Friday, January 16, 2009

Citigroup: Two Broken Pieces Not Better Than One Broken Piece

Citigroup (C) announced that they will splinter into two pieces. Two broken pieces do not equal one fixed financial supermarket or whatever they want to call it now. Unless the assets are fixed or sold, the bad stuff will continue to have a cancerous effect on Citigroup’s ability to create wealth.

They talk about fixing the board soon. This would be very welcome as they clearly have ultimate responsibility. Given the close supervision of the Fed, Treasury and anything else from Washington it would be interesting to see how the changes are being managed and what the score cards are. Will directors with all their responsibilities be allowed to get off scott free and walk away from this mess.

How are they picking the new guy’s? Probably not unemployed republicans. This will have a subtle perhaps secretive effective on the selection of board members and ultimately how boards operate in all financial institutions. How will investors be able to assess governance and know if their investments are in good shape.

More Musings About Steve Jobs & Apple

His health is creating uncertainty. Apple's board is not communicating well because they are lost and confused. No one seems to know what to make of it. That's because the investment community does not have the tools or mind set to comprehend the medical problem. Take a page from the CIA's play book. Hire a few doctors to watch his taped appearances and give a diagnosis. Perhaps someone has already done that.

Hey doctors, here is another way to make money. Just watch top business people and see if you could diagnose a medical problem before it becomes public knowledge. The insights could be worth millions. Because the press releases are not worth the paper they are printed on.

Thursday, January 15, 2009

Apple Individual Icon or Sustainable Investment

Apple (AAPL) finally realized that its chief star is seriously ill. Do not get me wrong I do not wish ill health on anyone. Steve Jobs has to take a leave of absence as his health concerns are more complex that originally anticipated. Given the secrecy that had shrouded his health it is not surprising that more bad news is coming out.

As I blogged in the past, Apple needs to know that it can operate without Steve Jobs. If it turns out he was the only one making the wheels turn, than buy a life insurance policy and sell the stock. This six month leave will establish if Apple has the bench strength that some in the media believe it has.

As a financial skeptic I see this as the law of unintended consequences coming to fruition. Steve Jobs is in part the manufactured construct of brilliant PR. Steve Jobs allowed the PR guy’s to do this and make him into a Sun God. The board went along and allowed the PR campaign. Now the PR dynamic cannot deal with medical reality. You would think in the modern age a company should be able to transition seamlessly to new leadership. Instead we are all caught up in an ancient construct that when the emperor dies he takes everything with him. Steve Jobs as brilliant as he was is not a demi-god.

Look at how well Apple will handle product announcements and any pitfalls or difficult decisions that may occur. If they are waiting for Steve Jobs to return it’s all over. Firstly he may not return. Secondly the company needs to operate despite him. No forward momentum for the company means the company has nothing to offer. We will soon learn if this company truly had maturity and depth that creates shareholder wealth.

SEC Warning Beware of Fake Regulators

Securities and Exchange Commission staff are aware of a number of ongoing investment scams in which con artists have used the names of real SEC employees to trick victims, including non-U.S. investors, into giving the fraudsters access to their brokerage accounts, revealing private information, and even sending the perpetrators money and other assets.

Even where the fraudsters do not request that funds be sent directly to them, they may use the personal information they obtain to steal the individual's identity and then misappropriate his or her financial assets. If you receive a call or email from someone claiming to be from the SEC (or another government agency), always verify the person's identity.

Use the SEC's personnel locator, (202) 551-6000, to verify whether the caller is an SEC staff member and to speak with him or her directly. You can also call the SEC at (800) SEC-0330 for general information, including information about SEC enforcement actions and any investor claims funds ...

Wednesday, January 14, 2009

Satyam Rearranges Governance Chairs on Titanic

Satyam Computer Services (SAY) new board named Deloitte Touche Tohmatsu International and KPMG as auditors to replace PricewaterhouseCoopers. The senior culprits are under arrest in India. While corporate and criminal law in India may be different than US statutes they do not condone fraud and stealing.

So from a governance point of view the question becomes what happens to the audit committee of the Board of Directors and the senior auditors of PricewaterhouseCoopers.

Can they all claim that they have been duped? They were hired so that they would not be duped. We need to see more arrests and prosecutions. These guys drove the get-a-way car well enough for this fraud to go undetected for close to five years. That’s pretty good driving and we need more than a speeding ticket.

Tuesday, January 13, 2009

Google AdWord Despair

I have started to notice one adword appearing on this blog. Served by Google (GOOG) the ad encourages investors to sell their gold jewelry and increase their liquidity. The ad seems to play onto the manic depressive side of stock market investing.

Wondering if someone could develop an ad index that reflects current financial sentiment. The adword in question is playing to a dark bearish mood. Very much into the moment when everyone is struggling with a massive "mal a tete"

Infosys Phantom Clients

Infosys (INFY) announced mediocre results. As the worlds economy slows down outsourcing opportunities decline. There is just less work to be done in any jurisdiction. Here is the problem I have with their press release. They keep mentioning they picked up this client and that client for one type of work or another.

They never mention the name of the client or the financial value of the relationship. Investors are being expected to believe blindly without any transparency of any description. In today’s environment governance requires transparency. If the new contract is material the investment community needs disclosure. If the contract is not material why is it being mentioned in the earnings release?

Canadian Regulatory Mess

Canada is probably the only developed country that does not have a unified federal financial markets regulator. The current federal government is taking steps to set one up. But Alberta and Quebec are balking claiming historical precedence. If these jurisdictions cannot look forward into the 21st century the world will pass them by.

Right now its just a cash grab as individual provincial regulators take in large fees with every registration. The individual investor is not well served with this structure. All market participants want a unified structure except several provinces that do not want to give up regulatory income.

That will make you feel well protected.

Monday, January 12, 2009

Alcoa Difficult to Believe In

Alcoa (AA) was first out of the chute launching earnings season. They of course lost a lot of money which was to be expected. Revenues are off as most clients are in trouble. Commodity prices are down dramatically so margins are not looking good. Management would have you believe that they are well positioned for the future. They say they are well capitalized, liquid and well positioned for the future.

Take a look at a few points that were not discussed in the earnings release.
1. Under short term liabilities the fair value of derivatives contracts practically doubled from $286 million to $461 million. You clearly need more explanation on that line item.
2. Short term borrowings are down but reliance on commercial paper has doubled to $1,535 million. Commercial paper that’s a stable source these days.
3. Long term debt has increased by $2.1 Billion or 33% to an astronomical $8.5 Billion.

Not saying that Alcoa is the next financial funeral but they cannot take a lot of financial pain without starting to blow some gaskets.