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.

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.

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?

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...

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.

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.

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.

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

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.

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.

Miami-based Burger King said in an updated prospectus filed with the Securities and Exchange Commission Tuesday that it plans to sell 25 million shares to the public in the IPO; an additional 3.75 million shares could also be sold at the IPO price if the company's underwriters, led by JP Morgan Chase & Co. (JPM), opt to exercise an over-allotment clause.

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)

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.

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,

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.

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

Wake up call on Oil..

So, some members of our government have decided to wake up... Have they? Or are they looking to just shake down the oil companies while looking like they care about the little guy?

USA Today reports:

Sen. Carl Levin, D-Mich., said on CNN's Late Edition that President Bush should call for a windfall profits tax on the oil companies' "extreme, obscene profits."

Sen. Arlen Specter, R-Pa., appearing on the same program, said a windfall profits tax is "something worth considering," as well as legislation targeting consolidation of oil companies.

Well Consider this.

Our government has forgotten the basic element that certain raw materials and minerals are "national assets" meaning enjoyed by all Americans. The fact that corporate entities are allowed to extract and market these national resources is part of the fabric of our capitalist system.

However, when market forces (and this is not necessarily a scheme by oil companies) push the prices of these resources beyond any reasonable level allowing excessive profits, it is time to remember these are resources of our people. While our people's pension system is nearly bankrupt, largely due to the pensions being dumped on the government (taxpayer) by airlines and manufacturers being hurt by high energy costs in their product or the products of the companies they sell to, it is high time we tax the exorbitant profits for the benefit of the people.

It is also important to note, Oil is not a micro circuit. What is meant is, the price of oil is not due to any ingenious technology or patented product that has human ingenuity at risk. No, oil still costs under $10 a barrel to take out of the ground in most of the world (some places under $7.00 per barrel), so to NOT tax the profits being made at $75 a barrel is to allow the companies that extract the product a right to steal from the citizens that "own" those resources by essentially forcing a tax so large no government could get away with without being overthrown... Well except the US government eh?

The UK has initiated a windfall profit on oil companies because they understand this point and their government still has the capability of functioning in the interests of its citizens and not just the corporate entities that pay for their representation.

Gates, the monopolistic Hero

So as Bill Gates, the richest American on the planet, enters Vietnam for a one day visit he is mobbed by enthusiastic students touting his books. A short 30 years ago over 3,000,000 Vietnamese died at the hands of the Americans. And they say Americans have short memories.

Death, cleansing the earth of a few hundred thousand from time to time just does not seem to matter in the grand scheme of things now does it? Besides, 3,000,000 today is but .0005 % of the global population. What's the big deal? In 30 years no one will give a shit.

Just make sure they are not Americans, right?

Reality often comes from those not necessarily your friends...

Watch the dollar, not the yuan, Zhou says
Chinese central banker defends right to choose currency regime

This quote from The Chinese central banker is important. It could also be phrased, "Look in the mirror stupid.", as Americans and their leaders ignorantly finger wag their problems at others.

Who wants dollars? People selling oil demand $75 of them now. Gold sellers demand $625. You know why? The dollar is in trouble. Your (American) government has raided the treasury and fattened the coffers of its buddies and now your government is $760 billion in debt each year.

Yea, that is in addition to $800 billion in trade deficit and $7 trillion in accumulated government debt. Oh, and when the nations with piles of dollars try to invest them back in the US your government says emphatically "No". Go figure. The impotent, corporate government you have elected is saying indirectly, "Just take the mountains of dollars you have, bundle them up and use them for fuel", for the 2+ billion people that live on less than $3.00 a day in the nations hoarding the most dollars right now.

Some other quotes from the Central Banker of one such nation...

" A top Chinese official said Saturday the dollar represents a greater risk to the global economy than the yuan does. Rather than monitoring the yuan, global financial institutions should watch the U.S. dollar, said Zhou Xiaochuan, the governor of the Peoples' Bank of China. "

"Global trade, settlements and reserve assets are heavily reliant on a single currency," Zhou said in remarks to the International Monetary Fund. "The fund should give priority to establishing a surveillance and check-balance mechanism of the major reserve currency countries."

"Favorable conditions in the financial markets do not rule out the possibility of a sudden reversal in sentiment," Zhou said. The lack of coordination in the G7 on monetary policy "could result in large and volatile movements of financial markets."

"We cannot ignore the risk of disorderly adjustments in financial markets," Zhou said.

Yea, time to start understanding, your house did not double in value in 5 years, the amount of house you can buy with your worthless currency has halved in 5 years.

Soak on that for a while.

Quotes from Marketwatch.com 7:18 PM ET Apr%2

Surpasses all Expectations

Remember, 1/2 dozen private equity companies with gross revenues of $100 billion each by the end of the decade... Check out latest super successful $14 billion fund raising... Also, oil money has found a way to "buy in" without having to put their mark on it.

Where does it all end?

URL (where available here)

Texas Pacific raises record $14bn for new fund
By Peter Smith In New York
Published: April 2 2006 22:01 | Last updated: April 2 2006 22:01

Texas Pacific Group will this month tell investors it has raised more than $14bn for its latest buy-out fund, the biggest single pool of capital raised in global private equity.

TPG recently contacted investors to say it planned to inflate the size of its new fund beyond its original target, which was initially expected to be in the $10bn to $12bn range.

The decision follows a seemingly insatiable appetite from new and former investors, including banks, insurance companies, public and private pensions schemes, university endowments and wealthy individuals, to pump capital into the asset class.

Larger amounts of Middle Eastern capital are also flowing into private equity funds.