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...