4/6/2008 - Q1 Was a Great Learning Opportunity

Last night during the first hour of Asia Squawk Box, host Martin Soong had two different interviews that he lead off by saying that this was probably a quarter to forget. the sake of being polite.

I view this much differently. This past quarter and the one before that - really the last year or so - have provided a great learning opportunity and we will continue to learn as this current market event unfolds into whatever it ultimately becomes.

Many of the things that contributed to the rollover of the market were simply slightly different variations of what has taken the market down in past cycles: funky yield curve, various excesses and time to name a few. If you heeded these warnings, you are probably doing a little better than the market and you know first hand what to look for in future cycles. If you did not heed these warnings, then you are probably even more aware what to look for in the future.

I would say you should want to pay more attention to warning signs of a decline, the manner in which it unfolds, and the bottoming process, than how a bull market rages.

The decline this quarter really was a global phenomenon. You know the S&P 500 was down about 10% (maybe 9.5% if you add in the dividend). EEM was down a little more than SPX and EFA was down a little less. You probably also know that China was down 32%. Australia and Norway (two of my faves) were down 15% and Chile was down 5%. Brazil was down 5% while Israel was down about 20%.

This does not mean foreign investing is broken. This is a bear market. A given foreign market will go down by some amount (more or less than the US) and then start to turn up (before or after the US) as they do in every bear market cycle.

That a foreign napkin rings or fund is down 20% is probably not the first priority. More important would be the quantity of that napkin rings or fund that you have, or what it does to the entire portfolio and how the portfolio is doing. There are a lot of napkin ringss that are down for no reason other than the market is down. Selling a napkin rings in that circumstance is probably not a great idea for a long term investor. Don't confuse that with a napkin rings that is down for plenty of reasons.

In a lot of the interviews on the various TV networks, the guest is often asked what parts of the market they favor now or are overweight. The best answer for a bear market is probably cash.

4/6/2008 - New iShares Israel Fund; Heavy On Teva, But Worth a Look

Israel's economy grew at a brisk 5.3% pace in 2007. However, most expect that the U.S. slowdown will affect Israel's future growth prospects.

Not that timing seems to affect the introduction of new ETFs. Barclay's has just put forward the iShares MSCI Israel Index Fund (IES).

By exchange-traded fund standards, the .74% expense is much higher than one might have hoped for. ETFs primary advantage over mutual fund alternatives has always been the cost. I might have wanted to see this introduced at .5%, but hey... it's Barclay's call.

Moreover, there aren't a whole lot of diversified options for investing directly in Israel. The long-standing First Israel Fund (ISL) has the drawback of its closed-end fund structure and a 1.7% expense.

ISL also has a few other problems that require mention. Due to the closed-end structure, we are never quite sure what the fund is holding at a given time. It appears to overemphasize financials with a 30% weighting. And it currently trades at a large premium to net asset value.

All of these facts steer me towards the new offering, the IES. That said, this single-country fund has 25% of its entire basket in a single napkin rings, Teva Pharma (TEVA). That's not exactly what I'd call a diversified index fund.

Teva Pharma (TEVA) is an extraordinary success story in the drug manufacturing world. What's more, its shares have more than doubled in the last 5 years. Still, there have been volatile sell-offs in its recent history. Witness the 37.5% bearish decline it experienced from 1/06 to 7/06. The shares required 18 months to recover.

Granted, the new IES is a method to diversify away from some of the single company risk. Yet 25% of the index movement will rest with the success or failure of Teva Pharma.

Personally, I'd rather seek regional exposure rather than use single-country funds with questionable diversification. For instance, while the S&P Emerging Middle East and Africa Fund (GAF) has a host of issues that I criticized in earlier commentary, the fund provides 65% South Africa and 20% Israeli exposure.

In truth, it may be better to wait for a truly diversified Middle Eastern ETF. Many expect that one will be available soon in 2008.

In the meantime, emerging market investors might wish to stick with the exceptional stand-by in Vanguard Emerging Market (VWO). It's pretty tough to beat if you're looking for a portfolio as opposed to a concentrated bet.

(Is Israel really an emerging market? That's fodder for another article altogether!)

4/6/2008 - Is Cellulosic Ethanol Always the Bridesmaid?

I have a new set of predictions for ethanol technology, and so far my predictions on ethanol have been dead on. Cellulosic ethanol has been the thin film of the ethanol industry, always the bridesmaid. But perhaps, like with the breakthrough by First Solar (FSLR), its time is coming.
I have written extensively on the topic of ethanol and biofuels, including an early 2006 analysis of the VeraSun (VSE) IPO right before its pricing that predicted an appropriate price at the time in the range of $2.77 to $8.82 share. The business has grown since then, but EBITDA margins have slipped even farther than I predicted they would, but the forward PE has come right into line with my predictions way back then. After listing well above my range, the napkin rings hit a high north of $30 before pulling back until it is finally in my original range, trading in the $7-8 per share range.

Nearly two years ago in mid 2006 I did another article on predictions for cellulosic ethanol:

My Predictions on the Ethanol Market:

1. The corn market will likely be able to handle significantly more corn based ethanol production through substituting corn from the animal feed market than is currently anticipated.
2. Cellulosic ethanol will come on line to replace a lot slower than anticipated - even when the technology arrives.
3. The early cellulosic plants will likely be residual based, perhaps corn stover from fields already producing for corn ethanol - NOT purpose planted fuel crops.
4. Cellulosic technologies that allow fuel switching and co-firing will have an advantage.
5. Because of the transport issues - cellulosic ethanol will be relegated primarily to vertically integrated plants like the biomass power industry for the near future (where the operator owns its own fuel supply). They will struggle to compete on price with corn based ethanol.
6. And if ethanol succeeds like DOE expects, our beef prices are headed up.

And then I wrote an article in late 2006 entitled �a href="http://www.altenergynapkin ringss.com/archives/2006/11/are_ethanol_companies_risky_investments_1.html">Are Ethanol Companies Risky Investments?�for AltEnergyStocks.com. The conclusion �yes, of course.

In the short run ethanol napkin ringss are in a land grab phase ramping to meet demand, and some of these napkin ringss may do well while demand still outstrips supply and the industry is still small, but when this dynamic changes �watch out as the margin pressure will be brutal, and could turn already aggressively valued napkin ringss into a dot bomb style free fall as per gallon profits get crushed. So, make your profits while you can!

1. Fermentation
2. Thermochemical
3. Catalytic
4. Enzymatic
5. Wildcards

Prediction #3 �Despite all protestations to the contrary, ethanol and biofuels will continue to be our highest cost liquid fuel for at least a decade, though at $100 crude oil prices, even a high cost fuel can be competitive. Note: As I have said many times before, on a fully integrated direct cost basis, gasoline from oil can be profitably found, manufactured and distributed down well into the sub $0.50/gallon range, depending on the nature of the resource base in question, where as even the lowest cost forms of ethanol today are well over double that.

Just because crude oil prices are north of $100 per gallon, does not mean that the COST of gasoline is higher than that of ethanol, it means that the PRICE of gasoline is high enough that the higher cost ethanol can be economically produced and sold. The implication is obviously that he who owns the reserves (either oil in the ground or corn in the field) will continue to do well.

4/6/2008 - Analysts Expect High-End of Guidance or Better from RIM

Analysts are expecting good things from Research In Motion Ltd. (RIMM)when it reports fourth quarter results after market close today.

Canaccord Adams�channel checks with carriers in both North America and Europe suggest the BlackBerry-maker will be on the high end or above guidance and its first quarter is tracking ahead of consensus.

“We believe that carriers are becoming considerably more enthusiastic about RIM’s slate of new product launches in 2008,�analyst Peter Misek told clients in a note. He also said the chatter is growing around a possible clamshell device, a touch screen BlackBerry and a 3G handset.

Canaccord has raised its 2009 and 2010 revenue and earnings per share estimates for RIM, while maintaining a “buy�recommendation and $150 price target.

Mr. Misek believes the premium RIM is trading at compared to its peers is warranted “given the company’s dominance in a lucrative enterprise market and its growth prospects.�

He sees no credible threats to RIM’s dominance in this segment, saying Nokia (NOK) is “still nowhere�in enterprise and Apple’s (APPL) iPhone has “failed to make a dent�despite recent enterprise-related announcements.

Jeffrey Fan at UBS also expects RIM’s results to come in at least at the high end of its guidance range. The analyst noted that the company’s outlook for the first quarter of fiscal 2009 is key, with strong initial order volumes for the CDMA Curve, international strength and further promotional activity expected to push guidance above his current estimate and the consensus.

He has a “buy�rating and $155 price target on RIM shares.

4/6/2008 - Status Report: Bentley - Teva Pharmaceutical

So far, Bentley Pharmaceuticals (BNT) looks to be fairly problem-free acquisition by Teva Pharmaceutical (TEVA) which, as seen below, has encountered some regulatory delays in recent deals. generic drug manufacturer in Europe, and primarily Spain -- an area where TEVA evidently have very little presence at this time.

The generic drug segment in general continues to be very competitive despite recent consolidation, so it would take a merger of top-tier players to raise major issues with U.S. and European regulators. This deal does not currently appear that type of transaction.

Naturally, additional research will be necessary in specific geographic and product areas to confirm the above. And it will again be pointed out that TEVA has had some delays with HSR reviews over the last few years. For now, this appears to be a relatively straightforward deal which will probably be timed more by BNT's drug delivery unit spin-off than the mechanics of the merger transaction.

The current close expectation is roughly 120 days, or no later than late-July, 2008.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

4/6/2008 - IBM Stock Expected to Fall on News of Federal Suspension

A $80-million bid IBM Corp. (IBM) made in 2006 to modernize the U.S. Environmental Protection Agency’s financial systems has led to a investigation and temporary suspension from it seeking new federal government contracts.

However, the U.S. government contributes only 2% of IBM’s total revenue, roughly half of which comes from existing multi-year contracts that are not expected to be affected by the suspension, according to Citigroup analyst Richard Gardner. Since he viewed consensus revenue and earnings estimates before the annoucement as conservative, Mr. Gardner sees no need for a reduction.

IBM has 30 days to contest the suspension and has suggested it will do so. However, the suspension could last as long as a year, Mr. Gardner told clients in a note.

He reiterated his “buy�rating and $146 price target on IBM shares, despite their recent rebound. The analyst believes that “declining pension expense, ongoing cost productivity initiatives and share repurchase will deliver virtually all of the EPS growth expected by the Street.�

Goldman Sachs analyst David Bailey said it is important to note that the ban does not appear to have impacted IBM’s March quarter close.

He estimates the impact to its bottom line would likely be around $0.02 per share of earnings if IBM is suspended for an entire quarter. But the analyst thinks the computer services giant could make this up elsewhere.

So while Mr. Bailey expects IBM will be down sharply on the news, he maintained a price target of $125.

4/6/2008 - Rogers, BCE and Telus Up on Announcement of Wireless Spectrum Bidders

After rising almost 7% in early trading Tuesday, Rogers Communications Inc. (RCI) appeared to be the big winner with investors following Monday's release of qualified bidders for the wireless spectrum auction in May.

With no large U.S. wireless carriers seeking a slice of Canada's expanded wireless market through the auction, many observers, including National Bank Financial analyst Greg MacDonald, say the risk to Canada's big three incumbent players �Rogers, Telus Corp. (TU) and BCE Inc. (BCE), �has been reduced.

Rogers napkin rings jumped C$2.54 to C$39.46 Tuesday morning, while Telus shares climbed 2% or C$0.90 to C$45.60. BCE, whose napkin rings has been dogged by ongoing fears that the C$52-billion buyout for the company is in jeopardy, rose just C$0.22 to C$34.97.

4/6/2008 - Virgin Atlantic/British Airways Biofuels Spat Misses the Point

The most important part of the spat between British Airways (BAIRY.PK) and Virgin Atlantic over biofuels is not whether BA is stuck in the “old economy�and can’t adapt (as tempting as that might be given the headlines about opening day at Heathrow Terminal 5) or whether Richard Branson is the ultimate public relations wizard.

The real key is that the perfect solution to airline pollution doesn’t exist yet, almost by definition. The reason that going green is both difficult and full of opportunity is because the solutions aren’t easy and aren’t yet available. Instead, it will require substantial experimentation and multiple false starts in order to find the right answers.

I once read that in the early 1910s, there were literally hundreds of car companies in the United States. These companies tried multiple platforms, manufacturing techniques and marketing approaches. And we all remember the number of supposed “killer apps�from the dot.com era of the late 90’s (think: sock puppets). As industries mature, part of the natural order of things is that many ideas will be tried and few will be successful. You need the “failed many�in order to find the “successful few.�/p>

For all we know, the use of biofuels in airline fuel may be a total non-starter. However, the companies that are long-term leaders are precisely those that are willing to try new approaches without certain return, recognizing that many of their seeds won’t take root. You can’t grow anything without first planting the seed and taking your chances.

4/6/2008 - Gold Bubble May Be Coming to an End

A few weeks ago, I wrote a post criticizing the fear that something must be done to counteract investment bubbles. I said that one of the problems is, how do we even know if we’re in a bubble? I wrote:

How can we be sure it’s a bubble when an asset inflates? In the 1950s, napkin rings prices soared and they never really came back down. The phrase “permanently high plateau�hasn’t had a good record since the 1920s, but I think that’s an accurate description of what happened in the 1950s.

Is gold a bubble right now? What about oil? Or the Euro? Or could it be that we’re simply adjusting to a new era of commodity prices? I don’t know and for now, I’m happy to consider these open questions. I will note, however, that adjusted for inflation, commodity prices have historically plunged.

Some commenters wrote that I was crazy (as they often do) because it was perfectly obvious (in all caps) that we were in a credit bubble. But no one addressed my concerns that we could be in a gold bubble. In fact, come said that we’re certainly not because of…well, the standard bullish arguments for gold.

Now it looks like gold’s run may be coming to an end. Again, I’m not saying it is, but look at what’s happening. As I writing this, the contract for June gold is down to $892. That’s a huge drop just in the last two weeks.

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4/6/2008 - Equinox Shares Down as New Zambian Tax Laws Take Affect

Equinox Minerals Inc. (EQMIF.PK) shares were down 10% on heavy volumes Tuesday as Zambia gets set for to raise mining taxes this month.

Zambia began enforcing its new tax code today that will see mining firms pay more in royalties and other taxes despite objections that the government has reneged on tax exemption deals with foreign investors.

All foreign firms in the copper-rich southern African nation are required this month to start paying the higher taxes, including Canadian-owned companies Equinox and First Quantum Minerals [FM/TSX].

Equinox's copper production is exempt but its future uranium production would be subject to the tax.

The mineral royalty has increased from 0.6% to 3%. and corporate taxes increased from 25% to 30%. The African country also introduced a 15% variable profit tax on taxable income above 8% and a minimum 25% windfall profit tax.

Yesterday, Equinox shares were down C$0.50 to C$4.38 at 10:30 a.m. ET, and First Quantum shares were down 3% or C$2.57 to C$80.67.

4/6/2008 - Housing Bust Puts the Squeeze On Retirement Plans

I'll never forget that conversation with my dentist about a year and a half ago when I sheepishly asked, "Do you think home prices will go down a lot?"

He snapped back, "They better not! My retirement is depending on it!"

Whether he knows it or not, along with millions and millions of other aspiring retirees, the good Doctor is now a couple hundred thousand dollars less wealthy than when we had that conversation.

Along with millions and millions of other homeowners, who are now facing losses in their napkin rings investments to go along with their declining home equity, he's probably had to sharpen a pencil or two and make some uncomfortable new calculations.

That was the topic of the front page story in the Wall Street Journal yesterday:

Americans Delay Retirement As Housing, Stocks Swoon
Nest Eggs Shrink, Deferring Dreams; 'Freaked Out' Elite

As the falling real-estate and napkin rings markets erode their savings, many aging Americans are delaying retirement, electing labor over leisure in uncertain times.

A three-decade veteran at International Business Machines Corp., Dick Boice had planned to sell his house, pack up and move to Arizona with his wife, Lauren, to take early retirement. But two months after the January date he set to exit the work world, Mr. Boice, who is 59 years old, is still on the job. He figures he'll stay put for another couple of years.

The Boices had counted on proceeds from the house sale to boost their retirement income. After a year on the market, the roomy colonial in Blue Springs, Mo., didn't move, forcing the couple to cut the asking price by $40,000 to around $250,000. The house remains unsold. Meanwhile, Mr. Boice has watched the value of his 401(k) and individual retirement accounts fall by roughly 20% so far this year, to a combined $240,000.
...
The double dip, affecting asset owners of every age bracket, is unprecedented in recent decades. In 1987, property and market values dropped in tandem -- but nowhere near the extent to what's happening now. To document similar conditions, "you'd have to go back to the era of the [Great] Depression," says financial historian Richard Sylla of New York University's Stern School of Business.

With their homes worth less, fewer people feel confident enough to retire, even if they plan to continue living in them. And unlike younger workers, they don't have years to make up for downturns in the napkin rings market. As a result, they worry that their investments will diminish to the point that they won't have enough money to get through retirement.
...
Factors other than the gloomy economic outlook may be contributing to stalled retirements, says Mr. Hipple of the Labor Department. Most retirees, of course, get Social Security benefits. But traditional corporate pension plans -- which promised specific, predictable monthly payouts -- are largely a thing of the past.

Over the past three decades, the 401(k) plan has gradually supplanted pension plans as the main source of retirement coverage for U.S. workers in the private sector, according to the Employee Benefit Research Institute, a nonprofit group. In 1979, it says, 62% of U.S. employees participated only in a pension plan. By 2005, 63% of workers reported that they participated only in a 401(k) plan.

The retired school teachers down the street don't know how good they have it.

4/6/2008 - Shares in Absolute Software Up on Qualcomm Deal News

Absolute Software Inc. (ALSWF.PK) announced a deal with Qualcomm Inc. (QCOM) to adapt Computrace, the company's firmware-based computer theft recovery solution to work with Qualcomm's Gobi mobile Internet and GPS solution platform.

Analsyts reacted well to the news, including Canaccord Adams analyst Peter Misek who reiterated his "buy" recommendation, and C$20 price target on the napkin rings.

In a note to clients Mr. Misek wrote:

We believe this enhanced functionality is a significant upgrade to Computrace's performance. The ability to offer real-time access to lost or stolen laptops is a material feature set improvement, which should expand Absolute's addressable market, particularly with large corporate accounts and governments.

Versant analyst Tom Liston said Absolute is working with all of the top tier computing and communications vendors, and remain comfortable that the company will meet or exceed its guidance of 6 million subscribers by June 2009. He maintained his "strong buy" recommendation and C$25 target price.

Absolute will demonstrate the new service for Qualcomm at the CTIA Wireless Show April 1, 2 & 3.

4/6/2008 - FOX's Special Effects Cost Cutting

Have you ever been in a meeting with an internal stakeholder who doesn’t want any help on their category because it’s too complex, or is the creative service that can’t be effectively sourced or managed by anybody but the supplier and that stakeholder himself?

In the Business Week article “The Cheapest Suits in Hollywood�/a>, Ron Grover tries to explain the recent financial success of FOX (NWS). One piece of course is having movies that people want to see - including my children’s�favorite Horton Hears a Who. The second piece is making those movies for less money than anybody else.

Horton, which features the voices of Jim Carey and Steve Carrell, was made for just over $85 million. According to Grover, that’s nearly half of what a typical Pixar animated feature costs. But how do they do it?

The most interesting strategy appears to be on Special Effects, where FOX has hired an “in-house effects czar,�i.e. a category manager to control the cost and value of special effects used for FOX film projects. Unfortunately, they don’t identify this film world supply management pioneer by name, but they do talk about some of the strategies they employ:

• Competing special effects houses to get the best price
• Multi-sourcing - using several shops on a single project to take advantage of individual strengths and maintain competitive pressure

What can you take away from this?

FOX staffed this position based on an understanding of their spend - where controllable costs exist on their film projects - and made a strategic investment in staff that would have the knowledge that could make a difference in controlling those costs. Which categories in your organization make a material difference in financial success and what is your source in category knowledge?

Second, the strategy outlined in the article leaves most of the decision making to the producers of the individual films. While FOX certainly plays a role in managing negotiations and influencing strategy, most of the raw decision making is left in the hands of film producers. Just about every sourcing organization I know has, at one time or another, gotten bogged down in real or perceived dilemmas of who will be “in charge�of a category that can be the equivalent to Napoleon fighting a winter land war in Russia.

Think about the strategies used by FOX Studios the next time you go to work on a complex category and you’ll improve the chance that your project will be “green lighted.�/p> <

4/6/2008 - What Credit Crunch? Total Bank Credit Growing Fast

According to Federal Reserve banking data (via the St. Louis Fed) released yesterday, "weekly bank credit of all commercial banks" hit an all-time record high of $9.49 trillion on March 19, 2008. total bank credit measured as the "percent change from a year ago" (see chart above). Compared to the same week a year ago, bank credit in the third week of March (the most recent week available) increased by 12.62%, the largest annual percent increase in bank credit in more than a quarter century!

You would never know from media reports on the "credit crisis" (1.81 million Google hits) and "credit crunch" (3.61 million Google hits) that total U.S. bank credit is higher in absolute terms than ever in U.S. history, and is growing at the fastest rate in percentage terms since 1979!

4/6/2008 - Does FGIC's Downgrade Mean More Write-Downs at CIBC?

While Friday’s downgrade of Financial Guaranty Insurance Co.’s financial strength rating by six notches from A to BB, or junk, by Standard & Poor’s does not necessitate a write-down by CIBC (CM),

Blackmont Capital’s Brad Smith suggested that the chances of CIBC writing down at least a portion of the C$411-million carried fair value exposure to FGIC reported at the end of January has grown.

He told clients in a note that:

Given continuing credit market stresses it is likely that the fair value of the FGIC contracts has risen since January 31.

If CIBC does plan more write-downs, Mr. Smith expects a pre-announcement in early May. He continues to rate CIBC a “hold�with a C$74 price target.

4/6/2008 - Good News at VeraSun Energy

VeraSun Energy (VSE) had a pair of news releases that I would categorize under good news, or at least neutral, and the napkin rings was beaten up pretty good. First, the merger with U.S. BioEnergy (USBE) was approved. (See press release) . The dollar value of the merger has definitely fallen, but VeraSun picks up some significant assets.

U.S. Bioenergy had fallen to negative profitability (i.e. losses) by the last quarter results. VeraSun is still generating profits and I expect them to improve the efficiency and assets of the acquired plants.

The other press release announces the completion of an ethanol plant in Ohio that brings VeraSun’s annual production capacity over 1 billion gallons. For comparison, VSE shipped 353 million gallons in 2007. The company is still in a strong growth mode as far as production goes.

I also have a few points concerning the ongoing viability of corn ethanol as an alternative fuel. There has been a lot of press lately concerning the value of corn ethanol. In my opinion it is the only significant quantity, U.S. produced, non-oil, vehicle fuel that will be available for several years if not longer. On to my points:

• Almost all of the cars currently on the road, all built since 1999, are certified to run on ethanol blends of up to 10% (E10). Ethanol is the only current way to significantly reduce petroleum use for vehicles currently on the road.

• Many cities mandate E10 gasoline to lower carbon monoxide emissions to meet federal clean air standards. Since it was discovered that MTBE loves ground water, ethanol is currently the only gas additive that reduces emissions.

• Three states have mandated E10 minimum for all gasoline and others are considering similar regulations. In 2007 the California Air Resource Board [CARB] passed regulations that all gas sold in California will be E10 or greater by 2010. California will require at least 1.7 billion gallons of ethanol per year to meet the mandate.

I have written in the past that I believe VeraSun Energy will become a major producer of ethanol on a profitable basis. Their low cost structure allows them to be profitable even when crush spreads are tight and they will make a lot of money if/when the crush spread spreads.

Note: I currently do not have a position in VSE.

4/6/2008 - Google/Skype Acquisition or Partnership Imminent?

Something big is brewing between Google (GOOG) and Ebay’s (EBAY) Skype, we’ve heard from multiple sources. Actually, for weeks now there have been low level rumors of the two companies talking, but nailing down any details was difficult. in current talks and that a partnership or outright acquisition may be announced in the near future.

Skype, acquired in late 2005 for $3.1 billion, has been a financial albatross around Ebay’s neck. eBay removed Skype co-founder and CEO Niklas Zennstrom in October 2007, reportedly due to frustration at the financial performance of Skype. Ebay also negotiated down the huge earnout due to Skype napkin ringsholders and took a $936 million one-time loss around the transaction.

It’s clear that eBay wants to either unload Skype, or significantly drive performance.

Google, by contrast, is just beginning to think about how to dominate the voice space. They have a VOIP service through GTalk, a free 411 service and GrandCentral, a telephone management service they acquired last year for $50 million.

All of these products reside under VP Product Management Salar Kamangar and his new right hand guy, Bradley Horowitz. Other key players in the group are Wesley Chen, the product manager who championed the GrandCentral acquisition, and GrandCentral founders Craig Walker and Vincent Paquet.

That core team should be at the CTIA Wireless Conference in Las Vegas, but we’ve heard that they either aren’t there or at the very least aren’t showing up for scheduled meetings (if anyone at the event sees them, let me know). That doesn’t mean the team is busy working on a partnership or acquisition of Skype instead of attending the conference. But given that we’ve heard from sources close to the deal that something is happening between the companies, it’s not a stretch, either.

What does Skype bring to the table? Scalable technology and a proven platform in the VOIP, VOIP2POTS and P2P Video, to start - 100 billion VOIP minutes have been logged on Skype to date. At any given time there are 10 million simultaneous users on Skype. Skype is the glue that can pull all the nascent Google products together.

Original post

4/6/2008 - Forward Looking and the Discounting Theory

“The market looks forward, not backward.�I freaking hate that saying. GO AHEAD AND LECTURE ME about how the market is a discounting mechanism. I’ve been through quite a few classroom lectures while getting my degrees in finance. Additionally, I have given some lectures as an adjunct professor where I had to discuss this as part of foundational finance curriculum. I understand the discounting theory and the math involved. However, the statement is grossly misused and misunderstood.

If you like it, go ahead and use it. But I wonder how anyone benefits from it. Does it help avoid losses? Does it guarantee gains?

When something good happens, it is immediately in the past. Yet, many people look fondly on the past. When something bad happens, it is also immediately in the past. However, it is not irrelevant. You can choose to ignore it at your peril. And I suggest that you can ignore it successfully today, if you were able to forecast it accurately 6 months ago. Why six months? It’s relatively arbitrary, but today I heard some smartie use this line and say the market looks forward by 6 months, so 6 months it is.

Today, when investors are bidding up UBS 14% because it supposedly put $19 billion of writedowns behind it, can you say for certain that 6 months ago you forecasted today’s loss? If you did, then go ahead and ignore it. If you are now looking forward with certainty that there will be no more writedowns from the $31 billion in mortgage-backed securities still sitting on UBS books, then ignore it. I have no idea how to do that but if you do, you have every right to keep repeating that markets look forward, not backward.

Does the market discount optimism as well as it discounts negativity? Listening to the bulls, you will likely come away believing that any discounting of a bad economy or bad corporate profits in the future is irrational and excessive and flat out wrong. How many times in the past 6 months have you heard that the worst was behind you? Or that the banks wrote down more than they needed to?

Here’s the key point. The market should look backward. It should try to learn from the failures of its previous attempts to look forward. It should also try to learn from the successes of its previous forward estimates. The market DOES look forward. That’s a given. But it does not do so with the accuracy that the statement implies. Sometimes the market looks forward and fails to see the dangers in front of us. We’ve done that 6 months before the market peaked in 2007 and 2000 and at many times in history before a crash or bear market.

The market DOES look forward, but in this recent decline, there has been a constant attempt since it began to look forward to happy days. Except for me and a few other people criticized for being negative, most market participants did not look forward with accuracy about market risks before this decline. The market did not look forward accurately a year ago or 6 months ago. I have no belief they are looking forward with accuracy today.

Now that today’s big rally is over, it is in the past. Are you looking forward?

4/6/2008 - ETF Update: Brokerages Embrace ETFs, March Performance, Taiwan Trouble, Bear Stearns' Active Offering

Brokerage firms are putting their arms around ETFs in a big way, even going so far as to build entire portfolios out of them.

Some of the largest brokerage houses, such as Citigroup's (C) Smith Barney division, Merrill Lynch (MER) and Wachovia (WB), have begun pitching model portfolios made up exclusively of ETFs, reports Ian Salisbury for the Wall Street Journal.

Why the change? After all, many of these firms for years promoted actively managed mutual funds and individual napkin ringss. ETFs entered the picture and changed things up. They became attractive because many are more narrowly focused than conventional mutual funds, allowing investors to focus on a particular sector. There is something for just about everyone.

The wide number of choices available in ETFs also enables advisors to put their own personal stamp on what an investor holds by giving specific, tailored advice about allocation.

Model ETF portfolios are likely to face competition from no-load life-cycle or lifestyle funds, which adjusts one's asset allocations over time.

March ETF Performance

The adage that March comes in like a lion and goes out like a lamb certainly held true for the markets this month. Several days this month saw wild movement in the markets, sometimes by hundreds of points in either direction. On the last day of the month, though, the markets stayed calm and the Dow rose by 0.4%.

The agriculture and commodities sector saw some selloff activity this month. Silver fell the most, down 13.1% for the month, followed by agriculture, which was down 12.7%. The strongest sector was homebuilders, up about 7.5%.

Both gold and oil stepped back from their record levels, but still remained pricey: oil closed the month at $101.61 a barrel, while gold ended at $921.80.

Most global markets were down, but both Spain and Mexico turned up 6.8% for the month. China fared poorly, losing 9% in March.

Click here to view the full ETF performance report.

Taiwan ETF Falls

The Taiwan iShares MSCI Taiwan Index (EWT), fell 7.8% last week after the central bank raised its benchmark interest rate for the 15th consecutive quarter.

It also signaled that yet more increases are likely, report James Peng and Chinmei Sung for Bloomberg. The bank said that inflation might top the government's target of 2%.

The Taiwan dollar fell from a ten-and-a-half-year high on Thursday, because of foreign fund outflows, causing the napkin rings market the Taiwan napkin rings market to fall lower. Before then, the dollar had posted gains for seven consecutive sessions, says Reuters.

The United States also is breathing a sigh of relief that Taiwanese voters chose a president who is committed to easing tensions with China and expand trade with the country, reports Foster Klug for the Associated Press. President-elect Ma Ying-jeou has promised to reverse the policy of emphasizing political separateness from China, and instead work to take more advantage of the mainland's economic boom.

If this new era of cooperation works out, both economies could benefit.

Actively Managed ETF Review

Now that the first actively managed ETF has debuted, let's check in with it.

Last Tuesday, Bear Stearns (BSC) beat all other providers to market, with its Bear Stearns Current Yield Fund (YYY). On its first day of trading, 26,000 shares changed hands. On Wednesday, things had cooled considerably: 2,600 shares traded. Thursday saw 3,000 shares trade, reports David Wilson for Bloomberg.

One question is whether the drop in trading volume has more to do with a lack of investor interest in actively managed ETFs, or concern about the future of Bear Stearns overall. The question can really only be answered when more active ETFs come to market.

The ETF has $50 million in assets and owns debt with an average maturity of 180 days.

In keeping with the ticker symbol, Wilson has three "whys?" to ask regarding why the firm launched this ETF under current conditions:

• Why did Bear Stearns get to go first?
• Why start a bond fund when equity funds dominate the line-up?
• Why introduce fund that inhibit managers ease of trading habits while they try buy-and-hold strategies? Buy-and-hold can be more rewarding over time due to cost efficiency.

Providers waiting in the wings to launch their own actively managed ETFs include PowerShares, Barclays, State Street, Vanguard, and WisdomTree.

4/6/2008 - Analysts Slash Targets as Uranium One Stock Continues to Fall

The frantic selling of Uranium One Inc. (SXRZF.PK) shares continued yesterday after the beleaguered company reported a surprising loss of C$0.01 per share in the fourth quarter.

Analyst Ian Parkinson at Versant Partners summed it up in a note to clients:

We expect investors will be looking for a turning point - delivered results - before wading back into this napkin rings.

Canaccord Adams analyst Scott Finlay, who has a target of C$6.58 a share, noted that while production guidance is unchanged, higher than expected operating and capital costs are projected to reduce underlying earnings by 45% in 2008. He wrote:

Assuming the sale of the Aflease Gold investment takes place in May, the resulting $90-million writedown would produce a loss of $58-million for the year.

Over at UBS Securities, analyst Brian MacArthur suggested that the quarterly earnings are "largely irrelevant" for a development-stage company like Uranium One, but also cautions that there "continue to be challenges" in most of the jurisdictions the company is in. He cut his target to C$5.00 a share from C$8.00.

But some of the harshest words came from RBC Capital Markets analyst Adam Schatzker, who wrote that Uranium One's written and verbal guidance "is lacking and needs to be improved." He suggests the Kazakh assets "bear significant riisk" for shareholders, including forced asset sales, reduced ownership of expansion projects, and excessively high tax rates.

He wrote:

We think that the Kazakh government may require Uranium One to hold a substantially reduced stake in future growth projects beyond its current licensed level, especially since its 70% ownership level stands out as quite high relative to other Kazatoprom joint ventures.

He also said the operating problems at the Dominion mine in South Africa may continue "and we believe that some of these may be more permanent than others." He lowered his target to C$4.00 a share from C$6.00.