http://www.articletrader.com/ Articles at ArticleTrader en-us http://www.articletrader.com/society/politics/national-intelligence-estimate-al-qaeda-back-stronger-then-ever-whos-kidding-who.html http://www.articletrader.com/society/politics/national-intelligence-estimate-al-qaeda-back-stronger-then-ever-whos-kidding-who.html Thu, 19 Jul 2007 00:00:00 -0500
This latest one is very special in that you must read between the lines to understand what it is saying. Some of the key concepts are “US Homeland will face a persistent and evolving terrorist threat over the next three years. …Main threat comes from Islamic terrorist groups and cells, especially Al-Qaeda. Group has protected or regenerated key elements of its Homeland attack capability, including: as a safe haven in the Pakistan Federally Administered Tribal Areas (FATA). We assess that..Al-Qaeda’s association with Al-Qaeda Iraq’s helps Al-Qaeda to energize the broader Sunni extremist community, raise resources, and to recruit and indoctrinate operatives, including for Homeland (meaning United States) attacks.”


This is not what you said Two Years Ago, Mr. President!!!!

In the last National Intelligence Estimate two years ago, Al-Qaeda was on the run, broken up, being smashed. There was supposedly a direct link between the war in Iraq and the lessened threat level presented by Al-Qaeda. This is why we say; you must read between the lines of the latest estimate. If things were so bad for Al-Qaeda just two years ago, how could they have to quote the document, “REGENERATED”? What were we doing, sleeping at the switch.

Let’s Look Back a Moment


1) We had Bin Laden trapped in Afghanistan after the 9/11 tragedy, absolutely trapped. Instead of finishing the man and his people with our own troops who were present and capable of doing the job, we paid the local trial leaders in American $100 dollar bills to do the job. Bin Laden paid them more, and escaped successfully with his underlings to the safety of the Pakistani mountains where he is today.

2) We have given President Musharraf over $10 billion in cold American currency to finish Bin Laden and he never got the job done. He constantly gives lip service to the task, but nothing happens. In fact, Musharraf cut a deal with the chieftains protecting Bin Laden to let them administer these provinces, and now the chiefs have not adhered to their side of the bargain.

3) President Bush has always stated that this country is safer because we went into Iraq. This latest National Intelligence Estimate does not agree with that assessment, although the intelligence agencies will not say so directly. The fact that Al-Qaeda has reconstituted itself and is bigger and stronger than ever clearly tells you that the resources, which have gone into Iraq, were a diversion from the real war on terrorism, which is Al-Qaeda.


For more on this topic, please see our expanded article on our website


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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

http://www.stocksatbottom.com/al_qaeda.htm

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-research-another-hedge-fund-warns--basis-capital-this-is-just-the-beginning.html http://www.articletrader.com/finance/investing/stock-research-another-hedge-fund-warns--basis-capital-this-is-just-the-beginning.html Thu, 19 Jul 2007 00:00:00 -0500
An example is now the latest announcements coming out of Basis Capital. Apparently this hedge fund was invested in the US home loans to investors are less than creditworthy. The hedge fund claims that the collateral in their portfolio is sound, but sound is a matter of judgment. Unfortunately for Basis Capital, the prime broker clearing for the hedge fund doesn’t agree with them. The prime broker has re-priced this so-called sound collateral.

What does it mean?

The hedge fund now has to go into a crisis mode to survive. Immediately many investors will ask for their money back. This is the step that kills off the hedge fund. In order to prevent a run on the bank, as they like to say, the hedge fund has announced that they may restrict redemptions, which is the right of the investor to withdraw their money at, will. If investors are allowed to withdraw their funds, the collateral securing the underlying investments usually collapses because other smart money knows that that collateral has to be sold in order to fund the redemptions.

Prior to originating a hedge fund, most hedge funds will install restrictive covenants in their investor agreement that build in what are called gates. These gates limit by quarter what can be withdrawn from the fund. It’s about self-preservation. In this case Basis Capital and its two hedge funds require 90 days notice before capital can be withdrawn. Once again this policy attempts to prevent a forced liquidation of the underlying collateral securing the hedge funds’ investments.

Basis Capital has warned that the true extent of their problems might not become evident until September. What does that mean? These people mark to market every day. They have the finest computer pricing systems in the world. PhD’s in mathematical modeling are a dime a dozen in the hedge fund industry, and yet this hedge fund doesn’t know where it stands financially. This is a breakdown in the system, and it has great meaning to the rest of the hedge fund industry.

What happened to Basis Capital is very simple. In the range of assumptions they used to make their bets they determined normal risk parameters. They did not give any consideration to the possibility that the investments they were making might, just might move outside their normal variability ranges. In other words they excluded worst-case possibilities from their consideration. The melt down of the sub prime lending market is such a possibility and it has HAPPENED. For an elaboration of this article, please see our website.


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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

http://www.stocksatbottom.com/hedge_fund_warns_basis_capital.htm





Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-research-as-hedge-fund-industry-and-private-equity-gets-hotter-heat-is-building-on-them-too.html http://www.articletrader.com/finance/investing/stock-research-as-hedge-fund-industry-and-private-equity-gets-hotter-heat-is-building-on-them-too.html Thu, 19 Jul 2007 00:00:00 -0500
It is strange to ponder, but the Republican Party which is considered by most to be the party of fiscal responsibility has probably generated 80% to 90% of the nation’s accumulated national debt. Nevertheless, myths still persist that the Democrats are the big spenders. Just today, the major newspapers featured articles stating that Bush says Democrats must control spending.

Now there are only two ways to deal with spending. The first is to spend less, but no politician likes that concept. The first rule of government is that politicians regardless of party SPEND MONEY. The second way is to raise taxes in an attempt to close the gap between spending and revenues taken in. With the Democrats in power, they will use the second method, which now brings us to Hedge Funds and Private Equity.

Under the provisions of the current tax code, both Hedge Funds and Private Equity are given preferential tax treatment. Certain items of income which might be considered subject to ordinary income tax rates are instead subject to 15% capital gains tax rates. As for the equity of this policy, the quick and dirty of it, is that there is no equity or fairness. The tax code is 80,000 pages of special interests. Every provision in the tax code was written in a certain way to benefit some one, or some special interest, whether it’s the farmer or a hedge fund, or the restaurant industry. Everybody exercised their political muscle at one time or another to get what they could out of the tax code.

These special interests just head down to Washington DC and meet with the people who control the Congress, go to fancy restaurants, and try to re-work the tax code to benefit themselves. The latest journeyman to Washington is none other than Henry Kravis, the man who made the private equity industry what it is today, through the formation of Kohlberg, Kravis, Roberts and Company (KKR). Democratic Congressman Sander M. Levin is proposing to more than double the amount of taxes Kravis now pays. Kravis is a billionaire several times over, and he’s still looking to cut his tax bill. Whatever happened to giving back. Whatever happened to Andrew Carnegie’s approach to civic responsibility?

The Congressman’s staff asked Henry Kravis very pointedly, if increasing taxes on private equity would adversely affect workers and other middle income type families by distinctly lowering returns that pension funds got on their investments. When Kravis answered “No”, the meeting ended abruptly.

In other meetings, Stephen Schwartzman who founded the Blackstone Group, and David Rubenstein, who co-founded the Carlyle Group have met with other regulators in an attempt to stall the tide. Lobbying groups are being set up in a hurry, and money is being poured into them by private equity and hedge funds, who up until recently were asleep at the switch. They did not realize to what extent Washington has had them in their gun sights. For more on this topic, please visit our website.



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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

http://www.stocksatbottom.com/hedge_fund_industry_private_equity.htm





Source: http://www.articletrader.com ]]> http://www.articletrader.com/food/does-made-in-china-now-mean-what-made-in-japan-use-to-mean.html http://www.articletrader.com/food/does-made-in-china-now-mean-what-made-in-japan-use-to-mean.html Thu, 19 Jul 2007 00:00:00 -0500
One of the medicines was a gall bladder medication. It contained inappropriate ingredients. It was consequently established that several people (five) died as a result of using the pills. Unlike many other countries, a figure like Zheng Xiaou would be arrested, given a trial that would take five years, and then perhaps spend some time in prison. In China he was executed a couple of weeks ago, less than 2 months after his arrest. Zheng was convicted of taking over $800,000 in brides from eight different pharmaceutical companies.

What’s Happening Here?

China is finding itself in the same position that Japan was in the 1970’s. Back then, Japan was industrializing, and having massive quality control problems. This went on for years. There was a time that “Made in Japan” meant a product that was inexpensive (cheap) with terrible quality. Over a period of 20 years, the Japanese mastered quality control, thanks to the works of Dr. W. Edwards Deming, the man who understood quality processes better than any other American. The Americans didn’t listen to him, but the Japanese treated him like a God. The rest they say is history.

Now China finds itself in the same position as Japan in the 1970’s but there are differences. Rapid industrialization in China without the proper Deming type systems in place is leading to quality control problems that are now making headlines on a weekly basis. From pet foods to tainted poisonous toothpaste, China has problems across the board. Tires have been manufactured lacking normal safety features. Other problems have included milk powder being faked. Several babies died as a result of its consumption. They even used a cancer-causing dye for the coloring of egg yolks.

Coupled with these product safety issues is an inflexible political system still based on communist ideology? This cannot continue indefinitely. No economic system in history can go through rapid economic growth and at the same time maintain an inflexible political system, not based on the rule of law. It has never happened before, and it is not going to work now.

What’s News HERE is not News in China!!!

The problems taking place in China are not news to those living in China. These issues have been going on for quite a while, and run much deeper than the executions of a few top officials. Take China’s coalmines as an example. Thousands of Chinese workers die every year in China’s mines because of poor safety conditions. There is not a single coalmine in America that would tolerate China’s safety standards. There is an absence of ethical standards, promulgated by an insatiable desire to chase dollars, with no consideration for the lives of workers. For more on this topic, please visit our website.

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

Value Investing at StocksAtBottom.com/




Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-research-margin-debt-has-always-been-for-the-suicidal.html http://www.articletrader.com/finance/investing/stock-research-margin-debt-has-always-been-for-the-suicidal.html Thu, 19 Jul 2007 00:00:00 -0500
There is another way to go however. You can buy the $100,000 worth of IBM, and decide not to pay the full cost of the investment. Instead, you open a margin account with the brokerage firm, sign the appropriate documents and bingo, you can now buy that IBM by putting just 50% down, and the brokerage firm lends you the balance. They don’t do it for free however. They charge you a fee on the borrowed funds. Depending upon how good a customer you are (frequency and size of trades), the interest rate charged will vary.

In a sense margin debt is somewhat similar to how you bought your house. When you bought your house, you probably did not fully pay for it. Instead, you put more than likely, 20% down, and borrowed the rest in the form of a mortgage from the bank. The difference is that in financial world, you must put 50% down to purchase a stock.

The Other Big Difference

If you buy stocks on margin, and the stocks decline in value, you could get called on the debt. Brokerage firms feel very comfortable lending money for margin accounts because they hold the securities as collateral. Brokerage firms begin to feel very uncomfortable when those stocks begin to go down in value. If the stocks should go down in value to the extent where the underlying securities are no longer supporting the value of the account, the account is deemed to be negative equity. This then becomes the brokerage firm’s worst nightmare.

It’s gets even better. Hedge funds are called hedge funds because when they go long certain positions, they are supposed to be short other positions to OFFSET the long positions. Hedge funds therefore make their money on VOLATILITY. The laws allow hedge funds to borrow (leverage) their capital base. This means instead of putting down 50% on an investment’s market value, they will use as much as six times leverage. We have seen hedge funds go to ten times leverage. Recently, we have also seen hedge funds crash and burn.

This is what you need to know. Years ago, when I was with the largest investment firm in the world, we did an internal study. The study showed that the average life expectancy of a margin account before getting a margin call (the need to deposit more cash into an account) was 19 months. This means in our opinion that if you are a margin player, you will at some point get called on the account.

Are we in trouble with the amount of margin debt in this country? Go to our website for a continuation of this article, and find out for yourself, you are going to be SHOCKED at the answer.


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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

http://www.stocksatbottom.com/

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-research-hedge-funds-if-bear-stearns-doesnt-know-who-knows.html http://www.articletrader.com/finance/investing/stock-research-hedge-funds-if-bear-stearns-doesnt-know-who-knows.html Wed, 11 Jul 2007 00:00:00 -0500

Investment firms for almost a decade sat by and watched hedge funds form, and amass vast investment capital pools while successfully charging 2% management fees, and 20% of the profits. Some of these hedge funds in a few years, have grown to possess capital bases equal to that of investment banking firms that have been around for generations. Taking some of the risks that were involved to achieve this performance is now coming home to roost.

Bear Stearns is the latest firm to stub its toe in the hedge fund industry. The firm is FAMOUS for quantifying and judging RISK before making its bets. This time however it seems that Bear Stearns threw its usual caution to the wind in embracing the formation of two hedge funds over the last year or so.

The second hedge fund was considered a more highly-leveraged version of Bear’s High –Grade structured Credit Strategies fund which was formed last year. Both funds were managed by Ralph Cioffi, who up until recent events took hold, had the reputation of being a MASTER at this game, and the game is the subprime mortgage bond business.

Most people are not aware of it but Bear Stearns is the finest fixed income trading firm on the planet bar none, and this has been true for several generations. This makes recent events even more perplexing to understand.

Jimmy Cayne who is Bear’s CEO is embarrassed at the very least, and certainly upset enough that there will be major changes in the leadership of the units responsible for the pain being inflected on the firm’s reputation. This should not have happened at Bear Stearns, that’s the point.

Actions Taken and Implications

Mr. Cayne has made the decision to inject $3.2 billion of Bear Stearns capital into a bail-out of the older fund. Bear is also negotiating with the banks that put up the credit facility for the other fund, the highly leveraged High-Grade Enhanced Leveraged fund. What Bear is trying to prevent is the forced sale of the debt obligations underlying the fund’s investments. These issues trade by appointment as they say, which means they rarely trade at all. Bear knows the Street smells blood, and will take advantage of any weakness that Bear shows.


So what are the implications of this latest hedge fund debacle? It clearly shows that the most sophisticated investors on the planet who put their money into hedge funds may in fact have NO IDEA what they are investing in. Instead, they are betting on the institutional reputation of the firms standing in back of the hedge funds. In this case nobody knew more about this market segment than Bear Stearns, yet they caught in a terrible position.

This is not Cayne’s fault, but as CEO, it is always his responsibility. I believe him to be the finest Wall Street executive of his generation. Nevertheless, his underlings certainly let him down, and they are among the highest paid people in the world today. Some of these industry veterans are drawing $10 million dollar annual incomes. Let the investor beware is the rule of the day, especially when it comes to hedge funds.

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com. For a fuller version of this article, please visit our website.

Value Investing at StocksAtBottom.com/ez.html
www.stocksatbottom

Source: http://www.articletrader.com ]]> http://www.articletrader.com/health/medicine/stock-research-statin-drugs-cholesterol-fighters-and-new-side-effects-revealed.html http://www.articletrader.com/health/medicine/stock-research-statin-drugs-cholesterol-fighters-and-new-side-effects-revealed.html Tue, 03 Jul 2007 00:00:00 -0500

Statin drugs are the most profitable drugs manufactured by the major drug firms. The five principal drug companies and their respective statin drugs are:


Name of Drug Company Generic Name Brand Name

Merck (Stock Symbol MRK) Zocor Simvastatin
Merck Mevacor Lovastatin
Pfizer Lipitor Atorvastatin
AstraZeneca Crestor Rosuvstatin
Kos Pharaceuticals Advicor Lovastatin
Abbott Labatories Lescol Fluvastatin


Research has shown that half the people in this country who suffer heart attacks have NORMAL Cholesterol levels at the time of their attack. That’s right; half the heart attack victims are NORMAL. This implies that your Total Cholesterol level is not the MAGIC KEY that doctors are looking for. We also know that if you drive your LDL (BAD) Cholesterol level down to 60, heart disease seems to stop dead in its tracks. LDL Cholesterol is a subset of your Total Cholesterol. It is just one component of your Cholesterol, but obviously a very important one.

Here’s the Potential PROBLEM???

We know that all drugs have side effects. Manufacturers attempt to measure and quantify these side effects during the FDA approved clinical trials. These trials take place prior to a drug’s mass distribution to the public. Sometimes, certain side effects do not become apparent until years after the drug’s release.


Dr. Ralph Edwards is the director of the drug-monitoring center of the World Health Organization (WHO). He possesses a data base containing 4 million people, the drugs they take, and the side effects they report. He has found 172 people in that data base who developed Lou Gehrig’s disease or something similar. All 172 had been taking prescription drugs. Of these, 40 had been taking statin drugs, which is the subject of our discussion.

Statistically, no more than ten patients should have been taking statin drugs and reported this type of result. It is a statistically unexplainable event. In other words too many people taking statin drugs are reporting the development of Lou Gehrig’s disease, or similar type illnesses. We are not saying there is a direct correlation between the use of the statin drug and the onset of these crippling diseases. There is without question, cause for immediate and further study.

In addition, if you are taking any of the statin drugs listed in this article, and you are experiencing any type of side effects at all, INFORM YOUR DOCTOR IMMEDIATELY. Call him TODAY, not TOMMORROW.

Throughout the decades the major drug companies have attempted to downplay drug side effects. This explains the FDA’s policy for decades of keeping drug side effects quiet. They were not published in the media. The World Health Organization is under no such requirement. Over the last couple of years, the FDA in response to public demand has published their drug findings on the Internet on a quarterly basis.

PATIENT BEWARE

Most of us were taught the term caveat emptor, which means BUYER BEWARE. We now must use the term PATIENT BEWARE. We have a responsibility to our loved ones, and ourselves to be aware of the adverse effects of the drugs we are using. In the 21st century, we are in a period of information overload. There is simply too much information coming at all of us to digest. This includes doctors. We as patients can not be completely reliant on our doctors being 100% knowledgeable about the adverse events that can be produced by the drugs their patients are taking. You must be informed yourself. For a more elaborate version of this article, please see our website.

Goodbye and Good Luck

Richard Stoyeck
StocksAtBottom.com

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

Value Investing at StocksAtBottom.com/ez.html




Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-investing-subprime-lender-new-century-out-of-control.html http://www.articletrader.com/finance/investing/stock-investing-subprime-lender-new-century-out-of-control.html Mon, 12 Mar 2007 00:00:00 -0500
If however, you loan out another billion dollars quickly, and maybe, just maybe these new loans are okay, and how could they be, if the same fellows who made the problem loans are the same fellows making the NEW loans? You could theoretically now say that you have a $10 million problem with $2 billion outstanding rather than $1 billion outstanding, therefore your new default rate is ½ of 1%, instead of 1%.

Do you believe how some people think, and they wonder why the year-end bonus seems a little short? New Century’s stock was $14.65 last Friday, it is now $3.87, and may be on the verge of a bankruptcy petition. We don’t know if the lending institution is going bankrupt because they don’t know if they are going bankrupt. This is what one means by using the term out of control. New Century is absolutely clueless as to whether the subprime borrowers they gave money to are going to be able to pay them back, on a timely basis.

What’s true of New Century based in beautiful and delightful Irvine, California is true of all subprime lenders. These guys gave credit to just about anybody walking through the door when housing was booming, because THEY COULD, and they never looked back to see if it made sense. They operated under that famous managerial policy called – It Will Be Okay.


Even the Hedge Funds got Taken In

How would you like to be an investor in Greenlight Capital LLC? You are paying the manager 20% of your profits, plus 2% fees expecting alpha (extraordinary) type performance, and he buys a $160 million worth of New Century stock, that is now worth $14 million. Don’t forget by the way, that most hedge fund managers use 6 to 1 leverage, which means this investment is sucking wind as they say.

Banks Walking Away

Citigroup which has been a major lender to New Century has walked away from committing to additional financing. Morgan Stanley always eager to lend a helping hand has picked up the slack. They already have about 1 ½ billion dollars in credit extended to the overextended subprime lender. Barclays Bank is responsible for a billion dollar credit line to New Century, and they think they are okay – SURE. My point is you are only okay when the check clears the bank, and not too many checks are clearing at New Century right now.

The lender believe it or not has in one year made loans totaling $60 billion. What does it mean for the rest of the industry? Other subprime lenders have publicly announced that they are OKAY. Really, do you really think anybody right now in the subprime industry has a handle on their EXPOSURE? The answer is NO; the whole industry is clueless as to where they stand right today, but they are working nights to find out.

At the same time they are making public statements that they are okay. If one child in the house has the flu, it is more than likely that the whole house is going to have a problem. A year ago, every mortgage broker in America was bending over backward to make a deal with anyone coming through the door to finance a house, condo, second home, or a new garage for a third car.

Twenty-two year old kids straight out of community college were putting on a suit and tie, and leasing a Porsche. They were calling themselves a mortgage broker making a $100,000 to $200,000 their first year in the business cold-calling telephone directories asking to finance just about any real estate idea you had in mind. It seems that it is an incontrovertible fact of business, that there’s always a price to pay for easy money. It always comes home to haunt you.

As we speak, credit lines are tightening. Money is being cut off to the subprime lending institutions. It’s going to get far worse before the turn comes. New Century is only the first to announce they have problems. There will be others. At first comes the cautionary statements, than the "we are looking into it statements", and finally "we have a problem but we haven’t quantified it statements". It never seems to change, does it? Some people don’t get it. They never get it.

Now the Federal regulators have stepped in, announcing a criminal inquiry into New Century’s trading practices, and accounting issues. If you own any of the dominant companies involved in the subprime market, you had better be reassessing your ownership right now, because you didn’t do it a month ago, when prices were a lot higher than they are today, and today they are a lot higher than they are going to be a month from now. These companies include:



Name of Institution Loans (billions)

Countrywide 38
New Century 34
Option One 31
Fremont 30
Washington Mutual 29
First Franklin 28
RFC 26
Lehman Brothers 24
WMC Mortgage 22
Ameriquest 21

These companies are responsible for a combined total of about $280 billion in subprime lending.

The REAL PROBLEM

A country, any country is run on consumer confidence. The consumer in this country has kept the economy going by spending based on wealth accumulation. Incomes are not up that much in the last couple of years, but what has happened is that real estate has skyrocketed. People took out home equity loans and spent the money. They are still left with the loan outstanding.

You compound the problem by having hundreds of thousands of people buy additional real estate properties that they never intended to live in. They were bought on speculation as they say, and when leverage is going your way, there is nothing more beautiful, but reverse leverage is about the ugliest financial circumstance you will ever see. It is a slippery slope that never ends well.

Our work at StocksAtBottom.com was leading us to believe that real estate in this country was in the process of bottoming, but this subprime problem adds an entire new dimension to the issue. Where will the continued prosperity come from to keep the economy going if not from increases in residential housing, where such increases are in the process of vaporizing until the subprime issue gets out of the way. As they said in the movie, Apollo 13, “Houston, we have a problem.”


Good bye and good luck,

Richard Stoyeck
http://www.stocksatbottom.com

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

Value Investing at StocksAtBottom.com/ez.html




Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-investing-new-warren-buffett-letter-to-shareholders-is-a-model-for-the-rest-of-us.html http://www.articletrader.com/finance/investing/stock-investing-new-warren-buffett-letter-to-shareholders-is-a-model-for-the-rest-of-us.html Mon, 12 Mar 2007 00:00:00 -0500

What Buffett had to Say

Berkshire now has annual revenues approaching $100 billion, and 217,000 employees. “Size seems to make many organizations slow-thinking, resistant to change and smug.” Buffett is questioning whether size is the right way to go. He does say that Berkshire has become the buyer of choice for many companies seeking to sell themselves. A company bought by Berkshire can still retain its individuality and unique focus. If bought by a strategic buyer, the same company would be torn apart, certain pieces sold off, and employees discarded. On the other hand if a company is sold to a private equity firm, it gets loaded up to the gills with debt. The acquirers really only want to own the company for as few years as possible, and then boom, the company gets sold again.

Buffett is a keen observer of human nature. Small things tell him everything. He recalled the time in the 1960’s when he bought an insurance company from Jack Ringwalt. The day of the closing, Buffett is sitting at the conference table waiting for the seller to arrive, and the gentleman is late. Finally when he gets there, the seller announces to Buffett that he was driving around the block looking for a parking meter with unexpired time on it. Since Buffett always kept the old management team in place when took over a company, he knew that Berkshire Hathaway was going to be all right with this investment, since this guy was so cheap, his shoes would squeak. The Sage of Omaha loved every minute of it.

Perhaps one out of a hundred investors is aware of this, Buffett always made his biggest money in the insurance industry. Insurance works off of the float that a company has available. You take money in against potential claims in the future. You have the premiums to work with until some day, some portion of these accumulated premiums, must be paid out in settlements. Now with insurance you have to get a couple of things right.

You have to price the premiums correctly for the potential losses, and you have to invest the premiums until that time comes when you might have to pay them out. It is said that Warren Buffett better than anybody in the world can price risk appropriately.

We already know that he certainly can allocate capital to investments better than anyone else. In the insurance business, this means he can invest those premiums on an interim basis better than his competitors.

As for risk, he says, “We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We are not willing, though, to take on even very small exposures at prices that don’t reflect our evaluation of loss probabilities.”
He then goes on to say, “Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses.”


Newspapers are a poor Business Model

If you know Buffett’s history, you know that he made a killing buying into the Washington Post which is the Graham family newspaper in Washington DC. An $11 million investment in the 60’s, is now worth $1.2 billion. Not a bad return at all, but that was then, and this is now. The business model for newspapers has certainly changed. A very bright publisher once said that he owed his newspaper fortune to two basic concepts – monopoly and nepotism.

If you have a town with one newspaper, you have yourself a monopoly. For much of our nation’s history, we got our information from newspapers. People knew the different sections, and there were the ads that were incredibly profitable. If there were several newspapers in a town, the fattest newspaper with the most ads would ultimately dominate, and then the profits would go through the roof. Ads would go up in price every year, even though costs could be held constant.

In the last 10 to 15 years, it’s obvious that people have more choices as to where to get their information than just newspapers. With the Internet, Television, and Radio, newspapers are simply not experiencing increasing readership. As a matter of fact, circulation is down across the board in just about every city, and sector in America. The business model simply doesn’t work anymore.

Comments on Compensation

If he is nothing else, Warren Buffett is a straight shooter who calls them as he sees them, and doesn’t mince words. He states that he sets the compensation for every major executive that works for him, which is about 80. Some of these people manage billions of dollars individually. He spends no time on it, and has never had anybody leave him. He has sat on tons of boards through the years, and no one, that’s right, no one has ever asked him to sit on a compensation committee. They don’t want him.

When selecting directors for Berkshire’s Board, he wants them, ‘….owner-oriented, business-savvy, interested, and truly independent.” He believes most board members are not independent, that they absolutely need the money that the Board is paying them. For big companies, Board compensation comes to $150,000 to $250,000 per year. This is a number so large, that for many directors, it’s bigger than what they make from their day job, and basically kills off the concept of independence.

The law says that the directors have to faithfully represent owners. These directors are not doing that. Buffett’s first question of any potential board member is, “Does he think like an intelligent owner?” Since Berkshire is in the business of running other businesses, they need board members who have “business judgment.” There isn’t much of that around according to master of investing.


Good bye and good luck,

Richard Stoyeck
http://www.stocksatbottom.com

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

Value Investing at StocksAtBottom.com/ez.html




Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/investing/stock-investing-bank-of-america-morgan-stanley-ubs-and-bear-stearns-swept-up-in-latest-insider-trading-scandal.html http://www.articletrader.com/finance/investing/stock-investing-bank-of-america-morgan-stanley-ubs-and-bear-stearns-swept-up-in-latest-insider-trading-scandal.html Sat, 03 Mar 2007 00:00:00 -0600
In order to restore financial confidence in the American economic system after the massive impact of the Depression hit the country in the late 1920’s, the newly elected President Roosevelt mandated the creation of the Securities Exchange Commission, part of the Commission’s duties were now to reign in, and put an end to insider trading. Who did FDR appoint as the first SEC Commissioner – Joseph Kennedy? Old Joe Kennedy was one of the notorious insider traders that took advantage of any and all information that came his way.

In the same league as Jesse Livermore, Jacob Fisk, and Bernard Baruch, Joe Kennedy knew where the bones were buried. He quickly moved to create a series of laws, rules, and regulations that would outlaw the very practices that in past decades had enabled him, Kennedy to become one of the four wealthiest individuals in America. The practice of lawful insider trading had come to an end legally. To show you how effective these policies have been, whenever a real case of such trading comes to public light, it makes nationwide headlines. This is because of the relative rarity of such scandalous behavior being brought to public light.

During the 1980’s, the biggest insider trading scandal which became public knowledge was Ivan Boesky, probably the premiere arbitrage player of his generation when he was accused of insider trading. Boesky was caught via tape recordings taking advantage of such information. His primary source was Dennis Levine, an affable investment banker working for Drexel Burnham Lambert; a now defunct banking firm whose primary asset was Michael Milken’s junk bond capital raising unit.


The Latest Scandal

It looks like this current scandal followed two separate tracks occurring simultaneously. The profits generated amounted to $15 million dollars over a period of five years. Insiders were used at Morgan Stanley and UBS Securities. These individuals including Mitchel Guttenberg, who as an institutional client manager at UBS would be aware of research upgrades and downgrades taking place on a daily basis. He was given hundreds of thousands of dollars for his knowledge of non-public information. The men purchasing the information were David Tavdy, and Erik Franklin. Using the non-public information available to them, they were each able to amass $4 million in trading profits.

In a separate scheme running a parallel track, Randi Collotta a lawyer, was an employee of Morgan Stanley in their compliance department. Her husband Christopher Collotta was an attorney in private practice. Randi would come up with information on mergers and acquisitions that Morgan Stanley was involved with, and pass the tips to her husband Christopher. The husband would then sell the information on Wall Street for money that amounted to hundreds of thousands of dollars.

During the course of the schemes, information was sold to Erick Franklin who was a Bear Stearns Hedge Fund client. People like Franklin are use to doing 50 to 100 different trades per day, each day. Such individuals are able to bury their results in the sheer mass of trading that is done on a daily basis.

Although caught, the conspirators were sophisticated enough to use facilities outside the immediate firms that they each worked for. Meetings were held in the famous Oyster Bar in Grand Central Station. Disposable cell phones were utilized. Secret Codes were invented. Text messages on cell phones were employed. E-mail was OUT. Telephone calls with HOT TIPS were OUT. Nobody exchanged checks. CASH was the rule of the day, every day.

As of today, 13 people have been arrested with 11 of them facing SEC charges. Three Hedge funds have been charged with criminal behavior. Four of the 13 arrested have already pleaded guilty. The hedge funds are tough group to supervise because they don’t have the degree of compliance that is present in a brokerage firm. They are also probably much harder to detect as to insider trading involvement. It will not be a surprise if many more people are arrested and charged, than the group currently mentioned.

The demand for performance among hedge funds where a tenth of a percentage point in performance can mean the difference of millions of dollars of additional compensation is already well known. Depending upon performance, hedge funds live and die by performance. There are 9000 basically unregulated hedge funds in operation today, managing $1.4 trillion dollars, plus 6 to 1 leverage. About a thousand of these same hedge funds go out of business every year, with a 1000 new start-ups coming on stream.

It is not beyond the realm of possibility, to see how a person under water with any kind of questionable character can succumb to the allure of insider trading if in fact; such trading will dramatically alter the performance of the fund he or she is managing. It is becoming apparent that hedge fund trading is unsupervised. This case is not going to be the last case involving insider trading.

Hedge funds are also becoming more heavily involved in the financing of Presidential elections in an attempt to curry favor with Presidential candidates. To what extent will the amount of money floating around among hedge funds lead to a lack of supervisory action by elected officials caught in ethical conflicts.

In this, the latest insider trading scandals, the government was able to pick up irregular profitable trading patterns in the merger and acquisition of two publicly traded companies. They were Adobe Systems, and its acquisition of Macromedia in 2005, and ProLogis, and its acquisition of Catellus Development.

Once the SEC saw the irregular trading, it was only a question of time and effort before the patterns revealed a conspiracy, and the conspiracy revealed insider trading. Now it’s up to the court system to figure out the rest, but first, expect more arrests.

Goodbye and Good Luck

Richard Stoyeck
http://www.stocksatbottom.com

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Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com

Value Investing at StocksAtBottom.com/ez.html




Source: http://www.articletrader.com ]]>