Tuesday, 28 June 2011

Greek Austerity Measures

Courtesy of  the BBC here is the latest information on the austerity measures that the Greek government needs to pass. In short, the plan is proposing massive tax increases and drastic spending cuts.

Fukushima Clean Up to Take Decades

Washington's blog (see here) has an interesting article on the Fukushima nuclear accident. 100 percent core melt in all three reactors. It will take between 50 and 100 years to clean up the mess. The CNN  interview with physicist Michio Kaku is very informative.

Saturday, 25 June 2011

Two of the Four Horsemen Stumble

There has been much discussion over the past two weeks about the sagging fortunes of Research in Motion (RIM). RIM's stock price took a real hit dropping from a few cents short of $ 70 US on February 18, 2011 to $25.89 on June 20. RIM's June 16 press release reported strong revenue growth between 2010 Q1 and 2011 Q11, but also reported an expected slowdown in sales through at least Q2 and possibly beyond. Expected sales slowdowns in the fast paced tech sector is not what investors want to hear. RIM's press release came at an unfortunate time, because information technology as a sector has been weak since February 2011.

RIM is one of the "New 4 Horsemen". RIM along with Apple, Amazon, and Google constitute what many to consider as the 4 essential companies of the current information technology age. For a perspective on how the stock prices of the 4 Horsemen have fared over the past five years, look at the chart below.

RIM was clearly the leader in stock appreciation up until the middle of 2008. Then the Great Recession hit and RIM's stock price fell quickly as business spending on IT and communications dried up. Notice that today, two (Google and RIM) of the four horsemen have share prices only slightly higher than they were five years ago. RIM is having a tough time right now and I expect them to pull through (see here), but investors in Google have not had much to cheer about either. To me, this looks like a transition for some information technology and communications companies from growth companies to value companies.

Friday, 24 June 2011

Keep the TSX Canadian

Five months ago the London Stock Exchange (LSE) put in a bid to buy the Toronto Stock Exchange (TSX).  What once looked like a one horse race has now turned into a two horse race with Maple Group Acquisitions Corporation putting in a very decent bid for the TSX. Maple Group is a consortium of 13 major Canadian financial institutions. Here are three reasons why the TSX should not be acquired by the LSE.

Reason #1. The LSE has been in a long, slow steady decline for years. Acquiring the TSX might buy the LSE some time, but it is unlikely to reverse the LSE’s long term viability. The LSE wants to acquire the TSX to bolster its own sagging fortunes. If the two entities become one, the LSE will call the shots from London. Major decisions will be made in London town and what happens in Canada will be secondary. The concern in London is that if the LSE does not acquire the TSX, then the LSE might find itself the target of a takeover but I do not think that this is a good reason to allow the TSX to be taken over by the LSE.

Reason #2:  A vibrant national stock market is fundamental to a country’s wealth generation process.  Entrepreneurs are essential to increasing a country’s innovation and productivity. Canadian entrepreneurs with their upstart companies need a local exchange that understands their special challenges and circumstances.  The TSX has a great global reputation in mining and energy, and the TSX venture exchange is developing an international reputation in alternative energy. Having the LSE manage the TSX does not ensure that Canadian companies are being served in the best way possible.

Reason #3: The TSX has a competitive advantage in mining, materials and energy. Instead of selling this competitive advantage to another exchange, the TSX should be looking at ways to generate more value from this competitive advantage by entering into joint ventures (not mergers) with other mining oriented exchanges (several stock exchanges in South America come to mind).

In sum, these are three reasons why the TSX should remain proudly Canadian.