing tangible and invests some 80% of its money in it's own industry is a scam. Get out now. As I have said before you MAY have till 2008 to party. But as usual everyone will try and scram at the same time and you are likely to get stuck in the door.
OK, so let me get this right. The hedge fund industry has invested $1 trillion dollars in itself! If there is $1.2 trillion dollars in the hedge fund industry but when you count the total dollars that trickle down from hedge fund to hedge fund you get $2.4 trillion something tells me we have a "house of cards". The industry is investing in itself and raking in big fees.
Now the oldest trick on Wall Street is to create a "product" that rises in value faster than the market. Draw in lots of money. Attract the attention of bankers etc. Borrow lots of money. Feed the Lion. Pay out huge rewards to early investors. Run into a "cash squeeze". Default on those loans that helped you to extend the party. Collapse. Don't forget the big one... Leave the founders filthy rich while everyone else scrambles for the crumbs. You might throw an indictment in here and there.
I can rightly say with ease and confidence: Any "industry" that produces nothing tangible and invests some 80% of its money in it's own industry is a scam. Get out now. As I have said before you MAY have till 2008 to party. But as usual everyone will try and scram at the same time and you are likely to get stuck in the door.
Sunday, June 11, 2006
Could Japan be the Canary?
I learned while studying Economics at University that employment at government agencies in Japan was highly sought after by graduates of Japan’s elite universities. There was, as I learned, great respect for professional government bureaucrats and they took their job seriously. This was not something I thought possible after being raised in the US. In the US we have bad government at every level. If anyone questions the fact we are a second world nation with big guns would only have to learn about our system of government and it’s blatant ineptitude and disrespect for it’s citizens.
Because of this, I find what happens in the Japanese financial world intriguing when it comes to regulatory or legal action. I feel when a Japanese government agency like The Securities and Exchange Surveillance Commission (SESC) makes a move it is noteworthy. I learn a great deal about what financial institutions are doing that is illegal by watching how Japan moves to fine or punish them when they have done wrong. I like Japan’s system of censuring businesses for wrong doing by actually shutting them down for probationary periods or all together if they have proven to commit repeated egregious illegal acts.
However, by watching how Japanese companies operate over the years I have also learned that these government agencies operate not strictly on legal means. They operate also in typical Japanese fashion in that they seek to maintain the Japanese status quo and enforce cultural ideology along with or by selectively applying legal rules.
The two high profile individual cases in 2006 have multi faceted reasons behind them. Both are similar in that high profile individually successful business men that have broken all “cultural” and “social” norms on the conduct of business have been taken down in high profile cases based on “legal” circumstances. However, reading about these cases and knowing basic history of Japanese business practice, they have done nothing technically punished in the past. What they have done is broken the “code of conduct” acceptable by the Japanese elite.
There have been cases of selective enforcement of laws in Japan in the past to obtain specific objectives. Notably, the various fines and punishments dished out in February 2002 to halt the ramped short selling in the market (as was the case globally at the time) so the Nikkei index could recover enough by 31 March, the end of the fiscal year in Japan, to keep the books of major banking institutions from becoming technically insolvent. (Banks in Japan show very large proportions of their capital as stock.)
It is a dangerous path the SESC is taking right now. Much has been written on why it took over a dozen years to “fix” the pathetic state of Japanese banking after the collapse of their markets in 1989. Within the last 5 years or so private equity money and hedge funds have commanded enormous amounts of money and are beginning to dictate business decisions around the world. Whether this is right or wrong, Japan’s recent high profile arrests, although obviously done to send a strong message to the world about Japanese tolerance for this new world reality, is more likely to hurt Japan’s capital markets over the long term than help them and could put Japanese finance another 10 years behind the curve if successful.
For now, let’s say, learn what you can from the moves by the SESC for on the flip side, they could open the window into what the world will be dealing with very shortly.
Because of this, I find what happens in the Japanese financial world intriguing when it comes to regulatory or legal action. I feel when a Japanese government agency like The Securities and Exchange Surveillance Commission (SESC) makes a move it is noteworthy. I learn a great deal about what financial institutions are doing that is illegal by watching how Japan moves to fine or punish them when they have done wrong. I like Japan’s system of censuring businesses for wrong doing by actually shutting them down for probationary periods or all together if they have proven to commit repeated egregious illegal acts.
However, by watching how Japanese companies operate over the years I have also learned that these government agencies operate not strictly on legal means. They operate also in typical Japanese fashion in that they seek to maintain the Japanese status quo and enforce cultural ideology along with or by selectively applying legal rules.
The two high profile individual cases in 2006 have multi faceted reasons behind them. Both are similar in that high profile individually successful business men that have broken all “cultural” and “social” norms on the conduct of business have been taken down in high profile cases based on “legal” circumstances. However, reading about these cases and knowing basic history of Japanese business practice, they have done nothing technically punished in the past. What they have done is broken the “code of conduct” acceptable by the Japanese elite.
There have been cases of selective enforcement of laws in Japan in the past to obtain specific objectives. Notably, the various fines and punishments dished out in February 2002 to halt the ramped short selling in the market (as was the case globally at the time) so the Nikkei index could recover enough by 31 March, the end of the fiscal year in Japan, to keep the books of major banking institutions from becoming technically insolvent. (Banks in Japan show very large proportions of their capital as stock.)
It is a dangerous path the SESC is taking right now. Much has been written on why it took over a dozen years to “fix” the pathetic state of Japanese banking after the collapse of their markets in 1989. Within the last 5 years or so private equity money and hedge funds have commanded enormous amounts of money and are beginning to dictate business decisions around the world. Whether this is right or wrong, Japan’s recent high profile arrests, although obviously done to send a strong message to the world about Japanese tolerance for this new world reality, is more likely to hurt Japan’s capital markets over the long term than help them and could put Japanese finance another 10 years behind the curve if successful.
For now, let’s say, learn what you can from the moves by the SESC for on the flip side, they could open the window into what the world will be dealing with very shortly.
Friday, June 09, 2006
Only from an Economist
Interest rates have been rising. The "accommodative" interest rate policy, i.e.; printing piles of money, over the past few years is coming to an end. Like typical human behavior everyone seems to realize this at the same time. Isn't there someone amongst the thousands of money managers that know this is going to happen? Why does it take an economist to explain an elementary concept that has been the wrath of investors since there were investors?
The latest blurb: "Perverse incentives for investment managers may help explain recent lurches in risk aversion and the price of risky assets, such as emerging market debt, the chief economist of the International Monetary Fund suggested on Thursday." (Raghuram Rajan)
We need this guy to tell us that when governments print money like it going out of style it is going to find it's way wherever it can earn the most return. Alas, the financial markets. With over a Trillion Dollars floating around the Hedge Fund Industry these days and every damn one of them trying to beat the market they all end up doing the same thing; looking for the "sweet spot" that has not been discovered by everyone else and buying in.
This practice is not unlike looking for the best beach, one not trampled by hoards of tourists. Now to do this you have to go to far flung places around the globe that are 1) difficult to get to and 2) so remote there are likely to be many hurdles you have to jump through to enjoy your single objective, finding the perfect beach.
These “hurdles” when applied to investment products mean when money managers manage to find their sought after “sweet spot” investment it is very likely the party will not last long. Others will find the same territory even if it is on a slightly different island. Now everyone is finding little quant places to park their money. The only problem is these places are “uninhabited”, which in investment terms means “illiquid”. They may have found the sweet spot but with no one else around when they want to get out there is often not enough “buyers” to allow them to cash in on their great returns while departing.
In addition, since everyone has found their “sweet spot” at about the same time, when everyone tries to get out at the same time to avoid an ensuing storm, there are likely to find all the avenues for departure stuffed with others. The result is most of them get left behind.
This is what we need an economist to explain?
Hedge funds bought into anything and everything they thought would give them an edge. They have to take on exceptional risk to do so. When the tide turns there is simply no quick exit. Markets drop precipitously as there are simply no buyers to sell their positions to. I mean it was they who had all the liquidity. It is easy to buy anything, not so easy to sell.
The lesson is learnt again.
This is why we need lifeguards. If there is no person looking over the beach telling people when the situation is getting dangerous the frolicking money managers will hang around, pour on the tanning lotion and get caught by the ensuing storm.
The latest blurb: "Perverse incentives for investment managers may help explain recent lurches in risk aversion and the price of risky assets, such as emerging market debt, the chief economist of the International Monetary Fund suggested on Thursday." (Raghuram Rajan)
We need this guy to tell us that when governments print money like it going out of style it is going to find it's way wherever it can earn the most return. Alas, the financial markets. With over a Trillion Dollars floating around the Hedge Fund Industry these days and every damn one of them trying to beat the market they all end up doing the same thing; looking for the "sweet spot" that has not been discovered by everyone else and buying in.
This practice is not unlike looking for the best beach, one not trampled by hoards of tourists. Now to do this you have to go to far flung places around the globe that are 1) difficult to get to and 2) so remote there are likely to be many hurdles you have to jump through to enjoy your single objective, finding the perfect beach.
These “hurdles” when applied to investment products mean when money managers manage to find their sought after “sweet spot” investment it is very likely the party will not last long. Others will find the same territory even if it is on a slightly different island. Now everyone is finding little quant places to park their money. The only problem is these places are “uninhabited”, which in investment terms means “illiquid”. They may have found the sweet spot but with no one else around when they want to get out there is often not enough “buyers” to allow them to cash in on their great returns while departing.
In addition, since everyone has found their “sweet spot” at about the same time, when everyone tries to get out at the same time to avoid an ensuing storm, there are likely to find all the avenues for departure stuffed with others. The result is most of them get left behind.
This is what we need an economist to explain?
Hedge funds bought into anything and everything they thought would give them an edge. They have to take on exceptional risk to do so. When the tide turns there is simply no quick exit. Markets drop precipitously as there are simply no buyers to sell their positions to. I mean it was they who had all the liquidity. It is easy to buy anything, not so easy to sell.
The lesson is learnt again.
This is why we need lifeguards. If there is no person looking over the beach telling people when the situation is getting dangerous the frolicking money managers will hang around, pour on the tanning lotion and get caught by the ensuing storm.
Friday, May 26, 2006
Trickle Down or Else (Part 1), So Much Cash
The companies in the S&P 500 (excluding financial, transportation & utilities) in the US have over $640 billion in cash on hand. Yep. This is a number beyond anything seen in modern times. Why the article I read did not include the financials, transportation & utilities I don’t know (suffice to say there is at least another $250 billion there).
Mind you these companies spent $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
What is really going on is the people running S&P 500 companies are trying everything possible to “cash out”, literally take the cash out of the companies and put it in their pockets. It is no wonder the top salaries kept rising through the dot com bust, the post 911 recession, and then the print money economy engineered by the Fed after 911. There is so much cash no one knows what to do with it all. Is there any wonder it is sloshing around chasing real estate or long dead in the water commodities like “precious” metals. Sorry but gold and silver stopped being “precious” some time ago, lets say around the time of the proliferation of the microchip.
It is also ironic that all this cash chasing commodities like oil has now had the sickening effect of piling MORE cash in the coffers of the oil companies who now hold over $100 billion in cash. ExonMobile alone has over $32 billion in the bank. Apple set up an asset management firm to manage it’s $6 billion and Dell Computer has over $9 billion sitting in the bank.
Seems many companies do things like buy 30 day rolling CD’s. Now where do you suppose this money goes? Banks get the money and lend it out at higher rates. Who, might you ask is borrowing a bundle these days? The US government is the big hog. How about all those hedge funds leveraging themselves to the hilt? They borrow daily to leverage and settle their accounts. The banks make a ton of money servicing these guys (“these guys” make a ton of money also). Wonder who else could be borrowing this kind of money?
Banks are making up to a quarter of their fat profits stealing it from their account holders in exorbitant fees. Yep, that is stealing. We need a law that regulates what banks can charge in fees. I understand something like this exists in the UK. Fees should be by law a true reflection of the cost incurred by the bank for that transaction. For example, I added a deposit incorrectly by exactly $100 recently. I was charged $9.00 for the bank to “correct” this addition error. $9.00!!! You tell me where the bank incurred $9.00 in costs to correct a $100 addition error on one deposit that had like 4 items on it.
Yes, Americans are being ripped off and they are clueless. Many companies have learned to operate lean and charge high fees. If you are an international company you have a simple formula, produce in the parts of the world where the majority of people live on less than $3.00 per day and sell to the part of the world that spends $3.00 on a cup of dirty sugar water. Now what do you do with all that money?
Mind you these companies spent $500 billion in the past 6 quarters (year and a half) buying back their own stock. That is $500 billion spent buying back their stock! Now allot of these stock buy backs simply buy back the options they have awarded to their corporate officers. Their officers have seen this enormous build up of cash. They want to get their hands on it. In fact there should be no surprise the SEC is investigating a widespread practice of illegally backdating stock options to lock in low prices so when executives cash out they make more money.
What is really going on is the people running S&P 500 companies are trying everything possible to “cash out”, literally take the cash out of the companies and put it in their pockets. It is no wonder the top salaries kept rising through the dot com bust, the post 911 recession, and then the print money economy engineered by the Fed after 911. There is so much cash no one knows what to do with it all. Is there any wonder it is sloshing around chasing real estate or long dead in the water commodities like “precious” metals. Sorry but gold and silver stopped being “precious” some time ago, lets say around the time of the proliferation of the microchip.
It is also ironic that all this cash chasing commodities like oil has now had the sickening effect of piling MORE cash in the coffers of the oil companies who now hold over $100 billion in cash. ExonMobile alone has over $32 billion in the bank. Apple set up an asset management firm to manage it’s $6 billion and Dell Computer has over $9 billion sitting in the bank.
Seems many companies do things like buy 30 day rolling CD’s. Now where do you suppose this money goes? Banks get the money and lend it out at higher rates. Who, might you ask is borrowing a bundle these days? The US government is the big hog. How about all those hedge funds leveraging themselves to the hilt? They borrow daily to leverage and settle their accounts. The banks make a ton of money servicing these guys (“these guys” make a ton of money also). Wonder who else could be borrowing this kind of money?
Banks are making up to a quarter of their fat profits stealing it from their account holders in exorbitant fees. Yep, that is stealing. We need a law that regulates what banks can charge in fees. I understand something like this exists in the UK. Fees should be by law a true reflection of the cost incurred by the bank for that transaction. For example, I added a deposit incorrectly by exactly $100 recently. I was charged $9.00 for the bank to “correct” this addition error. $9.00!!! You tell me where the bank incurred $9.00 in costs to correct a $100 addition error on one deposit that had like 4 items on it.
Yes, Americans are being ripped off and they are clueless. Many companies have learned to operate lean and charge high fees. If you are an international company you have a simple formula, produce in the parts of the world where the majority of people live on less than $3.00 per day and sell to the part of the world that spends $3.00 on a cup of dirty sugar water. Now what do you do with all that money?
Wednesday, May 17, 2006
All Hell Breaks Loose
Now for the strategies. Yea, if I am so smart how do translate that into dollars? Mind you that is not "gold" but "dollars", you know the stuff you can "spend".
OK, I shorted oil stocks using XLE back in April at around $58 per share. I was looking to short at $60 but missed my chance. Little did I know my chance would appear about 3 weeks later. Oh well, can't always predict the top. Anyway, I was looking to cover when the oil price dropped 10% from it's $75 peak. Oil did weaken but the stock market was stubborn and continued to drive the oil stock prices higher. Then the stock market rout hit late last week. I covered my short position as oil touched $68 on Friday 12 May. That was early. But oil was staying stubbornly in the $68-$70 range so I figured better cover as the bottom looked near. Then BAM, the market got hammered and as of today the oil stocks have gotten killed, exceeding my expectations for a fall.
So now we are down over 10% from the $60 XLE price, I am buying in again at $54. Lets see what happens.
Currency. I bought FRX at about $122.50 when I saw the dollar falling. FRX rises as the dollar falls against the EURO. I was looking to get out at $130 or so. However today the dollar unexpectedly rose as inflation showed a jump. My guess was inflation would hammer the US by August. Anyway, the fear the Fed will raise rates has caused some profit taking in the dollar. I don't care. The dollar is done and I see $1.35 to the Euro by year end. I am staying put.
Metals. I really missed this one. I went with DBC the Deutsche Bank commodity fund and shorted it at $25 and again at $27. The high was $27 and I hoped to cover around $25 or so before a return to rising commodity prices. My big screw up was DBC covers a larger range of commodities including grains. Grains rose as reports about inflation in grain prices later in the year caused traders to bid up prices ahead of the "real" rise later and this has caused DBC to be stubborn and not move much from its current price of $26.00. I am at a cross roads. Hoping for the market rout to take me to my cover price of $25 so I can ditch this fund and play the actual SLV and GLD (silver & gold) funds directly.
Silver. I hit this one on the head. Shorted SLV at $145 and covered at $133.60. Made a good profit and am sitting on the sidelines. If silver drops to $12.50 I may jump in and go long and look for a bounce back to $15.
Rates. I see 8% on the fed funds rate by Feb of next year. Why? Because the Fed has screwed up. They are clueless. I don't care what anyone says if Bernanke stops raising rates the US is going into an inflation era that will hit hard. This is my thought; Fed pauses, waits 2 meetings to see what is going on since the market got hit and by June has not recovered. Fed is worried about liquidity in the market more than inflation. July, market is recovering but the fall in oil and gas prices allow a moderate inflation number and Bernanke waits again.
Then by September meeting all hell breaks loose on inflation and the Fed goes up 1/2 point. The quick reaction caused the market to do the opposite of what usually happens and rallies. The dollar rallies for a short while. Then the economy tanks. The bite on inflation is large and after the summer the consumer is tapped out. We enter stagflation by the end of the year. However, the dollar continues it's decline anyway as the Government debt, trade deficit and tax cuts start to make the US look like the debtor nation with no way out of it's troubles. Interest rates continue to rachet up to stop inflation and support the dollar. The stock market languishes and by the end of the year we have a loosing market for the DOW and oil remains stubbornly high above $65 per barrel. Continued confiscation of oil company assets in Latin America and strife in the Middle East leave no option.
My solution, bought RRPIX, a mutual fund that rises as the interest rates rise. Already ahead 2.65%. I hate mutual funds. They are a rip off but as the unsophisticated an investor I am, this was one easy way to play out my theory.
Cheers...
OK, I shorted oil stocks using XLE back in April at around $58 per share. I was looking to short at $60 but missed my chance. Little did I know my chance would appear about 3 weeks later. Oh well, can't always predict the top. Anyway, I was looking to cover when the oil price dropped 10% from it's $75 peak. Oil did weaken but the stock market was stubborn and continued to drive the oil stock prices higher. Then the stock market rout hit late last week. I covered my short position as oil touched $68 on Friday 12 May. That was early. But oil was staying stubbornly in the $68-$70 range so I figured better cover as the bottom looked near. Then BAM, the market got hammered and as of today the oil stocks have gotten killed, exceeding my expectations for a fall.
So now we are down over 10% from the $60 XLE price, I am buying in again at $54. Lets see what happens.
Currency. I bought FRX at about $122.50 when I saw the dollar falling. FRX rises as the dollar falls against the EURO. I was looking to get out at $130 or so. However today the dollar unexpectedly rose as inflation showed a jump. My guess was inflation would hammer the US by August. Anyway, the fear the Fed will raise rates has caused some profit taking in the dollar. I don't care. The dollar is done and I see $1.35 to the Euro by year end. I am staying put.
Metals. I really missed this one. I went with DBC the Deutsche Bank commodity fund and shorted it at $25 and again at $27. The high was $27 and I hoped to cover around $25 or so before a return to rising commodity prices. My big screw up was DBC covers a larger range of commodities including grains. Grains rose as reports about inflation in grain prices later in the year caused traders to bid up prices ahead of the "real" rise later and this has caused DBC to be stubborn and not move much from its current price of $26.00. I am at a cross roads. Hoping for the market rout to take me to my cover price of $25 so I can ditch this fund and play the actual SLV and GLD (silver & gold) funds directly.
Silver. I hit this one on the head. Shorted SLV at $145 and covered at $133.60. Made a good profit and am sitting on the sidelines. If silver drops to $12.50 I may jump in and go long and look for a bounce back to $15.
Rates. I see 8% on the fed funds rate by Feb of next year. Why? Because the Fed has screwed up. They are clueless. I don't care what anyone says if Bernanke stops raising rates the US is going into an inflation era that will hit hard. This is my thought; Fed pauses, waits 2 meetings to see what is going on since the market got hit and by June has not recovered. Fed is worried about liquidity in the market more than inflation. July, market is recovering but the fall in oil and gas prices allow a moderate inflation number and Bernanke waits again.
Then by September meeting all hell breaks loose on inflation and the Fed goes up 1/2 point. The quick reaction caused the market to do the opposite of what usually happens and rallies. The dollar rallies for a short while. Then the economy tanks. The bite on inflation is large and after the summer the consumer is tapped out. We enter stagflation by the end of the year. However, the dollar continues it's decline anyway as the Government debt, trade deficit and tax cuts start to make the US look like the debtor nation with no way out of it's troubles. Interest rates continue to rachet up to stop inflation and support the dollar. The stock market languishes and by the end of the year we have a loosing market for the DOW and oil remains stubbornly high above $65 per barrel. Continued confiscation of oil company assets in Latin America and strife in the Middle East leave no option.
My solution, bought RRPIX, a mutual fund that rises as the interest rates rise. Already ahead 2.65%. I hate mutual funds. They are a rip off but as the unsophisticated an investor I am, this was one easy way to play out my theory.
Cheers...
Tuesday, May 16, 2006
Banks Monitor Hedge Funds, The Latest Joke...
I am going to be brief here but follow up more precisely later. During a speech today our US Federal Reserve Chairman, Bernanke and the Bush Administration (whatever that is) suggested an industry with no regulation, national allegiances or any other guideline that drives them but to make as much money as possible "moving paper assets" and has grown from $50 billion in assets to over $1 Trillion in assets in under 6 years should continue to be allowed to function with, well, no regulation.
Mind you, $1 trillion in assets is their "assets". These funds do everything on leverage of anything from 10 to 1 to 100 to 1 ratios. They have the ability to crash a currency, drive up the price of an asset to unrecognizable levels and short a market to squeeze every last dollar out of it. They have a herd mentality and play with very technical products.
Now Bernanke suggests that banks, yes BANKS of all institutions should monitor hedge funds. Need someone remind this idiot that:
It was BANKS that lent much of their unlimited amount of oil dollars (from the last oil spike in the 1970's) to Latin American countries. That same debt had to be restructured in the late 1980's into new debt called "Brady Bonds".
It was BANKS that went on a lending spree in the 1980's to finance a commercial real estate development explosion that collapsed with a bail out of the entire S&L industry, a near collapse of the BANKing industry, government scandals and jail time (all overturned quietly in succeeding years of course) of dozens of "BANKers", a $500 billion (real dollars not including the 30 years of interest the government is still paying on the debt) bail out of the BANKing industry's bad loans later packaged into the "RTC" (Resolution Trust Corp.) who’s property was later sold at auction at fire sale prices.
It was BANKS that lent unscrupulously to Asian nations in the mid 90's to countries like Thailand, Indonesia, Malaysia, Korea and others that created so much development in commercial real estate and "luxury" resorts that the entire system collapsed causing one of the largest currency and economic crises in the 20th century.
It was BANKS that lent to Long Term Capital Management, the hedge fund (yep hedge fund) that had to be bailed out in 1998 with an emergency meeting called by the Fed in New York with 8-10 of the top banks and investment houses in the world where they were given the ultimatum, “raise a couple billion dollars by Monday morning or the entire financial system could unwind”.
It IS BANKS that today provide loans, settlement funds and liquidity to the hedge funds operating today and those BANKS are making BILLIONS on these services and lending and are the last institutions that should be asked to better “manage, regulate, request better information” or whatever other twist you want to put on these responsibilities.
It was 2003 when the SEC conducted a thorough “unofficial” report on the hedge fund industry and concluded that some kind of standards needed to be set up to monitor these institutions if nothing else.
It was George Soros, the international billionaire who proposed after the Asian financial crises that some kind of international body needed to be set up to monitor money flows and advise individual companies when gross imbalances are appearing so they would alter their lending and investing habits to avoid the bubble and burst cycle that is so frequent in the investment community mostly because of the heard mentality of these institutions, ahem, BANKS have in their business practices.
Could someone stand up and tell Bernanke there is AN ELEPHANT IN THE ROOM AND HE HAS NO MORE THAN 2 YEARS BEFORE IT TRAMPLES EVERYONE!!
Enough said for now.
Mind you, $1 trillion in assets is their "assets". These funds do everything on leverage of anything from 10 to 1 to 100 to 1 ratios. They have the ability to crash a currency, drive up the price of an asset to unrecognizable levels and short a market to squeeze every last dollar out of it. They have a herd mentality and play with very technical products.
Now Bernanke suggests that banks, yes BANKS of all institutions should monitor hedge funds. Need someone remind this idiot that:
It was BANKS that lent much of their unlimited amount of oil dollars (from the last oil spike in the 1970's) to Latin American countries. That same debt had to be restructured in the late 1980's into new debt called "Brady Bonds".
It was BANKS that went on a lending spree in the 1980's to finance a commercial real estate development explosion that collapsed with a bail out of the entire S&L industry, a near collapse of the BANKing industry, government scandals and jail time (all overturned quietly in succeeding years of course) of dozens of "BANKers", a $500 billion (real dollars not including the 30 years of interest the government is still paying on the debt) bail out of the BANKing industry's bad loans later packaged into the "RTC" (Resolution Trust Corp.) who’s property was later sold at auction at fire sale prices.
It was BANKS that lent unscrupulously to Asian nations in the mid 90's to countries like Thailand, Indonesia, Malaysia, Korea and others that created so much development in commercial real estate and "luxury" resorts that the entire system collapsed causing one of the largest currency and economic crises in the 20th century.
It was BANKS that lent to Long Term Capital Management, the hedge fund (yep hedge fund) that had to be bailed out in 1998 with an emergency meeting called by the Fed in New York with 8-10 of the top banks and investment houses in the world where they were given the ultimatum, “raise a couple billion dollars by Monday morning or the entire financial system could unwind”.
It IS BANKS that today provide loans, settlement funds and liquidity to the hedge funds operating today and those BANKS are making BILLIONS on these services and lending and are the last institutions that should be asked to better “manage, regulate, request better information” or whatever other twist you want to put on these responsibilities.
It was 2003 when the SEC conducted a thorough “unofficial” report on the hedge fund industry and concluded that some kind of standards needed to be set up to monitor these institutions if nothing else.
It was George Soros, the international billionaire who proposed after the Asian financial crises that some kind of international body needed to be set up to monitor money flows and advise individual companies when gross imbalances are appearing so they would alter their lending and investing habits to avoid the bubble and burst cycle that is so frequent in the investment community mostly because of the heard mentality of these institutions, ahem, BANKS have in their business practices.
Could someone stand up and tell Bernanke there is AN ELEPHANT IN THE ROOM AND HE HAS NO MORE THAN 2 YEARS BEFORE IT TRAMPLES EVERYONE!!
Enough said for now.
Sunday, May 14, 2006
The new SEC Who?
The SEC (American Securities & Exchange Commission) appointed a new man to oversee the $7 Trillion mutual fund industry. This is the kind of fanfare that comes with such an announcement these days:
But investors hoping to learn about Donohue's views directly will have to wait. Donohue through a Merrill spokeswoman declined to be interviewed ahead of his official appointment. The SEC also declined interview requests. And neither the SEC nor Merrill would provide detailed biographical information or a photograph of the new regulator.
That is Andrew "Buddy" Donohue.
I must say how much I love nicknames being used for government officials. But that aside, this kind of announcement is frightening. Why? Well I had a run in with Charles Schwab recently where they forced a short position in my account on the sale of shares in a company that had just split. According to the company prospectus and official documents, until the “new” shares were delivered (Viacom, in the case, was split into Viacom (new) and CBS) the “old” shares were to be considered to represent 50% of each new stock.
Well, I sold my entire holdings of the Old shares before the delivery of the two new shares took place so in effect I sold my rights to both of the new shares. Schwab however, forced the sale to represent only one of the two new shares (the Viacom new shares) causing me to go short those shares while retaining my rights to the 50% of CBS shares.
This short position was not allowed in the type of account I held and when I pointed out their mistake, they refused to reverse the trade or make me whole on the transaction and instead bought back my short position at a loss and told me if I did not like it I could “Write the SEC”.
Now, the SEC is supposed to be there to protect investors & regulate the securities industry. They are a public institution. The Securities Exchange act of 1934 states:
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:
* require that investors receive financial and other significant information concerning securities being offered for public sale; and
* prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.So
I wrote the SEC. They write Schwab. Schwab tells them they had every right to do what they did. The SEC sends me a letter with Schwab’s statement. Now I have to sue Schwab. The SEC does nothing.
During the 1990’s the SEC did nothing. The only person doing his job with respect to gross violations of the law in the securities industry has been Eliot Spitzer, the New York State Attorney General.
In fact when Mr. Spitzer came to Washington to have some words with our impotent government, the SEC went out of it’s way to bash Spitzer. Why not? He made them look like what they had become, impotent regulators appointed by an impotent government run by potent corporate entities.
The moral of the story: The institution created to “prohibit deceit, misrpresentations, and other fraud in the sale of securities” has found it convenient to withhold information about an appointee who will oversee a division representing over $15 Trillion in assets, $7 Trillion primarily held by individual citizens in their retirement accounts. Go Figure.
But investors hoping to learn about Donohue's views directly will have to wait. Donohue through a Merrill spokeswoman declined to be interviewed ahead of his official appointment. The SEC also declined interview requests. And neither the SEC nor Merrill would provide detailed biographical information or a photograph of the new regulator.
That is Andrew "Buddy" Donohue.
I must say how much I love nicknames being used for government officials. But that aside, this kind of announcement is frightening. Why? Well I had a run in with Charles Schwab recently where they forced a short position in my account on the sale of shares in a company that had just split. According to the company prospectus and official documents, until the “new” shares were delivered (Viacom, in the case, was split into Viacom (new) and CBS) the “old” shares were to be considered to represent 50% of each new stock.
Well, I sold my entire holdings of the Old shares before the delivery of the two new shares took place so in effect I sold my rights to both of the new shares. Schwab however, forced the sale to represent only one of the two new shares (the Viacom new shares) causing me to go short those shares while retaining my rights to the 50% of CBS shares.
This short position was not allowed in the type of account I held and when I pointed out their mistake, they refused to reverse the trade or make me whole on the transaction and instead bought back my short position at a loss and told me if I did not like it I could “Write the SEC”.
Now, the SEC is supposed to be there to protect investors & regulate the securities industry. They are a public institution. The Securities Exchange act of 1934 states:
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:
* require that investors receive financial and other significant information concerning securities being offered for public sale; and
* prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.So
I wrote the SEC. They write Schwab. Schwab tells them they had every right to do what they did. The SEC sends me a letter with Schwab’s statement. Now I have to sue Schwab. The SEC does nothing.
During the 1990’s the SEC did nothing. The only person doing his job with respect to gross violations of the law in the securities industry has been Eliot Spitzer, the New York State Attorney General.
In fact when Mr. Spitzer came to Washington to have some words with our impotent government, the SEC went out of it’s way to bash Spitzer. Why not? He made them look like what they had become, impotent regulators appointed by an impotent government run by potent corporate entities.
The moral of the story: The institution created to “prohibit deceit, misrpresentations, and other fraud in the sale of securities” has found it convenient to withhold information about an appointee who will oversee a division representing over $15 Trillion in assets, $7 Trillion primarily held by individual citizens in their retirement accounts. Go Figure.
Wednesday, May 10, 2006
Gotrocks
Those of you that have heard or read me say the current world of "investment products" is a world made for those who create and sell them and not for those who buy them here is a tidbit from no other than Warren Buffett...
From Berkshire Hathaway: http://www.berkshirehathaway.com/letters/2005ltr.pdf
Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.
To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beatmy- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.
The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are
simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”
The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses - and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this – heads, the Helper takes much
of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of
doing so –may make it more accurate to call the family the Hadrocks. Today, in fact,
the family’s frictional costs of all sorts may well amount to 20% of the earnings
of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.
From Berkshire Hathaway: http://www.berkshirehathaway.com/letters/2005ltr.pdf
Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.
To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.
After a while, most of the family members realize that they are not doing so well at this new “beatmy- brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.
The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.
It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are
simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”
The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.
And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses - and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this – heads, the Helper takes much
of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of
doing so –may make it more accurate to call the family the Hadrocks. Today, in fact,
the family’s frictional costs of all sorts may well amount to 20% of the earnings
of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.
Tuesday, May 09, 2006
Au, The Base Mental Attitude
So we now have $700 per oz. of Gold. No, not OZ as in “The Wizard”, but “oz.” as in the "ounce", one-twelfth of a pound in the Troy system of weights or one-sixteenth of a pound in the avoirdupois weight system.
One ounce of gold is one "Troy" ounce. Now, so you understand just how much weight one Troy ounce of gold is, it is equal to 460 grains (31.103 grams). Yea, grains, as in a grain of wheat. Twelve “Troy” ounces equals one “Troy” pound.
However, for those Neanderthals who still use this stupid system of measurement, you are saying, “No, 16 ounces is a pound.” Well that is 16 “avoir de pois” (avoirdupois) ounces equal a pound. However, your ounce is equal to only 437.5 grains (28.35 grams) so it measures in at .910 Troy ounce. So, one Troy ounce is almost 10% heavier than one avoirdupois ounce.
Not to be confused, this means one avoirdupois pound is quite a bit heavier than one Troy pound.
Why all the fuss? I am trying to avoid a shoot out here!
I can see it now, Joe Schmoe hurries down the bank vault in New York in his pickup truck to pick up the pound of gold he purchased for $8,400.00 ($700 per ounce) thinking to himself “Damn! That idiot sold me a pound of gold for a steal.” The bank hands over 12 ounces of gold. Joe Schmoe completely wigs out! Not only has his “precious metal” dropped dramatically in value the day he went to pick it up, but now they are trying to short him 4 ounces!
His only recourse is to START A SHOOTEN!
This is what I am t-r-y-i-n-g to avoid with my somewhat elaborate description of the measurement issue here.
Now the real story:
Citigroup believes investors held commodity positions worth more than $120 billion April, with $30 billion in oil and $30 billion in gas. Gold came in third place at $13 billion, while the long position in copper stood at $4 billion, according to Investec Securities.
Why is this the “real story”. Because Joe Shmoe thinks he no longer needs to drive his pickup truck to the bank vault to get his gold. He thinks he can buy a fund that buys the gold and hold the paper. He believes it is the same thing. I have not read the fund’s prospectus but I am guessing the owners of the fund shares DO NOT have a claim on the actual gold held by the fund. In reality they hold only a fraction of the gold and float worthless paper contracts which are “designed to track the price of gold”.
“Its (the GLD ETF) objective is not to provide investors with the opportunity to own gold bullion by investing in the shares of an ETF. Rather, GLD is designed to track the price of gold. That objective is no different than what is accomplished by a gold futures contract or any of the dozens of numerous gold derivatives available these days. More to the point, futures and derivatives are sold even if the seller does not own the underlying gold bullion needed to deliver on its obligation. They are in practice fractional reserve systems, which allow liabilities for gold to far exceed the quantity of gold owned by the seller of that liability.
…the London bullion market operates on a 'trust-me' basis. Rather than move gold bars around when they are bought and sold - which is a costly process - the various participants accept the word of their counter-party that the bar they just bought really exists, and that it is safely stored in the counterparty's vault or the vault of another market participant.
… "Because neither the Trustee nor the Custodian oversees or monitors the activities of sub custodians who may hold the Trust's gold, failure by the sub custodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists.”
The crux of this rant is simple. The people selling every concocted product under the sun to capitalize on the move in commodities prices are all building a house of cards. Don’t believe the hype!
OK, so you get it? Precious metals are expensive to store or move around and to Joe Schmoe, convert to cash. They also compose of no propriety value. They are metals used in some industrial applications and jewelry. If you want to “invest” it is better that you find companies making products that have propriety value, intellectual value, usefulness value, whatever you like. Stay away from Troy.
Quotes by James Turk
One ounce of gold is one "Troy" ounce. Now, so you understand just how much weight one Troy ounce of gold is, it is equal to 460 grains (31.103 grams). Yea, grains, as in a grain of wheat. Twelve “Troy” ounces equals one “Troy” pound.
However, for those Neanderthals who still use this stupid system of measurement, you are saying, “No, 16 ounces is a pound.” Well that is 16 “avoir de pois” (avoirdupois) ounces equal a pound. However, your ounce is equal to only 437.5 grains (28.35 grams) so it measures in at .910 Troy ounce. So, one Troy ounce is almost 10% heavier than one avoirdupois ounce.
Not to be confused, this means one avoirdupois pound is quite a bit heavier than one Troy pound.
Why all the fuss? I am trying to avoid a shoot out here!
I can see it now, Joe Schmoe hurries down the bank vault in New York in his pickup truck to pick up the pound of gold he purchased for $8,400.00 ($700 per ounce) thinking to himself “Damn! That idiot sold me a pound of gold for a steal.” The bank hands over 12 ounces of gold. Joe Schmoe completely wigs out! Not only has his “precious metal” dropped dramatically in value the day he went to pick it up, but now they are trying to short him 4 ounces!
His only recourse is to START A SHOOTEN!
This is what I am t-r-y-i-n-g to avoid with my somewhat elaborate description of the measurement issue here.
Now the real story:
Citigroup believes investors held commodity positions worth more than $120 billion April, with $30 billion in oil and $30 billion in gas. Gold came in third place at $13 billion, while the long position in copper stood at $4 billion, according to Investec Securities.
Why is this the “real story”. Because Joe Shmoe thinks he no longer needs to drive his pickup truck to the bank vault to get his gold. He thinks he can buy a fund that buys the gold and hold the paper. He believes it is the same thing. I have not read the fund’s prospectus but I am guessing the owners of the fund shares DO NOT have a claim on the actual gold held by the fund. In reality they hold only a fraction of the gold and float worthless paper contracts which are “designed to track the price of gold”.
“Its (the GLD ETF) objective is not to provide investors with the opportunity to own gold bullion by investing in the shares of an ETF. Rather, GLD is designed to track the price of gold. That objective is no different than what is accomplished by a gold futures contract or any of the dozens of numerous gold derivatives available these days. More to the point, futures and derivatives are sold even if the seller does not own the underlying gold bullion needed to deliver on its obligation. They are in practice fractional reserve systems, which allow liabilities for gold to far exceed the quantity of gold owned by the seller of that liability.
…the London bullion market operates on a 'trust-me' basis. Rather than move gold bars around when they are bought and sold - which is a costly process - the various participants accept the word of their counter-party that the bar they just bought really exists, and that it is safely stored in the counterparty's vault or the vault of another market participant.
… "Because neither the Trustee nor the Custodian oversees or monitors the activities of sub custodians who may hold the Trust's gold, failure by the sub custodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists.”
The crux of this rant is simple. The people selling every concocted product under the sun to capitalize on the move in commodities prices are all building a house of cards. Don’t believe the hype!
OK, so you get it? Precious metals are expensive to store or move around and to Joe Schmoe, convert to cash. They also compose of no propriety value. They are metals used in some industrial applications and jewelry. If you want to “invest” it is better that you find companies making products that have propriety value, intellectual value, usefulness value, whatever you like. Stay away from Troy.
Quotes by James Turk
Wednesday, May 03, 2006
Oh that "Private Equity"
Well, well, well nothing like private equity. Anyone who knows me has heard me say, "By 2010 there will be 1/2 a dozen "private equity" groups with revenues exceeding $100 Billion per year. These mega "companies" will flourish without answering to anyone."
The term "private equity" obviously means they are "private" (In the US this means owned by individuals unlike in the UK were "private" means owned by the government.) which means no stockholders. This means unrestrained salaries at the top, whatever "corporate governance" they please, ravish raiding of corporate coffers to pay fat “dividends” to their investors, very high leverage to consummate ever larger buy out deals, fat payoffs when worthless “brand names” are floated back on the markets by the “investment bankers” that will dump these newly re-floated companies on unwitting individual investors and last but NOT least NO SARBANES OXLEY COMPLIANCE... You get the picture.
At the midpoint of its price range, Burger King's underwriters are valuing the company at $2.1 billion. In 2002, a private equity group that includes Texas Pacific Group, Bain Capital Partners and Goldman Sachs Funds, bought Burger King from Diageo PLC for $1.5 billion at a time the burger chain's sales were in a decline.
The company's IPO is expected to price and sell some time in the third week of May; the stock will trade on the New York Stock Exchange under the symbol BKC.
Whether Burger King's performance will line up in the Chipotle or the Morton's camp is open to debate. The company's former chief executive, Greg Brenneman, departed suddenly last month, and received a generous severance package just as the company reported a net loss for its fiscal third quarter.
But there's no denying that the private equity group that purchased Burger King in 2002 has made improvements to the chain, producing eight consecutive quarters of comparable sales growth in the U.S. Those owners will continue to hold 74% of Burger King's stock if all shares are sold in the offering and over-allotment.
Burger King also has a strong brand name, which is sure to drive retail investor interest in the deal, says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP in Los Angeles.
"It's a brand name, a big brand name. How many of those moms and pops are going to go to their discount broker and say I want to buy this stock?" says Morreale.
The company borrowed $350 million in February to help finance a special cash dividend of $367 million to its private equity owners; it will not pay any dividends to common stockholders once it goes public.
Burger King also paid $33 million to members of senior management after the February financing and the dividend decreased the value of their restricted stock and options. In addition, a $30 million management termination fee was paid in February to the private equity owners.
Burger King plans to use all the proceeds from its IPO to pay down its debt; as of March 31, its total debt was $1.35 billion.
Even if the IPO had taken place in March and some of the debt had been paid off, Burger King would have had a net tangible book deficit of negative $623 million - meaning that investors would receive nothing if the company were liquidated.
- By Lynn Cowan, Dow Jones Newswires; 202-862-3548; lynn.cowan@dowjones.com
(END) Dow Jones Newswires May 03, 2006 11:42 ET (15:42 GMT)
The term "private equity" obviously means they are "private" (In the US this means owned by individuals unlike in the UK were "private" means owned by the government.) which means no stockholders. This means unrestrained salaries at the top, whatever "corporate governance" they please, ravish raiding of corporate coffers to pay fat “dividends” to their investors, very high leverage to consummate ever larger buy out deals, fat payoffs when worthless “brand names” are floated back on the markets by the “investment bankers” that will dump these newly re-floated companies on unwitting individual investors and last but NOT least NO SARBANES OXLEY COMPLIANCE... You get the picture.
I thought I would post this little blurb for you so you can consume all of what I just stated in ONE FLEETING EXAMPLE. Case study, Burger King. Note,
- borrowing $350 million to pay a special cash dividend of $367 million to its “investors”,
- $33 million to “pay off” management,
- another $30 million to “terminate a management contract to the private equity investors”. Like HELLO! Who do you think created the management contract? Pay off again, only this time it is to make the private equity owners richer. Remember, this is just ONE deal we are talking about here.
- Oh don’t forget the bottom where after being floated the stockholders will have negative equity if the company were liquidated after the float. Does this remind you of anything, Refco maybe? Milken leveraged buyout deals of the 80's?
Here we go...
Of DOW JONES NEWSWIRES
Fast food chain Burger King Holdings Inc. plans to sell as much as $480 million of its stock by the middle of this month for $15 to $17 a share, implying a total value for the company of about $2 billion.
At the midpoint of its price range, Burger King's underwriters are valuing the company at $2.1 billion. In 2002, a private equity group that includes Texas Pacific Group, Bain Capital Partners and Goldman Sachs Funds, bought Burger King from Diageo PLC for $1.5 billion at a time the burger chain's sales were in a decline.
The company's IPO is expected to price and sell some time in the third week of May; the stock will trade on the New York Stock Exchange under the symbol BKC.
Whether Burger King's performance will line up in the Chipotle or the Morton's camp is open to debate. The company's former chief executive, Greg Brenneman, departed suddenly last month, and received a generous severance package just as the company reported a net loss for its fiscal third quarter.
But there's no denying that the private equity group that purchased Burger King in 2002 has made improvements to the chain, producing eight consecutive quarters of comparable sales growth in the U.S. Those owners will continue to hold 74% of Burger King's stock if all shares are sold in the offering and over-allotment.
Burger King also has a strong brand name, which is sure to drive retail investor interest in the deal, says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP in Los Angeles.
"It's a brand name, a big brand name. How many of those moms and pops are going to go to their discount broker and say I want to buy this stock?" says Morreale.
The company borrowed $350 million in February to help finance a special cash dividend of $367 million to its private equity owners; it will not pay any dividends to common stockholders once it goes public.
Burger King also paid $33 million to members of senior management after the February financing and the dividend decreased the value of their restricted stock and options. In addition, a $30 million management termination fee was paid in February to the private equity owners.
Burger King plans to use all the proceeds from its IPO to pay down its debt; as of March 31, its total debt was $1.35 billion.
Even if the IPO had taken place in March and some of the debt had been paid off, Burger King would have had a net tangible book deficit of negative $623 million - meaning that investors would receive nothing if the company were liquidated.
- By Lynn Cowan, Dow Jones Newswires; 202-862-3548; lynn.cowan@dowjones.com
(END) Dow Jones Newswires May 03, 2006 11:42 ET (15:42 GMT)
Sunday, April 30, 2006
Silver Shines
The Silver Exchange Traded Fund (ETF) is out. So will be 97 million ounces of silver. Mind you the silver sill sit in a vault somewhere not being used for any production, just sitting there so traders can create products based on it's existence. Now that will create jobs, jobs with no productive usefulness whatsoever, that will nonetheless make some rich. Ah, the world of unbridled capitalism.
Be forewarned. As Silver becomes hoarded by ETF's and other investors while the price rises, the time comes when the storage of Silver will no longer be a profitable venture and it will get sold. Silver & Gold are worthless metals. They may have value in some industrial applications and people may like to buy them as a store of wealth, especially in the fast growing, corrupt, inefficient 2nd tier nations, but remember this: Intellectual property and information are worth much more and over time hoarding gold and silver will return to being what it is, a novelty collectable that is pretty but virtually worthless in developed societies.
Yep, go ahead and buy $100,000 of silver or gold. Now try to spend it. Try to move it from financial institution to financial institution on line. Now try to turn it into a currency so you can spend it. Well? If you are a doomsayer perhaps you think the entire global banking system is going to collapse and the only way you will be able to conserve your wealth is by owning some kind of precious metal. Fine for you. For the rest of us, don’t get sucked into the hype. This is a game played by people who make a living creating ways to soak up “real money” from anywhere on the planet they can and take as much of it as possible in the mean time and believe you me, these people are NOT hoarding silver, they are hoarding your money!
Notes on the affect the silver ETF’s will potentially have on the artificial demand for the metal:
By John Spence, MarketWatchLast Update: 5:02 PM ET Apr 28, 2006
The silver ETF has taken several twists and turns before it was finally approved by regulators.
The Silver Users Association, a nonprofit lobby group interested in keeping an orderly silver market, had led the opposition to the silver ETF. The group alleged the trust would take a large amount of silver off the market and push up prices, which would hurt firms that use the metal for business or industrial purposes and result in layoffs.
However, after a public comment period, the SEC said the silver ETF would increase the efficiency and transparency of the silver market, and that it would not spark liquidity problems.
Some traders are expecting the ETF may usher in a new bull market for silver if it attracts money from individuals, advisers, institutions and hedge funds looking for a convenient way to get exposure to the precious metal.
If the silver ETF experiences demand similar to the gold ETFs, it may end up accumulating roughly 97 million ounces, which represents more than 15% of known silver inventories, making a tight market even tighter, the newsletter added.
Be forewarned. As Silver becomes hoarded by ETF's and other investors while the price rises, the time comes when the storage of Silver will no longer be a profitable venture and it will get sold. Silver & Gold are worthless metals. They may have value in some industrial applications and people may like to buy them as a store of wealth, especially in the fast growing, corrupt, inefficient 2nd tier nations, but remember this: Intellectual property and information are worth much more and over time hoarding gold and silver will return to being what it is, a novelty collectable that is pretty but virtually worthless in developed societies.
Yep, go ahead and buy $100,000 of silver or gold. Now try to spend it. Try to move it from financial institution to financial institution on line. Now try to turn it into a currency so you can spend it. Well? If you are a doomsayer perhaps you think the entire global banking system is going to collapse and the only way you will be able to conserve your wealth is by owning some kind of precious metal. Fine for you. For the rest of us, don’t get sucked into the hype. This is a game played by people who make a living creating ways to soak up “real money” from anywhere on the planet they can and take as much of it as possible in the mean time and believe you me, these people are NOT hoarding silver, they are hoarding your money!
Notes on the affect the silver ETF’s will potentially have on the artificial demand for the metal:
By John Spence, MarketWatchLast Update: 5:02 PM ET Apr 28, 2006
The silver ETF has taken several twists and turns before it was finally approved by regulators.
The Silver Users Association, a nonprofit lobby group interested in keeping an orderly silver market, had led the opposition to the silver ETF. The group alleged the trust would take a large amount of silver off the market and push up prices, which would hurt firms that use the metal for business or industrial purposes and result in layoffs.
However, after a public comment period, the SEC said the silver ETF would increase the efficiency and transparency of the silver market, and that it would not spark liquidity problems.
Some traders are expecting the ETF may usher in a new bull market for silver if it attracts money from individuals, advisers, institutions and hedge funds looking for a convenient way to get exposure to the precious metal.
If the silver ETF experiences demand similar to the gold ETFs, it may end up accumulating roughly 97 million ounces, which represents more than 15% of known silver inventories, making a tight market even tighter, the newsletter added.
Wednesday, April 26, 2006
A contango?
Ok, correct me if I am wrong. The US is awash in oil. Yea that is correct, the largest consumer of oil on the planet is literally running out of places to put oil. Now mind you this does NOT mean prices are going to drop any time soon. This is called the "contango" effect.
(Remember when the weather got all screwed up and suddenly there was this word "elnino" and you were like el what? Well this is another of those.)
See if there is no place to put any more oil it means traders are buying all the oil they can because they don't have faith in the future supply of oil. The fear over future supplies causes over buying (thus filling up storage tanks) and higher prices. Now for those of you in ECON 101 you may be confused. If there is more supply than demand and storage tanks are filling up and there is no where to put any more oil shouldn't prices FALL?
NO. See as we reach the estimated capacity of 370 million gallons of storage there will be no place to put the oil. Thus producers will cut back. When they cut back on production, the price will rise further.
Hello, you following this? Logic says, if the storage tanks are full, then the purchases of oil on the market will fall (ie; lower demand for crude) and this should result in a drop in oil prices, right?
NO. See the smart money says the US has not built enough storage tanks over the past 10 years so we really should be able to store more oil. See if we could store more oil then we could meet the higher future demand. By not storing more oil, traders are nervous that if there is a drop in supply from some big event like, Nigeria becomes part of a large global sink hole, then the storage capacity will not hold us through the crises. So they keep buying oil like a drunk that cannot get enough alcohol and rolling over the stock piles they currently have to the next month. Now what happens is the storage people start charging more to store the oil. That means it gets MORE expensive to store the oil and contracts to store the oil go up in price.
Get it now. It is not the lack of supply of oil on the market, it is the lack of storage capacity that is the culprit.
Mind you, all this comes from the psyche of the oil traders that there is going to be a crises. So lets recap:
- Oil demand is rising globally
- Oil traders start hoarding oil for fear of supply crunch
- Oil prices start to rise
- Oil traders buy even more oil
- Oil storage tanks become full
- Oil storage costs begin to rise
- Oil in storage becomes more expensive
- Investors jump in to finance the "rolling price of oil in and out of storage"
- Demand increases further
- Prices on the long end rise and higher prices become entrenched in the system.
What is the way out of this contango? Increase the refining output and capacity of Oil. See bringing on more refining capacity will bring additional supplies "product" to the market thus removing pressures on the storage capacity and this will result in lower prices.
Forget that the entire cycle was caused by "fear" of the oil traders of the immanent sink hole in Nigeria and that all this is a bunch of human psyche gone amuck, this is ECON 101 here and we all learn that Econ is a social "SCIENCE" right?
So next time someone tells you that the US is "awash in oil" to the point they are up to their "eyeballs" in the stuff and that is why the price is going through the roof, don't laugh.
Peace
Commodities predict future of Dollar?
I am still trying to come to grips with $70 oil and higher stock markets. I am thinking that what the commodities are doing right are reflecting the true value of the dollar but for some reason the currency markets are moving way behind the curve. In other words, commodity traders are pricing commodities to demand more dollars. They are already factoring in a large say 25-40% drop in the dollar.
So, strangely enough as the dollar falls, commodity prices will not continue to rise. The currency will be in effect catching up to the reality set in the market for commodities priced in dollars. The exception so far has been food commodities. I suspect they will move with the dollar since so much of the food produced and exported is from the US also. This is when the Fed will freak and boost long US interest rates higher till the long rate approaches 8-10%.
Just a thought.
This note from a professional in the brokerage industry in Scotland..
I am a bit perplexed myself about the level of the markets and the oil price. Thinking back a year or so, everyone was taking fright at oil being $50 and the impact it would have on company profits. A good example is British Airways, trading at a level not really seen since late 2001 and think what oil has done in that time.
I don’t think interest rates at 8-10% would be good news for equities but for now the greed factor seems to be winning the argument and pushing indices higher. A perverse world!
Regards,
So, strangely enough as the dollar falls, commodity prices will not continue to rise. The currency will be in effect catching up to the reality set in the market for commodities priced in dollars. The exception so far has been food commodities. I suspect they will move with the dollar since so much of the food produced and exported is from the US also. This is when the Fed will freak and boost long US interest rates higher till the long rate approaches 8-10%.
Just a thought.
This note from a professional in the brokerage industry in Scotland..
I am a bit perplexed myself about the level of the markets and the oil price. Thinking back a year or so, everyone was taking fright at oil being $50 and the impact it would have on company profits. A good example is British Airways, trading at a level not really seen since late 2001 and think what oil has done in that time.
I don’t think interest rates at 8-10% would be good news for equities but for now the greed factor seems to be winning the argument and pushing indices higher. A perverse world!
Regards,
Monday, April 24, 2006
Telecom Lock Down
Below is an article about locking consumers into communications services followed by my reply to the author then followed by her reply and my intermixed comments. Very important issue:
Apr. 18--When residents move into new homes in the Lexington development in Virginia Beach, they won't have to bother ordering telephone, cable television or high-speed Internet services.
It is already done for them.
Many developers now take it upon themselves to purchase a full package of telecommunications services on behalf of new owners. They're making the arrangements not only in condominiums and apartments, as they have for years, but also increasingly in new subdivisions and in newly built groups of single-family homes.
The developer typically gives a single telecom provider exclusive access to run its wires through the development, guaranteeing it sales to all those homes, in some cases locking up hundreds of customers at once. In exchange, the developer receives a discount on the regular price of the service package and collects the monthly cost of the services through condo or homeowner association fees or apartment rent.
It's unclear whether the deals ultimately save residents money. While customers gain convenience, they lose the ability to shop around and choose the provider or the services they want.
The inclusion of telecom packages is a growing trend in housing development, said Chris Bridge, a community relations consultant for L.M. Sandler and Sons Inc., a Virginia Beach company developing Lexington and other residential projects across Hampton Roads. Residents looking at new construction have come to expect and demand it, she said.
"It's a tremendous advantage for the homeowner to be able to benefit from economies of scale," Bridge said. "Also, it reflects the increasing trend of the technology itself to include the digital services" for phone, cable and Internet access.
Developers consider it one more amenity -- along with installed security systems, groomed landscaping and easy-to-maintain materials -- to appeal to potential buyers. They tout the convenience to the homeowner, the savings of time and trouble they would otherwise spend researching, ordering and setting up their services.
"You don't have to think about it. It's already here," Bridge said.
L.M. Sandler has a contract with Cox Communications Inc., the region's dominant local cable company, to provide telecom packages for 418 condos in Lexington, at Independence Boulevard and Plaza Trail South, and homes in the New Port at Victory development in Portsmouth. Residential projects in Suffolk offer similar packages from Charter Communications Inc., Bridge said.
The Cox package includes the "preferred" level of high-speed Internet access, Digital Deluxe cable TV and the Nationwide Connections digital phone plan with unlimited local and long distance calling and five calling features, plus voice mail. Residents pay the development company $145 a month for the services through condo association dues or homeowners fees. The regular retail rate for that same service bundle for Virginia Beach residents is about $160 a month, including estimated taxes and fees . That's about 9 percent more.
Roseland Property Co. has set up such telecom services for its apartment buildings since 2001, said Josh Katz, vice president of development and technology for the company, based in Short Hills, N.J. Roseland has taken advantage of telecom competition in recent years, which has made underdog providers hungrier for business and more willing to discount rates to score large groups of customers.
"We could use our buying power at a rate that was advantageous to our residents," Katz said.
Roseland bundles high-speed Internet access, satellite TV service and a security system into the rent for The Myrtles at Olde Towne apartments in Portsmouth. Myrtles tenants pay about $85 for the services, and residents in most Roseland properties see costs at about 60 to 70 percent of the amount they would usually pay, Katz said.
Residents don't necessarily receive the full discount that developers secure through the bulk purchase. Developers can mark up that discounted rate and collect the difference as revenue, but neither they nor the telecom providers that routinely enter the bulk deals would discuss pricing strategies.
"What they end up offering to their clients is up to them," said Thom Prevette, a spokesman for Cox at its local headquarters in Chesapeake.
Even with discounts, the bulk arrangements don't always represent the lowest cost for consumers. The Lexington plan, for instance, includes rental of a modem for Internet service for an additional $10 per month. Homeowners can buy a modem from Cox for about one-third of that annual rental cost and would spend less than that for a compatible modem from a major electronics store .
The prearranged deals also lock residents into a range of services they might not need or want and otherwise wouldn't have paid for, said Irene Leech, president of Virginia Citizens Consumer Council and an associate professor of consumer affairs at Virginia Tech.
"The problem is, when it isn't a good deal, the consumer has nowhere to go," she said.
Leech has heard several of her students complain about frequent problems with telecom services they receive as a package built into their apartment rent. Once they sign long-term contracts, property owners and telecom companies have little incentive to provide a fast response or to address complaints, she said.
"They're stuck with whoever it is, and they get horrible service," Leech said of her students.
Roseland includes customer service requirements in its contracts with telecom providers, Katz said. They specify the maximum time the provider has to respond to complaints, to leave a customer waiting on the phone and to fix a problem.
Despite initial rate reductions, a long-term contract could allow the telecom provider to raise prices later, while restricting resident s' options to shop around for better deals, said William Irby, director of the communications division of the State Corporation Commission. If competition develops in TV service -- as telephone giant Verizon Communications Inc. has planned with a new fiber-optic system to deliver video signals -- a consumer living under a pre arranged deal would have limited ability to take advantage of it.
That's one reason Roseland has never bulked services for condo owners, Katz said. "For people who are investing long term in a community, for us to lock them long term into a service seemed a little unfair," he said.
Some developers' deals give residents the option to buy services from another provider but usually require them to continue paying the fee to cover the pre-arranged package. Not only would a consumer have to want another service enough to pay on top of those built-in costs, but the alternative provider also would have to see enough financial benefit to justify the investment in wiring a whole building or group of buildings to serve a mere fraction of residents there.
" In most cases, it's not worth it for them to do that," Irby said.
Residents do have the ultimate option to decide against buying or leasing a home that comes bundled with telecom services they dislike. Developers, though, hope residents will see the value of having their services working on move-in day.
"What we're trying to sell them," Katz said, "is the convenience and the value of making that choice for them."
* Reach Carolyn Shapiro at (757) 446-2270 or carolyn.shapiro@pilotonline.com.
Comments to Author: Sent: Tuesday, April 18, 2006 3:04 PM
Hello Carolyn,
Your article, quoted below, exposes something that should be completely illegal the way you explain it. Communications are a personal issue, how much if any and who. The FCC has laws about allowing consumer choice in communications providers. I would guess the practice below is illegal. In addition, communications, be it traditional telephone, IP telephone, Internet access, cable or satellite TV are all very fast changing services and technologies. To lock any person in to a bundle of services with no flexibility in their ability to vary what services they choose is criminal.
What happened to the developer or property owner / manager installing or having installed by companies who offer but do not force use of their services? Having cable, Ethernet, fiber or other cabling or wireless services installed for the benefit of their tenants or owners giving them the choice to buy services (perhaps with discounts being given directly to customers as incentives for them to sign on) is the fair way to provide services to consumers.
Verizon, AT&T, Comcast and other major national communications companies are investing billions of dollars installing technology to the door of homes all over the country. They are not making this investment with a gun to the head of the consumer forcing them to take the service or move. This is what your developers are doing in your article and it is about their profit and the profit of the provider only. This is wrong, illegal and I am glad you have exposed this practice because it is time it be specifically stopped NOW.
Author reply to comments and my reply intermixed:
In a message dated 4/24/2006 2:01:26 P.M. Eastern Standard Time, Carolyn.Shapiro@pilotonline.com writes:
Dear Patrick,
Thank you very much for your interest in and comments on the article. I did look into the legality of this practice among developers and did many interviews about that. I found that regulators generally see nothing illegal about it on its face.
"on its face" is not acceptable. Forcing a citizen / consumer / tenant or whatever to use a pre-contracted provider is wrong. Anyone who cannot see this is obviously a blind 9-5 worker who never had to run a business or procure telecommunications services that sustain their living.
First, the developer that owns the property at the outset does indeed have a choice in telecommunications providers. Developers can consider multiple options from the providers that would like access to their properties, so they can take advantage of competition where it exists and to the extent it is required by regulation.
My Reply: The developer ownership of the property in this case is NOT the same as owning a coffee shop where the customer can go to the next coffee shop to purchase services or products. These are developers that own residential properties they then sell or lease to citizens with rights. Developers can and should shop for the best access deals from telecommunications providers, however this is NOT the same as saying the citizen (consumer) that buys or rents from that developer should be forced into that contract. Period. Each person has different needs. To force a person to buy a package of communications and Internet services they don't need or do not suite their needs is wrong. The developer is developing housing not communications products.
Second, to your point about telecom services being a personal decision and the unfairness of locking in a consumer to a single option, the buyer or renter of a home that comes with pre-arranged telecom service does have the choice not to buy or lease that property. Anyone who dislikes the prospect of being locked into one service can pick a different place to live, if it's an important issue to that individual.
My Reply: This is not an option. If this practice becomes wide spread people all over the country will begin to be forced to use services provisioned by the developer or manager or whatever entity is controlling access into the building. This is wrong and it should not matter if this is a multi tenant building or a single family neighborhood street, the freedom to choose communications services should not be controlled at the outset. Period. Saying the person can move or not live there is absolutely ludicrous. We are talking about an area that some people do not have that kind of choice or flexibility. Where you live is not like which coffee shop you go to. What happens if all developers wether it be single family or multi family begin this practice? What of discrimination between those who live in single family verses multi family residences? What of town homes? Where does this stop? Most of the developed world outside of the US lives in multi family properties. Would you allow this practice there?
My Reply: Communications in this age = Freedom. Period. AT&T, Verizon and other communications providers are starting to understand this and they have proposed some frightening technology limitations for the future on their networks. Access to information = Freedom. Period. Our media companies control 40% of the information broadcast in a given market and this is going to increase with cross ownership of newspapers. Communications via telephone, cable, fiber, satellite or what ever other technology comes along is the fabric of what will allow our citizenry to advance technologically and individually. To deny full access and choice is to cripple the nation's future.
Third, if any resident wanted to seek the services of a provider other than the one under contract with the developer, he or she is able to do so, and a company with a state license to provide telephone service in Virginia could demand access to the rights of way to that property. The question is whether that alternative provider would choose to take the steps and expense necessary to pursue its access to the rights of way, which could involve action in court, and to build its facilities in that development with the expectation of serving perhaps just a handful of customers. So while the customer has the right to go to a different provider and that provider might have the right to serve that customer, the provider also has the right to decline to serve that customer -- as long as the customer does have access to telephone service through the contracted provider.
My Reply: This statement sounds as if it were provided to you directly from the legal team of one of the RBOC's. You seem to forget, this practice of contracting out a deal with a communications provider is separate from the freedom to choose whether to accept those services or be forced to accept them. The issue you lay out above is moot when new technologies such as WiMax and Broadband Cellular services and Satellite communications are taken in consideration. There is no infrastructure required in the building for these services and to be forced to subscribe to a land based service or forced to use a wireless based service for that matter is wrong and short sighted. I think you are missing the point. The RBOC's (Regional Bell Operating Companies) and Cable companies are likely paying fat commissions to developers to "lock" in their tenants to legacy technology often at elevated prices. The consumer's rights are being squashed here. Period.
Fourth, state and federal regulation of telecommunications and requirements for competition generally are limited to telephone services. In that case, the regulation generally applies to the extent to which the dominant phone provider -- which in this area is Verizon Communications Inc. -- has allowed use of its infrastructure to competing companies that want to provide service. As long as competing providers have the ability to compete for access to a particular property, which the developer allows them at the outset, that complies with the rules in most cases. For other telecom services, such as television and Internet, state and federal regulators have few rules.
My Reply: Once again. Telecommunications services should not be locked in to the tenant period. Your point that the "developer allows them at the outset" once again misses the point. The "developer allows the provider". Where is the consumer choice in this formula?
As far as your question about a home being wired for service but the resident not being forced to accept those services, I learned from my reporting that developers generally require residents to pay for the services because the developer has already promised to pay the telecom provider for service to each of those homes. The developers make this promise to gain, in exchange, a discounted bulk rate that they could pass on as a benefit to residents. Whether or not the residents see this as a worthwhile benefit depends on their points of view.
My Reply: When you say "you have learned" I am afraid you have learned right from the mouthpieces of the corporate entities (developers and providers) who stand to benefit directly by force feeding the consumer, citizen, tenant, owner a technology bundle at high cost (regardless if the bundle is a few % lower than purchased separately) they may not need, want or may need or choose otherwise.
I hope this provides some clarification for you. I do understand your points on this subject, and you certainly are entitled to your perspective. Feel free to get in touch with me if you have any other comments or questions.
My Reply: I am extremely disturbed by your inability to comprehend the possibility that citizens / consumers are guaranteed rights in this country and what the developers and providers are doing in this case is plain wrong. Your reply sounds as if it was written by the developers and providers. This is the biggest problem facing America right now. Even people in the media have forgotten that the US is a country of Citizens NOT just corporate entities. Our government has forgotten this for years now. Your writing and reply are evidence that as a member of the media, you represent your institution and your presentation of information above has demonstrated your institution's lost touch with this idea.
I do want to thank you for reporting the story in the first place. For even thought you know not what harm this kind of action would cause, your lack of understanding of the issue and it's impact may be the thing that allowed the story to be printed in the first place.
Apr. 18--When residents move into new homes in the Lexington development in Virginia Beach, they won't have to bother ordering telephone, cable television or high-speed Internet services.
It is already done for them.
Many developers now take it upon themselves to purchase a full package of telecommunications services on behalf of new owners. They're making the arrangements not only in condominiums and apartments, as they have for years, but also increasingly in new subdivisions and in newly built groups of single-family homes.
The developer typically gives a single telecom provider exclusive access to run its wires through the development, guaranteeing it sales to all those homes, in some cases locking up hundreds of customers at once. In exchange, the developer receives a discount on the regular price of the service package and collects the monthly cost of the services through condo or homeowner association fees or apartment rent.
It's unclear whether the deals ultimately save residents money. While customers gain convenience, they lose the ability to shop around and choose the provider or the services they want.
The inclusion of telecom packages is a growing trend in housing development, said Chris Bridge, a community relations consultant for L.M. Sandler and Sons Inc., a Virginia Beach company developing Lexington and other residential projects across Hampton Roads. Residents looking at new construction have come to expect and demand it, she said.
"It's a tremendous advantage for the homeowner to be able to benefit from economies of scale," Bridge said. "Also, it reflects the increasing trend of the technology itself to include the digital services" for phone, cable and Internet access.
Developers consider it one more amenity -- along with installed security systems, groomed landscaping and easy-to-maintain materials -- to appeal to potential buyers. They tout the convenience to the homeowner, the savings of time and trouble they would otherwise spend researching, ordering and setting up their services.
"You don't have to think about it. It's already here," Bridge said.
L.M. Sandler has a contract with Cox Communications Inc., the region's dominant local cable company, to provide telecom packages for 418 condos in Lexington, at Independence Boulevard and Plaza Trail South, and homes in the New Port at Victory development in Portsmouth. Residential projects in Suffolk offer similar packages from Charter Communications Inc., Bridge said.
The Cox package includes the "preferred" level of high-speed Internet access, Digital Deluxe cable TV and the Nationwide Connections digital phone plan with unlimited local and long distance calling and five calling features, plus voice mail. Residents pay the development company $145 a month for the services through condo association dues or homeowners fees. The regular retail rate for that same service bundle for Virginia Beach residents is about $160 a month, including estimated taxes and fees . That's about 9 percent more.
Roseland Property Co. has set up such telecom services for its apartment buildings since 2001, said Josh Katz, vice president of development and technology for the company, based in Short Hills, N.J. Roseland has taken advantage of telecom competition in recent years, which has made underdog providers hungrier for business and more willing to discount rates to score large groups of customers.
"We could use our buying power at a rate that was advantageous to our residents," Katz said.
Roseland bundles high-speed Internet access, satellite TV service and a security system into the rent for The Myrtles at Olde Towne apartments in Portsmouth. Myrtles tenants pay about $85 for the services, and residents in most Roseland properties see costs at about 60 to 70 percent of the amount they would usually pay, Katz said.
Residents don't necessarily receive the full discount that developers secure through the bulk purchase. Developers can mark up that discounted rate and collect the difference as revenue, but neither they nor the telecom providers that routinely enter the bulk deals would discuss pricing strategies.
"What they end up offering to their clients is up to them," said Thom Prevette, a spokesman for Cox at its local headquarters in Chesapeake.
Even with discounts, the bulk arrangements don't always represent the lowest cost for consumers. The Lexington plan, for instance, includes rental of a modem for Internet service for an additional $10 per month. Homeowners can buy a modem from Cox for about one-third of that annual rental cost and would spend less than that for a compatible modem from a major electronics store .
The prearranged deals also lock residents into a range of services they might not need or want and otherwise wouldn't have paid for, said Irene Leech, president of Virginia Citizens Consumer Council and an associate professor of consumer affairs at Virginia Tech.
"The problem is, when it isn't a good deal, the consumer has nowhere to go," she said.
Leech has heard several of her students complain about frequent problems with telecom services they receive as a package built into their apartment rent. Once they sign long-term contracts, property owners and telecom companies have little incentive to provide a fast response or to address complaints, she said.
"They're stuck with whoever it is, and they get horrible service," Leech said of her students.
Roseland includes customer service requirements in its contracts with telecom providers, Katz said. They specify the maximum time the provider has to respond to complaints, to leave a customer waiting on the phone and to fix a problem.
Despite initial rate reductions, a long-term contract could allow the telecom provider to raise prices later, while restricting resident s' options to shop around for better deals, said William Irby, director of the communications division of the State Corporation Commission. If competition develops in TV service -- as telephone giant Verizon Communications Inc. has planned with a new fiber-optic system to deliver video signals -- a consumer living under a pre arranged deal would have limited ability to take advantage of it.
That's one reason Roseland has never bulked services for condo owners, Katz said. "For people who are investing long term in a community, for us to lock them long term into a service seemed a little unfair," he said.
Some developers' deals give residents the option to buy services from another provider but usually require them to continue paying the fee to cover the pre-arranged package. Not only would a consumer have to want another service enough to pay on top of those built-in costs, but the alternative provider also would have to see enough financial benefit to justify the investment in wiring a whole building or group of buildings to serve a mere fraction of residents there.
" In most cases, it's not worth it for them to do that," Irby said.
Residents do have the ultimate option to decide against buying or leasing a home that comes bundled with telecom services they dislike. Developers, though, hope residents will see the value of having their services working on move-in day.
"What we're trying to sell them," Katz said, "is the convenience and the value of making that choice for them."
* Reach Carolyn Shapiro at (757) 446-2270 or carolyn.shapiro@pilotonline.com.
Comments to Author: Sent: Tuesday, April 18, 2006 3:04 PM
Hello Carolyn,
Your article, quoted below, exposes something that should be completely illegal the way you explain it. Communications are a personal issue, how much if any and who. The FCC has laws about allowing consumer choice in communications providers. I would guess the practice below is illegal. In addition, communications, be it traditional telephone, IP telephone, Internet access, cable or satellite TV are all very fast changing services and technologies. To lock any person in to a bundle of services with no flexibility in their ability to vary what services they choose is criminal.
What happened to the developer or property owner / manager installing or having installed by companies who offer but do not force use of their services? Having cable, Ethernet, fiber or other cabling or wireless services installed for the benefit of their tenants or owners giving them the choice to buy services (perhaps with discounts being given directly to customers as incentives for them to sign on) is the fair way to provide services to consumers.
Verizon, AT&T, Comcast and other major national communications companies are investing billions of dollars installing technology to the door of homes all over the country. They are not making this investment with a gun to the head of the consumer forcing them to take the service or move. This is what your developers are doing in your article and it is about their profit and the profit of the provider only. This is wrong, illegal and I am glad you have exposed this practice because it is time it be specifically stopped NOW.
Author reply to comments and my reply intermixed:
In a message dated 4/24/2006 2:01:26 P.M. Eastern Standard Time, Carolyn.Shapiro@pilotonline.com writes:
Dear Patrick,
Thank you very much for your interest in and comments on the article. I did look into the legality of this practice among developers and did many interviews about that. I found that regulators generally see nothing illegal about it on its face.
"on its face" is not acceptable. Forcing a citizen / consumer / tenant or whatever to use a pre-contracted provider is wrong. Anyone who cannot see this is obviously a blind 9-5 worker who never had to run a business or procure telecommunications services that sustain their living.
First, the developer that owns the property at the outset does indeed have a choice in telecommunications providers. Developers can consider multiple options from the providers that would like access to their properties, so they can take advantage of competition where it exists and to the extent it is required by regulation.
My Reply: The developer ownership of the property in this case is NOT the same as owning a coffee shop where the customer can go to the next coffee shop to purchase services or products. These are developers that own residential properties they then sell or lease to citizens with rights. Developers can and should shop for the best access deals from telecommunications providers, however this is NOT the same as saying the citizen (consumer) that buys or rents from that developer should be forced into that contract. Period. Each person has different needs. To force a person to buy a package of communications and Internet services they don't need or do not suite their needs is wrong. The developer is developing housing not communications products.
Second, to your point about telecom services being a personal decision and the unfairness of locking in a consumer to a single option, the buyer or renter of a home that comes with pre-arranged telecom service does have the choice not to buy or lease that property. Anyone who dislikes the prospect of being locked into one service can pick a different place to live, if it's an important issue to that individual.
My Reply: This is not an option. If this practice becomes wide spread people all over the country will begin to be forced to use services provisioned by the developer or manager or whatever entity is controlling access into the building. This is wrong and it should not matter if this is a multi tenant building or a single family neighborhood street, the freedom to choose communications services should not be controlled at the outset. Period. Saying the person can move or not live there is absolutely ludicrous. We are talking about an area that some people do not have that kind of choice or flexibility. Where you live is not like which coffee shop you go to. What happens if all developers wether it be single family or multi family begin this practice? What of discrimination between those who live in single family verses multi family residences? What of town homes? Where does this stop? Most of the developed world outside of the US lives in multi family properties. Would you allow this practice there?
My Reply: Communications in this age = Freedom. Period. AT&T, Verizon and other communications providers are starting to understand this and they have proposed some frightening technology limitations for the future on their networks. Access to information = Freedom. Period. Our media companies control 40% of the information broadcast in a given market and this is going to increase with cross ownership of newspapers. Communications via telephone, cable, fiber, satellite or what ever other technology comes along is the fabric of what will allow our citizenry to advance technologically and individually. To deny full access and choice is to cripple the nation's future.
Third, if any resident wanted to seek the services of a provider other than the one under contract with the developer, he or she is able to do so, and a company with a state license to provide telephone service in Virginia could demand access to the rights of way to that property. The question is whether that alternative provider would choose to take the steps and expense necessary to pursue its access to the rights of way, which could involve action in court, and to build its facilities in that development with the expectation of serving perhaps just a handful of customers. So while the customer has the right to go to a different provider and that provider might have the right to serve that customer, the provider also has the right to decline to serve that customer -- as long as the customer does have access to telephone service through the contracted provider.
My Reply: This statement sounds as if it were provided to you directly from the legal team of one of the RBOC's. You seem to forget, this practice of contracting out a deal with a communications provider is separate from the freedom to choose whether to accept those services or be forced to accept them. The issue you lay out above is moot when new technologies such as WiMax and Broadband Cellular services and Satellite communications are taken in consideration. There is no infrastructure required in the building for these services and to be forced to subscribe to a land based service or forced to use a wireless based service for that matter is wrong and short sighted. I think you are missing the point. The RBOC's (Regional Bell Operating Companies) and Cable companies are likely paying fat commissions to developers to "lock" in their tenants to legacy technology often at elevated prices. The consumer's rights are being squashed here. Period.
Fourth, state and federal regulation of telecommunications and requirements for competition generally are limited to telephone services. In that case, the regulation generally applies to the extent to which the dominant phone provider -- which in this area is Verizon Communications Inc. -- has allowed use of its infrastructure to competing companies that want to provide service. As long as competing providers have the ability to compete for access to a particular property, which the developer allows them at the outset, that complies with the rules in most cases. For other telecom services, such as television and Internet, state and federal regulators have few rules.
My Reply: Once again. Telecommunications services should not be locked in to the tenant period. Your point that the "developer allows them at the outset" once again misses the point. The "developer allows the provider". Where is the consumer choice in this formula?
As far as your question about a home being wired for service but the resident not being forced to accept those services, I learned from my reporting that developers generally require residents to pay for the services because the developer has already promised to pay the telecom provider for service to each of those homes. The developers make this promise to gain, in exchange, a discounted bulk rate that they could pass on as a benefit to residents. Whether or not the residents see this as a worthwhile benefit depends on their points of view.
My Reply: When you say "you have learned" I am afraid you have learned right from the mouthpieces of the corporate entities (developers and providers) who stand to benefit directly by force feeding the consumer, citizen, tenant, owner a technology bundle at high cost (regardless if the bundle is a few % lower than purchased separately) they may not need, want or may need or choose otherwise.
I hope this provides some clarification for you. I do understand your points on this subject, and you certainly are entitled to your perspective. Feel free to get in touch with me if you have any other comments or questions.
My Reply: I am extremely disturbed by your inability to comprehend the possibility that citizens / consumers are guaranteed rights in this country and what the developers and providers are doing in this case is plain wrong. Your reply sounds as if it was written by the developers and providers. This is the biggest problem facing America right now. Even people in the media have forgotten that the US is a country of Citizens NOT just corporate entities. Our government has forgotten this for years now. Your writing and reply are evidence that as a member of the media, you represent your institution and your presentation of information above has demonstrated your institution's lost touch with this idea.
I do want to thank you for reporting the story in the first place. For even thought you know not what harm this kind of action would cause, your lack of understanding of the issue and it's impact may be the thing that allowed the story to be printed in the first place.
The new US Government Shakedown...
It was during the Clinton administration that the practice of shaking down corporate entities under the Republican controlled house became a fine art. By the early 2000's the money was pouring in. The US Government has always been good at raking in the cash from constituents whenever possible. I remember the tobacco company's CEO's sitting in front of congress being questioned about a legal product that was getting farm subsidies as if they had done something wrong. Besides all the moral and legal issues the BIG elephant was the amount of money members of congress were able to rake out of those cash rich companies.
Now they have got a big new hot potato that will bring in more cash, more cash. In case you don't know, ex members of congress and their staffers and all the other inbreeds in Washington often go to work for lobbying firms. You know what they do. Get paid BIG BUCKS to open doors for those with big bucks. Check this out:
Non-US companies wanting to acquire sensitive US assets are increasingly seeking the blessing of lawmakers on Capitol Hill as they move forward with their transactions.
The trend underscores how dramatically the environment for deals has changed since the controversy over Dubai Ports World.
Executives, lobbyist and attorneys involved in recent high-profile deals, including Alcatel's merger with Lucent and Toshiba’s takeover of Westinghouse, are reaching out to lawmakers to educate them about their transactions and ways to mitigate any potential national security-related concerns.
In one case, a New York-based fuel cell producer, Plug Power, approached senators Chuck Schumer and Hillary Clinton and other politicians to help pave the way for a $240m (£135m) investment into Plug Power by a Russian company headed by billionaire Vladimir Potanin. The trend has emerged as legislators debate plans to revamp the way the US reviews foreign deals on national security grounds.
The Dubai Ports Deal sure did wake up congress. Hey, man, this is a gold mine. If every major international business deal has to be cleared by congress just think of how much money is going to flow through Washington. Just think about it. Man it is going to be huge!
Well uh, I remember when US companies wanted to invest in the "old" Soviet Union. I remember reading about companies not being able to determine who had real athority to approve an investment. There were so many power centers in Moscow it was a joke. Companies had to jump so many hurdles (and I am sure grease so many palms) they eventually made one decision, give up. Investment in the old Soviet Union was non-existant.
Now Washington is treading on thin ice. It is a dangerious prescident to have the Dubai Ports Deal spill over to the point where companies have to lobby various power centers in Washington to get a deal approved. They will just stay away. With the US trade deficit approacing $100 Billion per year and the US government annual deficit approaching $800 Billion per year and all this debt increasingly being financed by forigen governments what exactly are they supposed to do with all the quickly decreasing value of dollars? We need those dollars flowing back to the US and we don’t need our government greasing their palms over every deal.
When Washington starts looking like the Soviet Union in 1980 we will have a problem... We have a problem.
Source: Acquisitive companies turn to US Congress>By Stephanie Kirchgaessner in Washington>Published: April 23 2006 22:02 Last updated: April 23 2006 22:02
http://news.ft.com/cms/s/85aca590-d306-11da-828e-0000779e2340,s01=1.html
Now they have got a big new hot potato that will bring in more cash, more cash. In case you don't know, ex members of congress and their staffers and all the other inbreeds in Washington often go to work for lobbying firms. You know what they do. Get paid BIG BUCKS to open doors for those with big bucks. Check this out:
Non-US companies wanting to acquire sensitive US assets are increasingly seeking the blessing of lawmakers on Capitol Hill as they move forward with their transactions.
The trend underscores how dramatically the environment for deals has changed since the controversy over Dubai Ports World.
Executives, lobbyist and attorneys involved in recent high-profile deals, including Alcatel's merger with Lucent and Toshiba’s takeover of Westinghouse, are reaching out to lawmakers to educate them about their transactions and ways to mitigate any potential national security-related concerns.
In one case, a New York-based fuel cell producer, Plug Power, approached senators Chuck Schumer and Hillary Clinton and other politicians to help pave the way for a $240m (£135m) investment into Plug Power by a Russian company headed by billionaire Vladimir Potanin. The trend has emerged as legislators debate plans to revamp the way the US reviews foreign deals on national security grounds.
The Dubai Ports Deal sure did wake up congress. Hey, man, this is a gold mine. If every major international business deal has to be cleared by congress just think of how much money is going to flow through Washington. Just think about it. Man it is going to be huge!
Well uh, I remember when US companies wanted to invest in the "old" Soviet Union. I remember reading about companies not being able to determine who had real athority to approve an investment. There were so many power centers in Moscow it was a joke. Companies had to jump so many hurdles (and I am sure grease so many palms) they eventually made one decision, give up. Investment in the old Soviet Union was non-existant.
Now Washington is treading on thin ice. It is a dangerious prescident to have the Dubai Ports Deal spill over to the point where companies have to lobby various power centers in Washington to get a deal approved. They will just stay away. With the US trade deficit approacing $100 Billion per year and the US government annual deficit approaching $800 Billion per year and all this debt increasingly being financed by forigen governments what exactly are they supposed to do with all the quickly decreasing value of dollars? We need those dollars flowing back to the US and we don’t need our government greasing their palms over every deal.
When Washington starts looking like the Soviet Union in 1980 we will have a problem... We have a problem.
Source: Acquisitive companies turn to US Congress>By Stephanie Kirchgaessner in Washington>Published: April 23 2006 22:02 Last updated: April 23 2006 22:02
http://news.ft.com/cms/s/85aca590-d306-11da-828e-0000779e2340,s01=1.html
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