Archive for July, 2009

New trade: Long Canada(EWC) – Short Russia(RWX)

By: ispeculatornew | Date posted: 07.31.2009 (5:00 am)

CB013152Russia has been at the center of attention in the past few months because of its major collapse. It’s no secret, Russia’s economy is centered more than perhaps any other major nation around oil. The recent recession hit hard in Russia as it decreased demand and prices. Recently, Russia has been on the defensive as it defends itself on many fronts. Most recently, US Vice-President Joe Biden spoke very openly about Russia’s demographic problems and about its impact over the next few years. While some countries such as Japan have been acting to improve their long term prospects, it seems as though Russia has so many problems that it does not quite know where to put its energy. You can read very interesting article about Russia’s demographic problems.

Another more short term problem for Russia is that its main customer, Europe is in very bad shape, a lot worse than the US in many respects and this could affect the Russian economy as it still depends on exports (as does Canada) for a major part of its economy.

While I do agree that energy prices will rebound and would fear being short Russia, I think that Canada will profit as well from a bump in natural gas and oil prices and overall has a much better current situation. As well, seeing Russia up almost twice the growth of the Canadian market so far in 2009 gives me a good feeling that this will be a promising trade.

The danger of course is that Russia being in many ways an emerging economy, its stock market might enjoy more growth in a context where the world economy would pick up. But since we still do believe that the recovery will be slow, we expect Canada to fare better.

So there you have it, Long EWC (Ishares Canada), Short RSX (Market Vectors, Russia)

rsxewc

Yahoo(YHOO) is “almost” officially toast..

By: ispeculatornew | Date posted: 07.29.2009 (5:00 am)

yahoo_logoYahoo, once the dominant force on the internet, has been losing ground for years now and it looks to take the final downturn. A few months ago only, Microsoft was almost begging Yahoo to join it in the competition against the might Google. Yahoo refused time and time again refusing offers that are now almost 100% higher than the actual price of Yahoo(YHOO). With Microsoft’s recent launch of Bing, it is becomming increasingly clear that Yahoo’s search business is in major trouble as it continues to lose market share, especially to the new Microsoft’s search engine.

It is now being reported that a new search deal is almost done. Among other things, this deal would set Bing as the search engine used by Yahoo. My question of course is what Yahoo will be focusing on if it cannot even have its own search engine. Other segments of the company such as dating and stores have also been losing market share to the point where it is unclear what Yahoo will look like one or two years from now.  As part of the deal, Yahoo would retain most the sales responsibility for the new merged business. But in a world where Google is by far the dominant player, I doubt a few extra salesman will be what takes Yahoo to the next level.

Yahoo is currently up on the news in after hours trading and it might last for some time but I do think that this deal will hurt Yahoo in the long term, especially since this time around, Yahoo came into the negotiations in a position of weakness, a major difference from the last few times such discussions took place.

Oh and did I meantion that this deal will without any doubt be under scrutiny by the Department of Justice as this deal will take out on of the very few big players in online advertising. It probably will still get done but this will cost money, focus and time.

Does Yahoo look bad for not following Carl Icanh’s advice a few months ago when they could sell their company for over 30$ per share? Amazing isn’t it… Just name one good and promising part of Yahoo right now??? Yes, exactly, I didn’t think you’d come up with one.

So your employer owes you $100M….

By: ispeculatornew | Date posted: 07.26.2009 (5:00 am)

hallCertainly an interesting debate and one that I have discussed in the past. Compensation discussions are too often simplified and things are often a lot more complex than could be thought initially.  The man on the left,  Andrew J. Hall, heads Citigroup’s energy-trading unit, Phibro LLC. There is currently a major discussion between him and the now government ran Citigroup. It’s easy to imagine Citigroup’s argument. They say that giving him $100 millions will draw a lot of public attention and bring back a lot of debates similar to what was said about AIG compensation and they do of course have a point. Signing a bonus check for $100 millions could easily make headlines and put Barack Obama and other public officials in hot water.

Sure Mr. Hall needs the money to help maintain his 1000 year-old castle in Germany as well as his impressive art collection. But somehow, I can’t imagine that would draw very much public sympathy. The problem of course is that all of this is very short sighted.

The government, and thus by default the US population, is now the #1 shareholder of Citibank. If Citibank can hire someone on the promise of giving him 10% of his earnings, doesn’t that sound like a great deal? It would certainly look to me like that would help Citi repay its debt a lot quicker. And so of course, this person is hired and thanks to huge success and a great team, the unit managed by this person generates $1 billion.The issue then becomes if you can afford to pay the bonus. And by afford, I mean defending the payout to the American public.

Now, in this specific case, a lot of the media focus is about Citigroup being in such a bad shape financially that it perhaps cannot afford to pay out Mr. Hall’s payout. To me, the real question is if Citigroup can afford to NOT pay this bonus. In my opinion, not paying the bonus and not being able to go ahead of its shareholders to explain would certainly make things a lot more difficult in the future. The type of people that can generate this much money will not take a chance on a company if they believe that the bonus they are owed will not be paid.

There are a lot of alternatives of course and one of them is for Citigroup to “spin off” the unit and thus reward Mr Hall’s new firm by paying it a percentage of its gains. Then of course, it would the firm paying a $100M bonus instead of Citigroup. That solution of course would create less outrage but it’s a shame if we really need to do so many actions to hide what is simply the reality… that Mr Hall deserves his big payout.

Financial Ramblings

By: ispeculatornew | Date posted: 07.25.2009 (5:00 am)

66_new1Another week comes to an end with hopefully some better weather in store.. summer is halfway done, unbelievable isn’t it?? Lots of action this week in terms of earnings and M&A activity, so lots of good readings to choose from. Here is my selection of the best ones!

-First off, a very very cool story from TheFinancialBlogger .. like he says, money doesn’t buy happiness but it sure helps create magic moments!
-Thinking of buying a new property? Read this guide to the top mistakes by GLBL!
-Think now is the right time to jump in the market..? Read about two overbought sectors.
-Scarrrrry… the bailout cost $23.7 billions?
-Interesting article by MDJ about doing research towards the purchase of a car!
-This might be the path towards good investments, US government investing in battery powered cars.
Credit Card Changes: 5 ways to protect yourself
-USO has not been the reason I am leading the stock competition so I’m thrilled to hear others trading on it, see a short put strategy here.
-Canadian Capitalist looks into the equity premium, interesting view!
Microsoft’s profit and sales tumble.. is it the end???
Warren Buffet’s 3 investment rules for the ordinary investor!

A match made for heaven or for hell? Amazon(AMZN) buys Zappos

By: ispeculatornew | Date posted: 07.24.2009 (5:00 am)

zapposI must say I’m shocked. I glanced at my screen and looked with interest at a news release about Amazon.com (AMZN) buying Zappos.com for about 928$ millions USD. To most non-Americans, Zappos is completely unknown. But in fact, the website was a small but fast growing competitor to Amazon. How is a shoe and clothes retailer competition to the specialised book retailer? Simply because Amazon has already said it believed that it could sell anything to anyone at some point in the future. The strength of Amazon lies in its powerful distribution network. Zappos on the other hand is much smaller but has experienced impressive growth thanks to what is probably the best customer service, online or even offline.

Is it logical for these two companies to unite? In some way yes as there is no doubt that Zappos will be a lot more efficient if they are able to profit from the leverage they will now have. They are supposed to remain two independent companies but you would amazon_cravethink for example that this merger would help Zappos gain a more important presence internationally very fast. They are now joining with one of two big ecommerce companies in the world (with Netflix) and that is certainly a positive.

The one issue I have is that while Zappos was a private company, it was able to do a lot that was geared towards the long term, mostly actions geared towards their customer service. Even though they say nothing will change, Amazon is a public company that does have very high expectations and after missing its earnings this week, analysts will be looking into the impact of Zappos in the next few quarters of earnings. It will be interesting to see if this will create a clash of cultures. The management of Zappos has confirmed it was staying on board which is certainly a positive and will help to keep the strong company structure as well as keep employee retention.

As you can see in the video below this post, I do agree with the idea that Zappos will be able to learn a lot from Amazon’s experience in ecommerce and shipping worldwide. Even having the Amazon founder come out with a Youtube video, done while wearing jeans, will probably go a long way in showing Zappos employees how the values of the two companies are perhaps not as different as many could think. This will also certainly reassure the loyal and passionate Zappos customers about where their loved company is now headed.

You can also see a video from Amazon’s founder about the story of Amazon as well as the acquisition:

At the knees of your competition

By: ispeculatornew | Date posted: 07.22.2009 (5:00 am)

apple-new-logo-lg1Things could not be going better for Apple right? It just announced earnings that have once again beat earning estimates thanks to very strong sales of both Iphones and Mac computers. In after market trading, Apple’s stock gained about 4,5% as its highest margin product, the Iphone, pushed earnings higher. But all if not perfect in Apple world. In fact, it looks like it is not appreciative of Microsoft’s recent tv ads, that attack the higher price of Mac computers.

In fact, Microsoft’s COO Kevin Turner has even been asked to stop running the ads by Apple’s legal team according to a recent interview in PC World. Quite a request don’t you think? They demanded the ads stop saying that Apple’s computers were now priced 100$ lower making the ads non-justified.  His reaction? “It was the greatest single phone call in the history that I’ve ever taken in business.” And he is absolutely right. If these ads are indeed getting the attention of consumers and pointing them to the fact that they can get as good of a computer for a lower price, then Microsoft should be buying a lot more airtime.

Personally, I am surprised to see Apple on the defensive about this. Apple consumers are generally known to go towards the brand for all kinds of reasons, but price is rarely if ever one of those. And because of that, I would not have expected these ads to have much of an impact but if Apple even went as far as asking Microsoft, there is clearly something going on with the campaign.

microsoft-logoShould competitors ever ask themselves to stop attacking each other? Certainly does not sound like something a company would even consider in a capitalist world but that seems to be exactly what happened. I truly wonder if others such as Coca-Cola and Pepsi for example have ever had such discussions. I can’t imagine Microsoft ever deciding to stop a campaign for that reason, could you? Apple’s response is that Microsoft is giving false information quoting prices that are no longer accurate. Should such ads be allowed to go on? From the ads that I have seen, I don’t think there is any issue because Microsoft is simply saying that the Mac products are more expensive, which is…true.

Bad timing for Google???

By: ispeculatornew | Date posted: 07.20.2009 (5:00 am)

googlehealth.Sometimes, a launch or a change has bad timing and that is exactly what happened to Google last week. I wrote a post about how a Twitter employee had almost of his Google documents downloaded and now published online. That was a severe blow to cloud computing and thus to Google, one of the companies centered around cloud computing. Well, call it bad timing but last week was also the launch of a new feature on Google Health that allows visitors to upload their medical records. They also would like visitors to upload their death wishes. Of course, imagine anyone, no matter who being exposed and having not only their entire medical history but also their testament made public. Nightmare? Probably a lot worse.

No doubt, health records is probably the issue where populations are most scared of security issues. I personally don’t think it’s so surprising to see medical records usually be decades behind other sectors in terms of technology. There is just so much downside risk involved in any security breach that the risks involved for any health or government in getting everything in a digital form have so far ensured that these records remained on paper sheets. Will that change? Yes of course. There are few doubters that technology could help improve the quality, speed and accuracy of medical treatments. But between a private secured network and giving the data to Google, which remains one password away, there is a major line.

It’s difficult to blame Google as it clearly makes sense for them to move in this direction, they have the perfect infrastructure. But I do think that there needs to be a lot more emphasis on security if Google wishes to move in that direction. Many options are possible, most of them could prove expensive. For example, they could have some type of digital tracker that could get thumb prints. There are probably dozens of different ways to make this happen but in my opinion the current security is far from sufficient. Am I the only here who thinks that? Honestly, I’ve generally been on the other side of the debate but recent events as well as the higher value of data that can now be uploaded on the internet has convinced me that more needs to be done to protect identities.

Since there is no “Internet Police”, governments are probably the most likely to be able to force change. Just last week, the Canadian government made its view public: “It’s clear that privacy issues are top of mind for Facebook, and yet we found serious privacy gaps in the way the site operates,”. Will we see governments get more involed in such matters in the future??

Financial Ramblings

By: ispeculatornew | Date posted: 07.18.2009 (5:00 am)

1-stock-marketIt’s been a bit of a battle of catch back up to everything after what is by very far the best weekend of my life, but I’m finally getting there and had an opportunity to scout over the web looking for the more interesting articles in my opinion. Here is a sample of what I found:)

-TFB had been considering quitting his job for a while and it looks like he has come to a decision, take a look at his reasons.

-I always find those who make picks in the airline industry very brave. No surprise to see Zach (one of my favourite bloggers) take a shot!

-BMSP explores the best stock to buy during a recession, is it too late to use those tips? Hopefully not…

-A good article by Canadian Capitalist about which types of investments should go into which account!

-Always unfortunate to hear about job losses, especially when it’s from a blogger you read and like.. Best of luck in your job search!

-An in-depth look into the many things I and many others should know about refinancing!!

-One of my favourite reads of this week, all about beggars, how well do they do, is it a career??

-A new type of ETF makes its debut, 130/30.. it will be interesting to see how this ones goes!

3 types of errors traders make!!

-Do you have any financial regrets? Of course you do. Well, turns out, so does MDJ!

-And finally, this article on Fool about Warren Bufft and sex:))

Major blow to “cloud computing”..can it recover?

By: ispeculatornew | Date posted: 07.17.2009 (5:00 am)

question-cloudCloud computing has been one of the buzz words in recent months as various companies have been putting workforce to compete. We had ourselves wrote about cloud computing as `the next big thing”. Of course, one of the major players in this arena is Google. The threat is serious enough for Microsoft to even be working on a free version of its Microsoft Office to be offered online. That is enough to convince me how seriously companies are taking this.

However, one of the more important critics made towards cloud computing is around the security involved. In a typical company, it is rather difficult for outsiders to get access to important or critical documents as they would usually need either very impressive skills to connect from a distance but usually will need to physically connect from a company pc and get the documents. It happens, but it is rare. And this week, one company got caught in a MAJOR way. It is a company that has been mentionned quite a few times; Twitter. One of the most interesting stories right now in technology. Of course, surrounding the company are many questions about how many users it truly has, how it intends to become profitable, etc.

Many of those questions have now been answered as a hacker has sent “TechCrunch” over 300 files that he gained from hacking into one of the executives emails. Among the findings are:

  • the complete list of employees
  • their food preferences
  • their credit card numbers
  • some confidential contracts with Nokia, Samsung, Dell, AOL, Microsoft and others
  • direct emails with web and showbizz personalities
  • phone numbers
  • meeting reports (very informatives)
  • internal document templates
  • time sheet
  • applicant resumes
  • salary grid (time for me to move..lol)

twitterHow incredible humiliating. TechCrunch and others have since been publishing financial forecasts, infos about future plans for a tv show and a lot more is to come. No doubt, this will have many impacts on the company, all because these documents had been posted with Google’s apps. Now Google is not at fault here from what we know but there is no doubt that it will have a more difficult time selling its “cloud computing” solution. Twitter is a private company and most of these infos should never have made it in the public. Imagine those Google or Microsoft employees who have applied (without success) to work at Twitter.. they might have some interesting meetings with their bosses in the next few days.

Of course, I still believe that Cloud computing will recover and still be the next big thing. But clearly, the solutions offered currently lack security features that are necessary. By the way, Twitter did post an official response, that can be seen here. I don’t know about you, but personally I would not want my company’s documents to be one password away from being published all over the internet.

How do you feel about cloud computing after such an event??

Is Algorithmic trading good for the markets?

By: ispeculatornew | Date posted: 07.15.2009 (5:00 am)

electronic-trading-1Over the past few weeks, there has been a lot of talks about Algorithmic trading. It is basically trading that is done electronically through programmed rules. These high powered machines will trade over and over the same stocks when specific technical events happen to profit from very small mispricings between securities, to profit from momentum and even in some cases (although few would admit to this), to manipulate markets. The recent arrest of an ex-Goldman employee as long as many reports about how Goldman has mastered this form of trading had placed very high expectations on today’s earning report. And even with such high expectations, Goldman Sachs (GS) crushes estimates coming in with earnings of 3.44$B for the last quarter.

If electronic trading does account for such a high proportion of Goldman’s trading, it is certainly worth looking into as many in and outside of the markets consider this to be a potential danger. To be sure, electronic trading is now the norm and in fact now represents over 70% of trading done on us exchanges by many estimates. Many of the recent critics have said that in such a high tech game, it is now impossible for small or retail investors to compete. And yes, I agree that any small investor trying to arbitrage two markets has pretty much no chance to make it happen on his own. He would need high tech equipment, programmers and good real estate (yes, location does matter when you are talking about hundreds of a second).

But let’s be real. How many small investors are actually investing for a few seconds at a time? Very few in fact. Most investors will buy and hold, at least for a few hours or longer. And in that case, liquidity is important and I don’t think anyone would argue that these electronic traders bring lots of liquidity in the market. Having a bid-ask spread that is less than a cent will be to the advantage of most investors and that will traditionally happen a lot more on stocks that trade electronically. So yes, I do believe that these traders actually do help small investors do well, and certainly would not be the one criticising…at least not because of liquidity!

Personally, I consider the more valid criticism to be about what happens in a crash, as all these electronic programs could decide to sell at once and it would send the market down very very quickly. It might be something to be looked into but considering how the markets were “fairly” calm during the past few months, which were a very good test I would say…do you agree?