In the world of finance theory, a credible suggestion that you are being forced to raise cash at exorbitant rates or are internally valuing your assets sharply below where the market appears to value them is traditionally a death sentence for your share price. The reasons for this are straight forward enough: Investors hate desperation but not as much as they hate making an asset play and being wrong on the value of the assets.
Then there is InterOil.
A Cairns, Australia- and Houston, Tx-based oil and gas producer that has been touting in one form or another a potentially epic find in the wilds of Papua New Guinea for more than a decade now, it recently raised cash at exorbitant rates and appears to be internally valuing its assets way below what the market appears to think they are worth.
The story is none too complicated: InterOil, a company whose shares are seemingly made of titanium, is paying rates for cash that only credit cards aimed at those with bad credit can obtain. Better still, the person pulling InterOil’s eyeballs out is its long-time sponsor and key investor, Clarion Finanz AG and its controversial chief, CarloCivelli.
[Civelli’s record as a broker, investor and promoter of a series of often troubled energy enterprises drives skeptics somewhere north of berserk. He and InterOil have loudly proclaimed that he is little more than an investor and advisor, although the power dynamics of this picture would seem to indicate otherwise. When having your company feted at the NYSE, it is customary to have the CEO or the company’s founder/guiding spirit ring the bell at the opening. Civelli, in the picture, is the one reaching over to ring the opening bell.]
To call InterOil a battleground stock is to be droll. The dispute over the proper level of its valuation and prospects in every sense of the word is analogous to the sanguinary trench combat of the First World War’s Western Front. Short-sellers, critics and investigative reporters raise more and more questions about management disclosures and candor but the stock continues to enjoy robust support. To follow through on…
China’s property bubble is now on the verge of collapse. Transaction volumes are significantly down and declining volume is how property bubbles always burst. In simple terms, the pool of greater fools eventually runs out.
In China’s case, the pool of fools is heavily involved in "loan shark" schemes where speculators hope property values rise fast enough to cover the interest.
In this article we will show how the ponzi shark loan scheme works and why we think the regime in China will fall. Our research is based on sources INSIDE CHINA
This is how this Ponzi scheme works:
Local officials, [required by] the government to produce double digit GDP growth numbers, give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurisdiction. Some of them are active partners in shark loan businesses. Every scheme has a ring leader whose job is to collect money from all the participants in the Ponzi scheme. When some of these Ponzi schemes blow up, the party leaders always get bailed out first.
Most of the funds that are collected in this classic Ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the Ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game.
A reader wrote to us this email two weeks ago, which triggered our in depth research:
“My hometown is Zhejiang, now I live in shanghai, my sister pledged her home to bank, she lived in Hangzhou, she bought her home around 500,0000rmb five years ago, now her home worth 2 million RMB, so she can get huge loan from bank, she gave this loan to a shark loan company with 30% return every year, she has been doing and living on this for 4 years, she is a middle school
Barry Ritholtz and Dean Baker discuss a concept I’ve advanced – effectively Fannie and Freddie (or as we call them around here, FanFredron) are being run for loss to create a false housing economy via subsidization. They do put forth an additional point that I have not harped on as much: one added benefit of this ‘policy’ is our financial oligarchs win…. again.
If we ever do get back to a world where the private sector is truly a part of financing the housing market it is going to be mighty interesting to see what true mortgage rates will settle at, now that ‘strategic default’ is part of the American lexicon. The higher risks involved will create an increase in costs to every future mortgage due to this exciting new fad. But with government now supporting some 95%+ of all financing this is an issue that won’t face us for many years. Thankfully the government does not price in any risk and gleefully backs mortgages of almost any kind (still). Until some far in the future reform date, more below market rates offered by the 2 institutions that can gladly lose money forever – ponzi style.
(Amazing fact I heard the other day, Fannie Mae has lost more money the past 2 years than it made the previous 30 years. Chew on that for a moment before you move onto the next paragraph. Thankfully there is no such thing as a clawback in corporate America.)
First, Let’s Kill the Angels
Equal Choice, Equal Access, Equal Opportunity
Some Quick Thoughts on Goldman
La Jolla and Dallas
When you draft a 1,300-page "financial reform" bill, various special interests get language tucked into the bill to help their agendas. However, the unintended consequences can be devastating. And the financial reform bill has more than a few such items. Today, we look briefly at a few innocent paragraphs that could simply kill the job-creation engine of the US. I know that a few Congressmen and even more staffers read my letter, so I hope that someone can fix this.The Wall Street Journal today noted that the bill, while flawed, keeps getting better with each revision. Let’s hope that’s the case here.
Then I’ll comment on the Goldman Sachs indictment. As we all know, there is never just one cockroach. This could be a much bigger story, and understanding some of the details may help you. As an aside, I was writing in late 2006 about the very Collateralized Debt Obligations that are now front and center. There is both more and less to the story than has come out so far. And I’ll speculate about how all this could have happened. Let’s jump right in.
First, Let’s Kill the Angels
I wrote about the Dodd bill and its problems last week. But a new problem has surfaced that has major implications for the US economy and our ability to grow it. For all intents and purposes, the bill will utterly devastate angel investing in the US. And as we will see, that is not hyperbole. For a Congress and administration that purports to be all about jobs, this section of the bill makes less than no sense. It is a job and innovation killer of the first order.
First, let’s look at a very important part of the US economic machine, the angel investing network. An angel investor, or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.
Angels typically invest their own funds, unlike venture capitalists, who manage the…
I want to say something about the issue of the refugees -never ever again migrants- that are swamping Europe. So much has been said about them, and so much has happened since I made my first notes, but not a soul has put their finger on the sore spot, and the real story. At least not that I’ve seen.
That real story is the painfully woefully inadequate -and I’m being painfully polite here- failure of Brussels and Berlin and Paris in responding to what’s been unfolding. And don’t get me started about London; ther...
The turmoil in financial markets to start the week is fast becoming a blip in the rear-view mirror, with developed market equities posting robust gains on Thursday as volatility subsided and the commodity complex largely advanced.
A second day of gains keeps pressure on shorts in squeezing them out of their positions, but is also looking to sucker shorts into trying to second guess when this rally will end.
The S&P is heading fast towards 2,044. Given the speed at which it has enjoyed this advance it will be there by Tuesday! In reality, it will likely slow before it gets there. When markets do head lower it will be important they do so slowly to sow further doubt into shorts.
The Nasdaq will be testing resistance tomorrow, and is close to coming up against its 200-day MA. Those who bought the low will be very happy.
If one takes the highs of 1987 and the lows of 2003 and ties them together and then projects a line into the future, you get line (1). The Dow hit line (1) and its Fibonacci 161% level in May and the Dow could make no more upward progress after that!
Speaking of momentum, it reached lofty levels at the same time! Momentum recently hit levels last seen in 2000 and 2007.
Garnero Group Acquisition Company (NASDAQ: GGAC), a public investment vehicle formed for the purpose of effecting a merger, acquisition or similar business combination, and Grupo Colombo ("Grupo Colombo" or "GC"), a leading apparel retailer in Brazil, announced today that they have entered into a definitive investment agreement to merge the companies in a transaction valued at approximately $330 million. The combined company will remain listed on the NASDAQ Stock Market and be renamed "Garnero Colombo Inc."
Headquartered in Sao Paulo, Grupo Colombo is one of Brazil's leading retailers focusing on menswear, with over 400 stores throughout the country. Founded in 1917, Grupo Colombo is the largest retailer of men's shirts and suits in Brazil with net revenues of R$550 mill...
The dark veil around China is creating a little too much uncertainty for investors, with the usual fear mongers piling on and sending the vast buy-the-dip crowd running for the sidelines until the smoke clears. Furthermore, Sabrient’s fundamentals-based SectorCast rankings have been flashing near-term defensive signals. The end result is a long overdue capitulation event that has left no market segment unscathed in its mass carnage. The historically long technical consolidation finally came to the point of having to break one way or the other, and it decided to break hard to the downside, actually testing the lows from last ...
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With the VIX index jumping 120 percent on a weekly basis, the most in its history, and with the index measuring volatility or "fear" up near 47 percent on the day, one might think professional investors might be concerned. While the sell off did surprise some, certain hedge fund managers have started to dip their toes in the water to buy stocks they have on their accumulation list, while other algorithmic strategies are actually prospering in this volatile but generally consistently trending market.
Stock market sell off surprises some while others were prepared and are hedged prospering
Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - is due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on with some believing ...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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