Can Turtles Fly?

Tesla Motors (TSLA), the niche electric car maker, had its IPO today. It raised $202 million. Tesla hasn't a made a profit since it was founded in 2003, and is expected to post losses until 2012. The market was very receptive to the stock and it was one of the few that was up today (it was up 41% today.) If electric cars take off, this could be a very symbolic event that will be looked upon in the future. It'll be kind of like the Yahoo! IPO in the 90's, which ushered in the Internet era. The strong interest in Tesla shares indicates that investors are willing to finance this emerging industry. On the other hand, electric cars could turn out to be a big bust. There is a lot of hype around them and it remains to be seen if they will revolutionize personal transportation.

World leaders meet... more than $1 billion spent on meeting... citizens protest... "anarchists" run loose...police fires rubber bullets (haven't heard of that before in Toronto)... cop cars set on fire... mass arrests... G20 communique released with little progress on any major issue...

On a bright, warm Saturday in late June, couples and families wandered through the empty village, which has been renamed Millenium Water. It opened for public tours last month and draws about 100 people a day. Millenium Water is a city of the future, built with enviro-touches like green roofs and automatic shades that moderate the temperature inside the apartments. An 815-square-foot, one-bedroom apartment is on sale for C$879,000, which works out to C$1,078 per square foot, or $12 higher than the average price in Manhattan, according to The Corcoran Report. (A Canadian dollar is currently worth about U.S. 96 cents.) Millenium Water isn't in downtown Manhattan, of course. It's not even in downtown Vancouver, which is across an inlet known as False Creek. It isn't really even in a neighborhood; the nearest establishment is the sales office for another condo development. If all this is starting to sound a little irrationally exuberant, especially given the shaky internatio...

This is more of a note for myself but others may find it insightful. Since bonds of BP, Anadarko Petroleum, and Transocean may be worth considering in the future—potential still not good enough for me—I have been researching them. For amateur investors without access to bond information, a good site is the freely available  FINRA site . In my opinion, assuming you are not buying them when overvalued, the ideal bonds for amateurs are convertible bonds. Some may not agree with that, especially since convertibles tend to pay very low interest, but if convertibles convert, they can be highly profitable. During bull markets, convertibles look like one of the worst securities around but they provide safety during bear markets or in distress situations. If you look at Warren Buffett's history, many of the distress investments he made have involved convertible bonds or convertible preferred shares. Another type of bond that can be useful in distress situations, depending on the solvenc...

There are many reasons to be cautious these days. Issues such as the fiscal problems in Greece are blown out of proportion and largely irrelevant in the long run IMO. Similarly, although it has resulted in irreparable harm to the environment, the Gulf oil spill is likely to have very little on the economy. Those in the impacted regions will feel it but I doubt it will even shrink US GDP by 0.5%. However, there are other reasons to be really cautious right now. One such reason has to do with the high corporate profit margins over the last decade. I think I brought up this point since the early days of this blog, almost 3 years ago, but the situation hasn't changed. Bloomberg quoted the bearish outlook of Smithers & Co and produced the following chart (h/t Naked Capitalism ):

If there is one company that could see serious permanent damage from the Macondo oil well disaster in the Gulf of Mexico, it's likely not BP, but, instead, is Anadarko Petroleum (APC). Anadarko Petroleum is the minority owner of the well (25% ownership) and it may be on the hook for as much as $6 billion. However, unlike BP, which self-insures, I believe Anadarko has external insurance (not 100% sure.) Also, most importantly, Anadarko is a smaller company and is a pure E&P (exploration & production) so it will be hurt by the deepwater drilling ban (it does own properties elsewhere but Gulf of Mexico is important.) Regardless of what happens to any of the involved companies, the environmental disaster will alter the oil & gas business. I suspect companies won't be allowed to drill in deepwater without some backup plan to handle disasters in the future. From Fortune: The partnership [between BP and Anadarko] could cost them up to $6 billion dollars, according ...

Fannie Mae and Freddie Mac are Delisted The government agency in charge of Fannie Mae and Freddie Mac told them to delist their shares. I'm not really sure what this means since the market cap of their shares was still roughly $1 billion... This ends a multi-decade attempt by the government to utilize a public-private partnership structure to facilitate purchase of homes by Americans (there is still Ginnie Mae and Farmer Mac.) The structure probably doesn't make much sense given how profits accrue to private investors during the good times, while losses accrue to taxpayers during bad times. I'm not in favour of such structures and would prefer something to be privatized completely. As you could tell from the charts private investors, including Warren Buffett and several other value investors at one time, made a fortune in the 80's and 90's; but taxpayers ended up massive losses (not shown by the share price graphs) in the late 2000's. Although Fannie Mae...

I remember a time, perhaps not even 2 years ago, when I was looking at Motorola (MOT) as an investment opportunity, and wondered if Nokia (NOK) is the type of company that would never "get cheap." At that time, and even to this day, Motorola was going through serious problems in their mobile phone division. In contrast, Nokia seemed to be sailing smoothly, gaining market share throughout the world. My, how things have changed. Nokia's shares hit a decade-low this week, after Nokia's guidance came in weaker than expectations. In particular, the market appears to have voted that Nokia is going to lose the smart phone market. Given how smart phones are forecast to be the ubiquitous mobile phones in a decade, this is a big deal for Nokia. Given the big decline in share price over the last few years, I felt this was a good contrarian opportunity to investigate. Here is my very preliminary, early, look at the company. My goal has been to avoid investing in mega-caps (s...

Thanks to The Big Picture, I ran across a very interesting Bloomberg interview excerpt with Jim Chanos. The interview is apparently set to be released on June 25th, and in the mean time, Bloomberg released a video excerpt. I'll reference the full video when it comes out but for now, check out the video referenced at The Big Picture blog or, for a shorter one on Ford (F), visit Bloomberg . Chanos suggests that it has been a tough sledding this year. He implies or says outright that he is short automakers (not clear if it's just Ford or others as well); stocks related to the China bust thesis; for-profit education companies; and most interestingly, oil & gas supermajors. His justification for shorting the oil & gas supermajors is very insightful to me (bolds by me): Chanos: "“[Decision to short oil majors] predates [the Horizon Deepwater rig], and it has to do with financing. If you look at some of the biggest oil companies in the world — and I’ll let you use yo...

(This post is not related to investments. Skip it if you are not interested in science or venture financing.) Anyone remember the following blog entry I wrote from a while ago ? What Nathan Myhrvold and his cohorts were trying to accomplish sure was exciting, perhaps even the start of a new structure for science, invention, and technology. Some are critical of organizations that just invent or acquire patents without manufacturing the product or providing the service but I'm not so down on them. Given my diverse interests, I read quite a number of stories on people trying to accomplish certain things but I never quite encountered anyone like Myhrvold. He is definitely someone special and I hope he succeeds. Well, it looks like Myhrvold and his team may be on the verge of commercializing their first, serious, idea—and it sure is a revolutionary idea! As a bonus, unlike many ideas that get floated around with no backing, this idea seems to have financial banking of several ventur...

From The New York Times' DealBook , Standard & Poor’s is growing increasingly concerned that many companies in the United States could find it difficult to refinance their enormous debt loads in the coming years, possibly leading to an explosion of defaults and bankruptcies. Of particular concern are companies at the low end of the ratings scale, S.&P. said in a report released on Wednesday. These companies were busy in the second half of 2009 and early 2010 refinancing their debt. ...   Much of this debt currently owed by American companies was a result of heavy borrowing during the leveraged-buyout boom, which lasted from 2005 to 2007. Private equity firms borrowed enormous sums of money from banks to finance the buyout of companies and then loaded the target companies up with debt. But the target companies have since had a hard time paying down their debt because of the down economy, which blunted profits. S.&P. believes that these companies have been succes...

The Gulf of Mexico oil spill has caused distress in various assets and I have been researching them lately. BP shares are the most obvious opportunity but other affected parties, including oil service companies and drilling companies that operate in the area, are worth considering as well. Companies involved in the disaster, such as Transocean and Halliburton, are worth researching. The ideal securities to own are convertible bonds and I see that Transocean has some convertible bonds. One thing that makes this whole affair a bit risky is the oil price. People like me are bearish on oil and think oil is more likely to trade at $40 (or even lower) in the long-run than $140. You can make the right call and still end up losing money if the market marks down oil & gas companies because the expected long-term oil price declines (the mostly likely catalyst for such a re-valuation would a slowdown in China, which changes the long-term growth expectations.) Bonds You Say? In any case...

(This post has nothing to do with investing per se.) Bloomberg reports , China’s Daya Bay nuclear power plant had a “very small leakage” from a fuel rod last month that has been contained, CLP Holdings Ltd., Hong Kong’s biggest electricity supplier, said in a statement. “On 23 May 2010, a small increase in radioactivity (radioactive iodine and noble gases) is observed in the reactor cooling water at Unit 2 of Daya Bay,” according to the statement sent today. “The reactor cooling water is sealed in completely and isolated from the external environment, thus causing no impact to the public.” The Daya Bay Nuclear Power Station is located 50 kilometers (31 miles) from Hong Kong’s Tsim Sha Tsui district. The facility has been in commercial operation since 1994 and generates 10 billion kilowatt-hours of electricity a year to Hong Kong and Guangdong Province, according to the website of the Hong Kong Nuclear Investment Company Ltd., a CLP unit that owns 25 percent of the plant. State-ow...

USA is lucky that a supermajor caused the oil spill in the Gulf of Mexico. If it were caused by an independent E&P, it is likely the company wouldn't be able to pay more than a few billion and taxpayers would be footing most of the bill. I think "reasonable" damages shouldn't cause any financial problems for BP given that it is one of the largest companies in the world (and hence one of the most profitable in terms of raw dollar profits.) However, the big risk for BP shareholders would be special penalties that may be levied by the US government. For instance, if the US government takes some operating licenses or disallows BP from bidding on future leases, it would likely cause permanent destruction of shareholder value. I don't know which ones will stick in a court of law but Bloomberg speculates on some penalties : BP Plc may lose control of its U.S. oil and natural gas wells and be barred from doing business with the federal government as punishment fo...

Interestingly, Jim Rogers appears to be on the verge of turning bullish on the Euro. Check out his CNBC interview via GuruFocus . He is expecting a recovery due to technical and contrarian reasons, but I still find it interesting that a super-bear on the Euro is close to turning bullish, even if it's only temporarily. As for the pound sterling, he is maintaining his bearish views and thinks it will decline. I concur and think the pound will decline because Britain is facing a very bad fiscal situation and isn't competitive (one of the ways adjustments happen under capitalism is through changes in the value of the currency.) Jim Rogers also says he is short US technology, emerging markets, and one major North American financial institution. His short selling is based on contrarianism (those assets rose sharply in the last few years.) On the bullish side, Jim Rogers maintains his long-term bullish view of commodities. He says he prefers to own the commodities rather than co...

Now that the World Cup is in swing, I thought some of you may find this article by Derek DeCloet of The Globe & Mail humourous  (here is an excerpt): If Companies were World Cup Teams... Germany equals the Royal Bank of Canada : Ruthlessly efficient, joyless, and ridiculously competent. They always have a few detractors, but when it matters, they seem to perform better than almost everyone else. Odds of winning the World Cup*: 16 to 1 Stock price: $53, down 6 per cent this year Price-earnings ratio**: 12 ... Portugal equals Lululemon . Pretty boy striker Cristiano Ronaldo wouldn’t look out of place wearing a pair of tight yoga pants. Female soccer fans swoon at the thought. But a brave investor would see a short-selling opportunity in something that seems overhyped. Odds of winning the World Cup: 28 to 1 Stock price: $41.76 (U.S.), up 38.7 per cent this year Price-earnings ratio: 36 ... Brazil equals Google – powerful, creative and slightly scary. It’s ...

Barack Obama is having a bad few months. The Gulf oil disaster has been an absolute disaster for all, with the helpless wildlife taking the most damage so far. On the positive, some environmentalists suggest that the ocean will be back to "normal" in 5 years. Depending on when the leak is brought under control, the Gulf and some of the Florida coast may never be the same. One of the biggest losers in all this has been the Obama administration. In addition to the questionable back-room startegy to push out Hamid Karzai in Afghanistan—I'm no fan of Karzai but this is a terrible strategy in my opinion—Obama had horrible timing with his move to open up the sea for drilling, just a few weeks before the BP oil disaster unfolded. In order to combat the perception that the government has been slow, it appears, at least to me, the Obama administration is on the verge of trampling property rights and setting all sorts of precedents. I don't have any vested interest, either ...

I ran across an interesting article in The Globe & Mail today . The article refers to research from Montreal-based firm, Brockhouse Cooper, pointing out that junk bond yields and stock yields are almost about to touch. That hasn't happened in over 25 years: So this begs the question: which is overvalued? Junk bonds? Or stocks? Or is it both?

From Bloomberg... Japanese women are seeking men who invest in government bonds, according to an advertisement being run by the Ministry of Finance. “I want my future husband to be diligent about money,” a 27-year-old woman says in an ad being run in free magazines promoting a fixed-rate, three-year note that started last week. “Playboys are no good.” She’s one of five women featured in the page, which says “Men who hold JGBs are popular with women!!” :)

It looks like retail investors are maintaining the trend they started two years ago, when they started to shift capital out of stocks and into bonds. Writing for Business Insider, Vincent Fernando produces the following chart showing the capital flow over the last two years :

Biggest Oil Spills (source: Oil spill , Wikipedia.org. Extracted on June 6, 2010.)

I came across an interesting video  interview with Bruce Greenwald , conducted by Steve Forbes. You can also access a transcript on the right side of the webpage ( Thanks to Henry W. Schacht for bringing this to my attention.) Most people who read or listen to Greenwald do so for his thoughts on value investing (he is very close to a modern Benjamin Graham.) In contrast, I find him more interesting for his macro thoughts and his general views on industries. If you are interested in some macro-oriented thoughts from Greenwald, you may also want to check out these posts from last year: Interview with Advisor Perspectives part 1 Interview with Advisor Perspectives part 2 My comments on some topics that he covered follows..

I hope this doesn't turn out to be a mistake. I am not good with timing and hopefully this wasn't done due to boredom and impatience. Whatever it is, I finally decided to get rid of my BCE position. This, long-time readers may recall, was a failed risk arbitrage investment (the original thesis is here .) I have no idea why I'm selling this now because I don't really need the cash (I'm around 50% cash right now.) I think I pulled the trigger due to my bearish feelings. One shouldn't let emotions get in the way and I hope this doesn't turn out to be a mistake.

I ran across a brief article in The Economist (from May 27, 2010) describing various ways to short China . One of the readers of this blog commented on this topic recently and I thought I would quote the article: Futures and options markets for equities either do not exist locally or barely trade. It is possible to buy credit-default swaps (CDSs), a form of insurance against default, on China’s sovereign debt, but few think that would really go belly-up anyway. A pair of widely circulated reports on how to hedge a downturn, written in April by Goldman Sachs (stamped “highly confidential”) and Morgan Stanley respectively, spell out some of the alternatives for investors. In each, the underlying idea is similar: if shorting China is impossible, find things tied to China. In Morgan Stanley’s view, that means starting with various financial assets—shares, credit instruments, and currencies—in South Korea and Australia (see chart [not included]), the two countries with the strongest...

From The Globe & Mail: The Bank of Canada Governor became the first central banker in the Group of Seven to raise borrowing costs since the financial crisis and recession, increasing the benchmark overnight rate Tuesday by one-quarter of a percentage point to a still exceptionally low 0.5 per cent. ### By comparison, Canada’s benchmark rate now matches that of Britain and is only half as much as the European Central Bank’s 1 per cent, so there’s a lot of ground to cover before borrowing costs are at a level economists consider “neutral.” At the same time, even the Reserve Bank of Australia, which started tightening last fall, kept its benchmark rate at 4.5 per cent this week. It, too, cited “various factors” in the world economy that “need to remain under review,” among other things. Although Canada is doing fairly well, it's still a gutsy move by the central bank. It looks a bit premature to me but I might be biased due to my overly bearish views. On another note, I was...