Friday, August 24, 2007

Lou Schizas


I had the honour of working alongside and becoming friends with the great Lou Schizas over the past 3 years. Lou's last day at Business News Network was today. He worked at BNN, formerly Report on Business Television as an equities analyst, since the station's launch in 1999. He was perhaps the station's best known face and on-air personality. Originally from New York city, Lou is a tough as nails, no nonsense, "here's what I think kid", razzle dazzle, blunt, bold, force of nature. Lou is moving on to radio and continuing his teaching at Sheridan College where he's a finance prof. And what a teacher. I learned so much from Lou. His passion, character, intelligence and wit are unmatched. Lou coined the term "Happy Capitalism" and he truly believes capitalism leads to happiness. Lou I salute you and wish you the best for the future.

Thursday, August 23, 2007

RIP Business Section

In the internet age how can the business section of the newspaper survive? I guess you could say the same thing for general news. But the news flow in business is a different beast than in any other beat. It changes on a minute by minute basis. Even in tv journalism where we might have one hour leadtime before presenting a live report on a news item, often it's hard to keep up. How can printed business news hold up when the stories have been written in some cases twelve hours previously? In no other area of news is access to timely and up-to-date information as paramount. And nowhere else does the "ancient history" tag apply as aptly than to the printed business word. Sure the newspaper's website can update the story. But in the meantime the printed version will do nothing but fester and draw attention to itself as a uselessless incarnate. Television journalists routinely used to rip off newspaper journalists for story ideas. But now the ripping off has moved to the wire service, Bloomberg, Reuters, AP etc. These guys break the story online. Then everyone else follows.

Wednesday, August 22, 2007

Dubious debt

When Dominion Bond Rating Service rates a piece of debt, the issuer of that debt pays DBRS.
DBRS says it charged the issuers of Asset Backed Commercial Paper up to 125 thousand bucks per debt security. In addition DBRS charges a "maintenance fee" of about 40 thousand. It's been more than a week now that Coventry admitted it was having trouble rolling over new debt. Some of Coventry's ABCPs have pieces of subprime mortgages as their underlying asset. Two hundred thousand Americans defaulted on subprime mortgages last month. Two million subprime defaults are predicted by year-end. No wonder then that prospective buyers of this debt dried up. DBRS says it's now reviewing how it rates these securities and admits late last year it started to question the ratings on ABCPs. Yet the paper issued by Coventry which nobody apparently wants to buy still carries an "R-1" rating. Equivalent to the safety of a T-Bill which is backed by the government.

Tuesday, August 21, 2007

The Bizarro World


The price of eggs in China went up 30% in July. Cooking oil by the same amount. Inflation brought on by the industrialization of China. So the People's Bank of China hiked rates today. Again. The forth time since March. No liquidity crunch over there.
The CSI 300 (equivalent to the S&P 500) actually went up 2% today in response to the hike. And no folks over there are not pricing in rate cuts going forward. Another hike is expected by the end of the year. The overnight lending rate is just over 7% right now. Could the scenario in China be any different than in North America? I've read about companies in China issuing press releases with bad news and stock prices going up as a result. People also apparently will buy securities based on the tickers alone. Lucky numbers and the like. Is China the bizarro world of the capital markets?

Monday, August 20, 2007

Betting on Dean

Looks like Hurrricane Dean won't inflict major damage on oil refineries in the Gulf Coast. Welcome news for anyone living in that area. Rotten news for investors long energy, particularly natural gas. Making short-term calls based on the weather seems like a particularly risky gambit. Betting on stock or commodity prices is risky enough. Throwing something as uncertain as the track and force of a hurricane into the mix seems downright wacky. A year ago, Amaranth lost about $6B due to this kind of nutty, weather bet on natural gas. Let's hope today's 14% plunge in nat gas prices won't cause any funds to go belly up. The last thing the market needs is another hedge fund blowup.

Friday, August 17, 2007

The Black Swan

So the Fed came to the rescue. Sort of. Dropping the discount rate by half a percentage point. Pretty much everything rallied today. Now debate turns to do this mean the Fed will cut the federal funds rate in September or even before that? If that happens look for a rally to end all rallies. Some speculate we might even a Federal funds rate cut as early as Sunday night before markets open on Monday.
So much has changed in the space of a week in the markets. What the markets are going through is what author Nassim Nicholas Taleb would no doubt term a "Black Swan" event. I've been reading "The Black Swan" off an on for weeks now. It's a hard book to read in some fell swoop. Or maybe it's that I just don't have the time so wrapped up I am in the Wall Street Journal these days. What a newspaper. But I digress.
"The Black Swan" is a must read for any financial journalist. Reason for the title by the way is before they discovered black swans in Australia the assumption was that only white swans existed. Lesson there is, don't assume anything I guess.
Nassim hits on a few areas that ring true for me personally. The fact that experts will predict with seemingly unflappable confidence predict that a certain event is sure to happen e.g. oil prices are sure to go higher, interest rates are going up this year, blah blah blah. Yet turns out the so-called experts are wrong as often as they are right. So where does that leave the investor? Tons of other insight such as the tendancy of people to look for confirmation of what they assume to be true, rather than searching out evidence that might undermine a particular way of thinking. The central tenet though is every once in a while a "black swan" event. happens. And unforseen event that basically knocks everyone on their ass. Subprime contagion anyone? Critically Taleb lays out why and how people should prepare for "Black Swan" events.

Thursday, August 16, 2007

TSX Tumbles.


Another helter skelter day on the markets. Two minutes after the open the TSX was already down 200 points. Index was down over 500 points at one stage. Station sent me down to King & Bay to gauge reaction from the Bay Street folk. It’s a funny thing to ambush people on the street with a camera. Getting “streeters” as we in the biz call it. Most reporters hate doing it. A colleague who worked for a time at the BBC says the Brits call it “AAA” as in “ask any arsehole”. For some reason I don’t mind doing streeters at all. I ended up getting sound bites galore today and more than a handful were insightful.
When I asked one Bay Streeter if investors are right to be panicking? he replied “Yes and September is historically a bad month on the markets too” Another gentleman said “bring on the panic selling”. His thesis was the selling would create a buying opportunity for a bargain hunter such as himself. The buying on the dips strategy has been a sound one over the past year or so. But I have a sneaking suspicion it truly is different this time.