Back in November, I was confidently predicting that oil would be worth $115 a barrel by July 1. This wasn't because I expected a roaring recovery and the great demand for oil that would create. It was, rather, because I expected that the "quantitative easing" of two successive administrations used as stimulus and as a way of resolving a credit crunch, would have its usual effect on wages and prices. The world price of crude oil is set in US dollars, and historically the price is a good proxy for inflation.
We are drawing near that date, and it seems obvious that I was wrong. The price has of course fluctuated since November, but the highest point it reached was roughly $87, in early April. It is presently at $74.
Now, it is my firm belief that there is no difference anywhere that does not make a difference somewhere else. So: what difference somewhere else does this make? An increased quantity of dollars should other things being equal reduce their value relative to goods and services (and other currencies). That in turn should have rendered my prediction spot on.
I think I went wrong chiefly by failing to anticipate the European crisis, especially with the southern tier countries, and the consequent debasement of the euro. This has strengthened the dollar. Not just by definition, if the dollar is measured in euros, but by virtue of a flight to safety.
Even the Iranian central bank, presumably staffed by people who believe the US is the Great Satan, is swapping euros for dollars these days.
Inflation has been kept at bay, but the situation remains extremely worrisome.
Sunday, June 13, 2010
Wednesday, June 9, 2010
The mine-safety poster child (MEE)
What is the latest news on Massey Energy, the troubled mining company? Three points:
1. At the annual meeting on May 18th, the three incumbent directors up for re-election won. They remain on the board.
In a display of hubris, though, the company immediately announced its directors had been "overwhelmingly" elected. The numbers don't bear that out.
2. What has been happening with the price of Massey stock lately? It is almost enough to say that it can be and has been bracketed with recent performance by BP and Toyota.
3. On the other hand, there is always the possibility that it has fallen too far. Short interest is high, which means that should an upward tick begin, a rush to cover could give the upward move momentum.
Nothing I say here is to be interpreted in any way as investment advice.
1. At the annual meeting on May 18th, the three incumbent directors up for re-election won. They remain on the board.
In a display of hubris, though, the company immediately announced its directors had been "overwhelmingly" elected. The numbers don't bear that out.
2. What has been happening with the price of Massey stock lately? It is almost enough to say that it can be and has been bracketed with recent performance by BP and Toyota.
3. On the other hand, there is always the possibility that it has fallen too far. Short interest is high, which means that should an upward tick begin, a rush to cover could give the upward move momentum.
Nothing I say here is to be interpreted in any way as investment advice.
Tuesday, June 8, 2010
The Last Days of Lehman Brothers
CNBC will air "The Last Days of Lehman Brothers" this coming Friday.
Indeed, they'll be running it all evening, in accord with the cable imperative that anything worth broadcasting at all is worth broadcasting a thousand times.
The movie was first aired on BBC last September, a year after the dramatic events portrayed. Here's a YouTube clip, portraying Hank Paulson in a philosophical mood.
I love the viewers' comments beneath that clip, too. What a combined reflection of the Zeitgeist they are.
Cast? Glad you asked.
Corey Johnson plays Dick Fuld, chairman and CEO of Lehman.
James Cromwell plays Hank Paulson, whom you saw in the YouTube clip, talking about the fall of Rome, or the European empires, and now of "us."
Michael Landes plays a fictional character, Zach, an aid to Fuld who also delivers the voiceover narration.
It isn't an A-list cast, but a respectable one. Landes is best known for having played Jimmy Olson in "Lois and Clark" in the early 1990s.
Anyway: Happy viewing.
Indeed, they'll be running it all evening, in accord with the cable imperative that anything worth broadcasting at all is worth broadcasting a thousand times.
The movie was first aired on BBC last September, a year after the dramatic events portrayed. Here's a YouTube clip, portraying Hank Paulson in a philosophical mood.
I love the viewers' comments beneath that clip, too. What a combined reflection of the Zeitgeist they are.
Cast? Glad you asked.
Corey Johnson plays Dick Fuld, chairman and CEO of Lehman.
James Cromwell plays Hank Paulson, whom you saw in the YouTube clip, talking about the fall of Rome, or the European empires, and now of "us."
Michael Landes plays a fictional character, Zach, an aid to Fuld who also delivers the voiceover narration.
It isn't an A-list cast, but a respectable one. Landes is best known for having played Jimmy Olson in "Lois and Clark" in the early 1990s.
Anyway: Happy viewing.
Monday, June 7, 2010
Penwest Pharmaceuticals Makes Its Case
Penwest, of Paterson, NY, has a shareholders' meeting coming up: on June 22.
Penwest is best known for a proprietary drug-delivery technology.
The dissident slate has made the following case: The company's most valuable asset is the revenue stream on Opana ER that it receives from Endo, a licensee. The value of that single revenue stream has exceeded the net cap of the company for most of the last year. This indicates, to the dissidents, that company is acting as a drag on value. The dissidents would significantly reduce "headcount and other overhead expenses, which we believe continue to be maintained at levels that are in excess of what is required. Following the Annual Meeting, if our Nominees are elected, we intend to conduct a rapid, detailed review of the Company’s current employee base with the view towards eliminating all positions that are not funded by ongoing drug delivery collaborations or not necessary for the Company’s new operating plan."
How has the company responded? Its materials note that in an earlier proxy fight, Tang and Edelman (the former of Tang Cap, the latter of Perceptive Life Sciences) had a far more drastic proposal: they demanded a winddown of the company. So the incumbents think it a moral victory that Tang-Edelman no longer make that demand. Still, it is wrongheaded (they add) to demand headcount reduction.
"Don't reward this disruption of the progress we are making."
Penwest is best known for a proprietary drug-delivery technology.
The dissident slate has made the following case: The company's most valuable asset is the revenue stream on Opana ER that it receives from Endo, a licensee. The value of that single revenue stream has exceeded the net cap of the company for most of the last year. This indicates, to the dissidents, that company is acting as a drag on value. The dissidents would significantly reduce "headcount and other overhead expenses, which we believe continue to be maintained at levels that are in excess of what is required. Following the Annual Meeting, if our Nominees are elected, we intend to conduct a rapid, detailed review of the Company’s current employee base with the view towards eliminating all positions that are not funded by ongoing drug delivery collaborations or not necessary for the Company’s new operating plan."
How has the company responded? Its materials note that in an earlier proxy fight, Tang and Edelman (the former of Tang Cap, the latter of Perceptive Life Sciences) had a far more drastic proposal: they demanded a winddown of the company. So the incumbents think it a moral victory that Tang-Edelman no longer make that demand. Still, it is wrongheaded (they add) to demand headcount reduction.
"Don't reward this disruption of the progress we are making."
Sunday, June 6, 2010
Arcadia Opposing Symex/Accelrys Merger
Richard S. Rofe, the managing director of Arcadia Capital Advisors, is unhappy about a proposal to merge Symex Technologies Inc. with Accelrys Inc.
These are both research-and-development companies, both headquartered in California and chartered in Delaware. Accelrys certainly has the more intriguing way of describing its work. It is the "producer of various modeling and simulation software for both life and materials science research, like cerius, catalyst, insightll, quanta."
A little googling of those names shows me that Cerius software is used by the Laboratory for Molecular Simulation at Texas A&M. (I will refrain from telling my favorite Aggie joke now.) Apparently, Cerius is "legacy" software," and so is "no longer supported by Accelrys."
Anyway, Arcadia is unhappy because it owns a stake in Symyx and believes Symyx could get a much better deal elsewhere than it is getting from Accelrys. Symex' board acknowledges the receipt of cash offers, which it has called "inadequate, from a financial point of view, considering the price offered in comparison to the terms of the proposed Merger with Accelrys and long-term value which the Merger could provide to Symyx stockholders, and Symyx valuation as a stand-alone company."
In a release, Rofe said: "As a long-term Symyx shareholder, we would be more comfortable with the certainty of cash now rather than be dependent upon the execution risk, integration risk, market risk, and other uncertainties in the current economic environment related to any expected long-term value of the Symyx-Accelrys combination."
These are both research-and-development companies, both headquartered in California and chartered in Delaware. Accelrys certainly has the more intriguing way of describing its work. It is the "producer of various modeling and simulation software for both life and materials science research, like cerius, catalyst, insightll, quanta."
A little googling of those names shows me that Cerius software is used by the Laboratory for Molecular Simulation at Texas A&M. (I will refrain from telling my favorite Aggie joke now.) Apparently, Cerius is "legacy" software," and so is "no longer supported by Accelrys."
Anyway, Arcadia is unhappy because it owns a stake in Symyx and believes Symyx could get a much better deal elsewhere than it is getting from Accelrys. Symex' board acknowledges the receipt of cash offers, which it has called "inadequate, from a financial point of view, considering the price offered in comparison to the terms of the proposed Merger with Accelrys and long-term value which the Merger could provide to Symyx stockholders, and Symyx valuation as a stand-alone company."
In a release, Rofe said: "As a long-term Symyx shareholder, we would be more comfortable with the certainty of cash now rather than be dependent upon the execution risk, integration risk, market risk, and other uncertainties in the current economic environment related to any expected long-term value of the Symyx-Accelrys combination."
Wednesday, June 2, 2010
Genzyme and the FDA
The Food and Drug Administration (FDA) has entered into a consent decree with Genzyme Corp. (GENZ), a Cambridge, Mass. based biopharm concern that has been one of the unwelcome objects of the attentions of activist investor Carl Icahn.
Icahn now owns just under 5% of the equity of the company, after having doubled his holdings in the first quarter. This is what I said about Genzyme in January.
In recent days, Genzyme has trumpeted two words from the FDA. First, that it has approval to market Lumizyme (its trademark product, chemically known as alglucosidase alfa) for patients with late-onset Pompe disease. Here's more on Pompe disease.
Second, that it has entered into a consent decree with the FDA, ending a dispute over the company's Allston manufacturing plant. The company said that this gives it "further clarity and certainty in our ongoing improvements to our manufacturing and quality systems at our Allston Landing facility."
Icahn, though, portrays the consent decree as bad news for stockholders, not good. It will bring with it tighter FDA scrutiny. The FDA, he writes in a recent "Dear Fellow Shareholder" letter, "has seemingly lost faith in the company's ability to make important drugs for patients. Why should shareholders not look to recharge the board with strong managerial talent and fresh ideas that can ask the right questions and demand performance?"
The meeting has been set for June 16.
Icahn now owns just under 5% of the equity of the company, after having doubled his holdings in the first quarter. This is what I said about Genzyme in January.
In recent days, Genzyme has trumpeted two words from the FDA. First, that it has approval to market Lumizyme (its trademark product, chemically known as alglucosidase alfa) for patients with late-onset Pompe disease. Here's more on Pompe disease.
Second, that it has entered into a consent decree with the FDA, ending a dispute over the company's Allston manufacturing plant. The company said that this gives it "further clarity and certainty in our ongoing improvements to our manufacturing and quality systems at our Allston Landing facility."
Icahn, though, portrays the consent decree as bad news for stockholders, not good. It will bring with it tighter FDA scrutiny. The FDA, he writes in a recent "Dear Fellow Shareholder" letter, "has seemingly lost faith in the company's ability to make important drugs for patients. Why should shareholders not look to recharge the board with strong managerial talent and fresh ideas that can ask the right questions and demand performance?"
The meeting has been set for June 16.
Tuesday, June 1, 2010
Postscript to the Berliner case
Yesterday, I was working on what may by the grace of God eventually become my next book.
Some of yesterday's work involved the Paul Berliner case. This was a real-life instance of a short-and-distort scam, i.e. one in which a manipulator drives the price of a stock down by lying about corporate events, for his own quick profit. My point, in discussing Berliner, was simply that short-and-distor does happen, though much less often than is alleged.
My ancillary point was that when it does happen, it unravels rather quickly given normal market forces.
In a lawsuit and a settlement announced on Thursday, April 24, 2008, the SEC claimed that Mr Berliner lied to other traders and institutions through internet instant mesages on November 29, six weeks after the announcement of a definitive agreement betwen The Blackstone Group and ADS that the former would acquire the latter for a price of $81.75 a share.
It is of course routine that during the period after such a deal is made, but before it is closed, the target company's stock trades in a narrow range at a discount to the contract price. The discount reflects the level of skepticism in the market about whether the deal will proceed as planned -- there may be stockholder cold feet or unanticipated regulatory barriers.
In late November, accordingly, ADS's stock price was stuck in a narrow range near $77 a share, or at a stead 6% discount to the contract price. It was in this context that Berliner started sending his messages, claiming that ADS's board was in an emergency meeting "on a revised proposal from Blackstone to acquire the company at $70/share ... due to weakness in World Financial Network -- part of ADS' Credit Services Unit...."
The message seemed plausible, and within a matter of minutes ADS' price fell below the supposedly new contract price of $70. In fact, though, there was no board meeting underway.
Eventually, Berliner was fired, forced to disgiorge his gain of about $26,000, and pay a $130,000 penalty.
Small potatoes? Yes, but still ... one can make no excuses for Berliner.
What intrigues me are two facts. First, the efficient capital markets hypothesis looks pretty good in day-to-day terms, if nbot minute-by-minute. The market saw through the b.s., and rebounded with alacrity.
Even before ADS had had a chance to put out a statement of denial, the price had recovered most of its loss.
Another thing that fascinates me? The deal actually did fall through.
Some of yesterday's work involved the Paul Berliner case. This was a real-life instance of a short-and-distort scam, i.e. one in which a manipulator drives the price of a stock down by lying about corporate events, for his own quick profit. My point, in discussing Berliner, was simply that short-and-distor does happen, though much less often than is alleged.
My ancillary point was that when it does happen, it unravels rather quickly given normal market forces.
In a lawsuit and a settlement announced on Thursday, April 24, 2008, the SEC claimed that Mr Berliner lied to other traders and institutions through internet instant mesages on November 29, six weeks after the announcement of a definitive agreement betwen The Blackstone Group and ADS that the former would acquire the latter for a price of $81.75 a share.
It is of course routine that during the period after such a deal is made, but before it is closed, the target company's stock trades in a narrow range at a discount to the contract price. The discount reflects the level of skepticism in the market about whether the deal will proceed as planned -- there may be stockholder cold feet or unanticipated regulatory barriers.
In late November, accordingly, ADS's stock price was stuck in a narrow range near $77 a share, or at a stead 6% discount to the contract price. It was in this context that Berliner started sending his messages, claiming that ADS's board was in an emergency meeting "on a revised proposal from Blackstone to acquire the company at $70/share ... due to weakness in World Financial Network -- part of ADS' Credit Services Unit...."
The message seemed plausible, and within a matter of minutes ADS' price fell below the supposedly new contract price of $70. In fact, though, there was no board meeting underway.
Eventually, Berliner was fired, forced to disgiorge his gain of about $26,000, and pay a $130,000 penalty.
Small potatoes? Yes, but still ... one can make no excuses for Berliner.
What intrigues me are two facts. First, the efficient capital markets hypothesis looks pretty good in day-to-day terms, if nbot minute-by-minute. The market saw through the b.s., and rebounded with alacrity.
Even before ADS had had a chance to put out a statement of denial, the price had recovered most of its loss.
Another thing that fascinates me? The deal actually did fall through.
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