May 30, 2008
Exxon Shareholder Meeting: Resolutions Lose
Everyone is claiming victory after three notable shareholder resolutions failed at the spring Exxon annual shareholder meeting. The shareholder's, supported by Rockefeller heirs, attracted close to 40 percent of the votes cast. One of the resolutions was structural -- to separate the positions of Chair of the Board and Chief Executive Officer. Two of the resolutions were, in essence, on business strategy. Shareholder want the company to invest in alternative energy sources and research. As a shareholder I cast my vote with the board; I was part of the "losing side", the 60 percent majority. Exxon is an oil and gas company. If shareholder want to invest in other sources of energy, sell their Exxon stock or use their Exxon dividends to invest in alternative energy companies. Why push Exxon into areas, wind or solar power, in which it has a competitive disadvantage?
Shareholders Approve Bear Stearns Deal
On Thursday, Bear Stearns Company shareholders approved JPMorgan Chase & Co.'s $2.2 billion buyout of the investment bank. The Bank is buying Bear Stearns for approximately $10 per share. the meeting was short and lightly attended.
Commenting on the ten minute meeting at Bear Stearns' Manhattan office, shareholder Hannah Horgan noted,
"They were up there drinking coffee paid with my money ... and we lost our money overnight. I have nothing left, and they were so calm."
So ends with a whimper one of the more dramatic episodes in American financial history. The Fed injects $29 million tax dollars into a deal brokering the sale of an investment bank to keep the bank from defaulting on its short term paper. It is at the outer limit of Fed power and the theory behind what the Fed should do. We are no doubt leaning towards a belief in a "managed economy." The belief empowers fed officials who, whenever faced with claim of "chaos will come if....", will now act to broker solutions with taxpayer dollars.
May 29, 2008
The SEC Going the Wrong Direction on New Ratings Agency Regulations
The SEC is going the wrong direction again. The poor performance of the country's rating agencies in the current structured financial debacle should be no surprise. The agencies have been performing poorly for some time. It just took the current financial crisis to focus our attention on their performance. The SEC is going to fix it, with more detailed regulations of rating agency rating scales, among other things. The competitive market should set scales. The problem is that the SEC has created a protected rating agency market -- ratings are required throughout securities law disclosure regulations and rating agencies are licensed by the SEC (and only a few make the grade). As we have seen with trading market regulations, once the SEC gets into the details of market services there is no stopping it. How bout going the reverse direction? Suspend and rating requirements, let firms choose to hire rating agencies to buttress marketing claims, make rating firms disclose all conflicts about any recommendation, and let the firms develop reputations for credibility in a competitive market.
US Air and United will not merge. We should not weep. Airline mergers have a terrible recent history. Most are prompted by airline desires to restructure. A merger ought not be needed to restructure a poorly performing airline; CEOs find the restructuring business after a merger is more expected and therefore easier or some such gibberish.
First Quarter GDP Figures: No Recession
The final figures are in for the first quarter of the year and the estimate was low. The final figure is a GDP growth of .9 percent; the estimate was .6 percent. So once again, we are not in a recession and those who have claimed, and profited from the claim, that we are in a recession were just polemics or suckered by polemics.
May 28, 2008
Germany Backs VW Anti-Takeover Law
For some time I have watched the dispute over the a special German law that protects VW from takeovers. The law also gives a government sub-unit, Lower Saxony, effective veto power of all significant strategic decisions. It also capped voting of large shareholders at 20 percent and put representatives of the federal government and Lower Saxony on the company supervisory board (a rough equivalent to our board of directors). Recently the European Court of Justice ruled that the law was protectionist in violation of the directives of the European Union. Germany amended the law, dropping the capped voting and government board delegates, but left intact the veto for Lower Saxony. At issue is whether the European Commission will seek to contest the veto. The changes in the law were pushed by another German company, Porsche, which owns 30 percent of VW's stock and is seeking to purchase a controlling stake. Note carefully here that the European Court of Justice has taken a tack directly opposite to that of the Supreme Court of the United States in attempting to cut back local anti-takeover laws. Europe will be healthier for it and we will be poorer.
May 27, 2008
The Evil Financials
Kevin Phillips new book will be the sacred text for those who want to blame financials for the fall of the American economy. Oh, by the way, fianancials position as number one in its shares of the S&P 500, has just been eclispsed. They are now number two behind high tech.
May 26, 2008
US Auto Companies
On Friday, General Motors Corp.'s stock dropped 5 percent after the company reported that strikes at some of its own plants and parts supplier American Axle will cost the automaker about $2 billion, before taxes, in the second quarter. This drop came on top of a substantial drop in stock value at Ford after it announced that it would cut back the production of its best selling vehicle, the F-150 pickup. Ford's situation is precarious. The company's profits have, for years, depended on the sales of the F-150 and the truck platform SUVs. The sales of both are well down due to high gas prices. Neither GM nor Ford is a profitable company right now and both companies are running on cash reserves. The blame game is on in force as to who is at fault. One thing that all agree on; the country will suffer if we do not make competitive autos and trucks for the national and world markets