February 17, 2006
Institutional Investors Do Not Make Claims
Two Duke law professors, Francis McGovern and James Cox, have documented in separate studies that big institutional investors do not claim money due them in litigation settlement pools of cash. Professor Cox, for example found that 72% -- 72%-- do not claim money due them from the proceeds of successful class action lawsuits. Making the claims is technically complex but does not excuse the behavior. Now that the jig is up, I suspect that institutional investors will institute a claims practice (a new position and office perhaps) and the data will change.
Use of the Jet
A study by David Yermack at NYU's Stern School of Business found that the private use of the company jet is highly correlated to golf, particularly membership in the Augusta golf club. He also found that high use of the corporate jet in inversely correlated to a firm's stock market performance. The lesson for a board? Check how much time a CEO is spending on out of state golf courses.
Book on Stock Investments
Best book on stock investing? Edwin Lefevre, Reminiscences of a Stock Operation (1923)(about Jesse Livermore). 1923?? Yes. The motives stay the same; the names and types of the investments change.
I love the quote from Paul Saffo at Silicon Valley's Institute for the Future: "Google is a religion posing as a company."
Marx is Wrong--Again
New studies on productivity growth in the United States show that it is growth in income (return on labor) not growth in capital (return on investments) that explains much of the recent economic growth in the United States. Populists will note however that the wage gains are at the top of the income scale; the cause of the increasing wage inequality seems to be a rise in returns to education and skills. Manual labor's returns remain fixed and marginal.
Culture and Tax Matters
The new theory of Japan's resurgence in technology is that some technologies advance consistent with Japan's culture and some do not. Those that do -- the "learn through doing" technologies such as those involved in robotics, aerospace and solar -- that that do not -- the "let many flowers bloom" technologies such as software and bio tech (that require many competitive start-ups). Why does Germany not have more private equity in the start up business? Tax. The combined VAT and income tax (levied by local governments) penalizes local private equity firms that make money on turn arounds in starts-up and emerging business. The private equity firms gravitate towards firms that can offer medium-term growth. So both culture and legal rules count.
Malta Stock Exchange
The Malta Stock Exchange with 13 stocks is having a banner year. Its stock is up 60% over last year. The Exchange is attempting to develop an active market in foreign stocks. This could get interesting. A number of small countries are attempting to play the "Delaware" game; attract foreign listings and foreign stock trading volume. These new markets will attempt to design trading systems and rules that are attractive to foreign traders and companies. Of course, if they come up with some good new innovations, expect established markets, if politically feasible, to mimic the best of them at some point.
February 16, 2006
More Pennsylvania Anti-takeover Legislation
Pennsylvania has passed new legislation to help a state bank, Sovereign, fend off the challenge of a hedge fund, Relational Investors, to an acquisition of by Sovereign of Independence Community Bank, financed by a sale of 19.9% of its stock to a Spanish bank. Article The legislation loosens the shareholder voting requirements of a large stock sale. When the Governor Rendell signed the bill the hedge fund dropped its suit to stop the stock sale and is considering a suit attacking the new legislation. This is more of the we must "hurt shareholders (by disenfranchising them) so as to help them" stuff that is a front for outright protectionist behavior by the Pennsylvania government.
Congressmen Oxley on SOX
A lunch talk by Congressmen Oxley on Sarbanes-Oxley provided two insights. First, Congress will not change the act anytime soon. Second, the SEC can lighten the act's severity but will do so only if they get "cover" from Congress -- some assurance that members of Congress will not use SEC loosening of the rules to grandstand on behalf of the populists. He also noted that the Small Business Advisory Committee recommendation (to give a blanket exemption from Section 404 to small cap, publicly traded companies) was just the opening position in a negotiation that has a long way to go.
Farmers and Small Business Cheats on Taxes the Most
A report on tax cheating by the Commerce Department found that, in percentage terms, the biggest tax cheaters in the United States are farmers, who fail to pay a huge 72% of the taxes they owe. The cheating from unicncorporated businesses (including partnerships) cost the government $68 billion in 2001, the largest absolute revenue loss of any group.
Retail Sales Still Up
Retail sales surged in January. We are still spending more than we earn. This means the market has some steam left in it. This cannot last. When consumers get more sensible the market will flatten. Could be soon; could be many months or a year or two away.
Lucent Shareholders Vote to Control Executive Pay
Lucent's shareholders voted to tie the pay of Lucent executives to performance. The shareholder resolution recommends that the board tie at least 75% of exective stock grants to performance
February 13, 2006
Whirlpool Corp Acquisition of Maytag In Trouble?
The Justice Department, following a lurching course of challenging mergers in the consumer products industry, has decided to challenge the Maytag acquisition by Whirlpool. The Justice Department has been sensitive to criticism by consumer groups that it has bee too lenient in approving consumer product mergers (SBC/ATT and Verizon/MCI). An LBO group (Ripplewood Holdings) eager to buy Maytag waits in the wings.
The last prices on Lay and Skilling conviction futures on the Intrade market are stunning. The last trade was $.59 on the dollar for a conviction of Lay on at least four counts and $.68 on the dollar for a conviction of Skilling on at least 16 counts. This is a major price increase after only the presentation of the first witness. Moreover, the price is high given the minimum conviction on multiple counts required in the futures contract. Things always look different in the light of day than they do in a lawyer's chambers.
The lawyers for Skilling have condemned the trades arguing that it is crass to "trade on human life." They ignore of course that Enron trading heating oil futures in the California heating market in the winter. Enron's trades were, apparently, neutral of human life.
New SEC Compensation Rules
The new SEC rules on executive compensation require that the new disclosure report be signed by the CEO,CFO, and a majority of the board. Under SOX, the CEO and the CFO must certify the report as well. This is a change from present practice, in place since 1992, that exempted the compensation report from the signing requirements.
"Samurai" Poison Pill
Mittal Steel has made a hostile tender offer for Acelor. Acelor has a patent cross-license agreement with Nippon Steel that exprires on a control change -- a "samurai poison pill."