Monday, December 21, 2009

The Web - Making and Breaking Reputations

I have spent quite a bit of this year cheesed off with the financial industry and for good reason, the way it was run (and probably still will be) just sucks, big style. The regulators have been useless and it does not look like things will change in a hurry. I hope they do, but I doubt they will.

Still, it could be worse. I could be Bill O'Dowd, CEO of Dolphin Digital Media Inc. You see I did some work for Dolphin, basically whenever an investor called to ask questions, they were passed to me and I answered. Late this year O'Dowd decides to issue a statement sating that 'someone' was making unauthorised statements on behalf of the company. Some investors were told that this was myself. As you can imagine I was a little cheesed off.

I am sure we will sort it, but I wanted to make a point with this post, that point is for the benefit of Mr O'Dowd and anyone else who decides to make false statements about people... You see this post, containing the names of Bill O'Dowd and Michael Espensen (the directors of Dolphin Digital Media Inc) will sail to the top of Google for the search phrase "Bill O'Dowd", "O'Dowd Dolphin", "Michael Espensen" "Espensen Dolphin" "Dolphin Digital Media, Bill O'Dowd"... I think you get the picture.

The reason it will do this is because there is not much out there covering Bill O'Dowd and Michael Espensen, other than their TV work.

My point, which I am laboring to get to sorry, is that the false statements made about myself (or anyone else), repeated on the web will be there for all to see, for a long time. Even when O'Dowd and Espensen are required to withdraw these statements, which they no doubt will, the false statements will still be there. This is highly damaging to people's livelihoods, I don't know how much business I have missed because of negative statements, but one bit of business is too much.

So this post is a lesson for Mr O'Dowd and Mr Espensen, this post is now in Google, now comes up when Bill O'Dowd, Michael Espensen, or Dolphin Digital Media Inc is mentioned on the web. It is harmless, does not say much but is fully editable, so maybe I will be able to update you all on the continuing events of the saga or maybe I will delete the post... who knows?

What I do know is that if this year has taught us anything other than our regulators had dropped the ball, it is that we are truly living in the Internet age, an age where the most minute details of business can dissected, where reckless or careless statements can whip around the web in seconds with no way of taking them back.

I am hoping that things will change in the coming years, regulators will be more diligent, but not overbearing, investors will be aggressive but not mentally so and CEO's who run companies on behalf of their shareholders take their duties seriously and realise that they are the custodians of people's money and responsible for it, not just the bottom line or the shareprice Mostly I hope that people like Bill O'Dowd and Michael Espensen realise the power of the web to make or break reputations and that others think a little before unleashing web posts that point the finger.

I do.

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Stop Press
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As an experiment, I just wanted to see how quickly and where the post would end up for the search term 'Bill O'Dowd'. Within 3 minutes of this post being submitted it was on page three of Google second one down. That is the power of the web......

Tuesday, April 28, 2009

The Financial Industry Sucks (for now...)

So insanely bored am I of the world of finance that I have not been able to bring myself to write an article here in weeks. I don't know about you but I am so fed up of hearing the opinions of 'experts' on CNBC, in newspapers and on their personal blogs I just didn't want to add to the 'noise'.

The fact is that most of these people have been proved to know f*** all to a jam tart about what is going on in the markets or what is going to happen in the markets. Those who appear on CNBC from companies in London and the US should really think twice before coming on, or at least coming on twice. I have heard the most preposterous cobblers ever from those 'in the know' which has proved to be wrong days later... and then they merrily trot out the following week with no mention of the bile they spewed over viewers just seven days before.

Maybe it is because I have given up smoking that my famous sense of humour has lapsed or, more likely, I am experiencing my own personal 'point of capitulation' where I just cannot be bothered with the markets any longer, whatever it is it will take something monumental to peak my interest in the short term.

The fact is I should be excited; markets low, buying opportunities everywhere etc.. but I just have this impending doom feeling. The regulators are girding their loins to make our business more of a chore than it already is and the thought of dealing with the faceless (and ultimately, as we have seen, useless) bureaucrats more than ever, just makes my stomach churn.

For now I am concentrating on investing in small businesses, trying to create something that does not require me to pay thousands of pounds per annum to people who make your life more difficult in the name of regulation but ultimately, when they are called upon to protect your clients and your business from unscrupulous people, can't perform.

Maybe when I reach my one month of not smoking and the craving has died down I will re-evaluate my current negative view of the industry, but for now.... well.... I just can't be arsed.

Tuesday, April 14, 2009

Are The 'Me Too' Websites Democratising the Web?

We just got back into the office from the Easter holidays and found ourselves languishing in a state of boredom, unmotivated even by the recovery in the general feeling in the market. So we did what any other self respecting person would do and had a look around the web for some videos.

There is a financial theme in here, as one of things that we do is invest in small companies, especially Internet companies. We have been fascinated by the growth of social networks because of the future capacity of these sites to change the world of advertising as we know it. Facebook, for example, with its in-house targetted ads system is showing the way when it comes to the 'new' advertising market.

We have tested the system out and you can get scarily close on your advertising targets because of the data that users share on the site. For example, if you want to advertise to 25-35 year olds interested in online trading and who live in the UK.. you can... 50 year olds interested in pensions? No problem it's all good.. The power of this 'human database' is literally mind blowing.

However, we wonder whether a lot of the big sites can continue to dominate. The problem for a number of these sites is that there are planty of talented people on the web who can take a concept and make it better. FaceBook itself was not a revolution, there were hundreds of social networks online for college members (which is how Facebook started) but the young Mark Zukerman managed to get something right and the site became a phenomenon, what is to stop the very same problem of 'me too' happening to Facebook itself?

You see when we were researching this article (er .. hmmm) by looking for videos on the web, we came across a site called YouReportSport.com. This awesome sports video sharing isn't more than a few weeks old judging by the small amount of vidoes and members, however, we are already hooked, one, because its cool, and two because its in Switzerland.

This site is playing on the marketing ploy of being niche, the site only has sports videos, but it also intends to have the site as a destination for fans to report on their sports experiences. This is something we like to see, it is all very well listening to stuffy reporters but hearing it from the guy who was there on the ground, so to speak, is an angle I would like to see.

The fun thing about the web (and the problem when you come to value a business for investment) is that pretty much any site can be copied and uploaded, all it takes is a great idea (or an improvemnet on an old one) and some balls. We are also seeing that when a site becomes mainstream like YouTube, for example, the whole world comes knocking at your door for royalties on songs, copyright on videos etc, So YouTube is reportedly changing the site to accomodate advertisers through making the site more TV oriented etc. 'The death of YouTube' as the video is entitled, may be a bit strong, but you can see how users could migrate to something else quickly.

Personally we like the idea of more niche sites like youreportsport.com as it gives a community a little more ownership of the site... and let's face it that is how YouTube grew ito the monster it is now in the first place.

Tuesday, March 31, 2009

Google Ventures Stalks Start Ups

Here we go.. total world domination. Google announced on Monday that it is creating a venture fund. 'Google Ventures' is expected to invest up to $100mn over the next twelve months, according to the New York Times. The guy in charge will be David Drummond, investments will be vetted by William Maris and Rich Milner, a co-founder of Android who Google acquired in 2005.

The fund is looking at clean tech, life sciences and, of course, Internet related entities.

“Economically, times are tough, but great ideas come when they will,” Google said in its announcement of the new venture fund on its official company blog. “If anything, we think the current downturn is an ideal time to invest in nascent companies that have the chance to be the “next big thing,” and we’ll be working hard to find them.”

Google Ventures has already made two investments: Silver Spring Networks, a company that makes technology to help manage electric grids, and Pixazza, which links online images with related products that can be purchased. Google declined to say how much it invested in those companies.

As much as this is news it is just a formalisation of Google's investing role which has seen it hoover up many companies over the 10 years it has been in business.

It is bizzare to think that Google has only been around for the last ten years. My son who, like any other teenager, is an Internet whizz, said to me yesterday "if you had invested in Google when you were my age, you would very rich now". When I explained that Google had been around only since 1999, he chortled (you know, that laugh when your kids are really saying 'man you are so old and out of touch') and said "Dad, listen.. Google is the Internet, I think it has been around a lot longer than that"...

He is factually incorrect of course, but the addition of this venture fund is just the next step in the total domination of the Net that is Google.

Good or bad you have to admire them for their flawless execution of being branded in the minds of kids as a company that is the Internet.

Friday, March 27, 2009

Swiss Under Fire - Is It Wise To Poke The Cuckoo?

Alastair Darling called the situation a 'mood change' and German Finance Minister, Peer Steinbruck, has defended himself against comments that he is 'Nazi stooge' when Swiss Parliamentarian, Thomas Muller, said Steinbruck reminded him of a "generation of Germans who marched through the streets in leather coats, boots and armbands".

I have to say the 'Nazi' slur was a bit strong, but you can understand why some in Switzerland are annoyed at the bully-boy tactics aimed at their banking secrecy.

I live in Switzerland and I can tell you that most people here are not happy. Whether they agree or disagree with Switzerland's banking secrecy rules, (many in Switzerland have been campaigning for change for years.. see the vote in the Canton of Zurich to strip tax breaks for the wealthy) the Swiss are unhappy about what amounts to an attack on their sovereignty.

In a case of 'kick them while they are down' Darling and his co-conspirators in Germany and the US have used the fragile world economic environment to get concessions from other countries, such as Switzerland and Monaco, to take down a central pillar of their competitive advantage over the 'world powers'.

Darling even said "I think there are things that are now possible, ironically, in the face of a crisis like this that simply weren't possible even a short time ago".

What else does he believe is 'possible' in this 'crisis'?

Ah regulatory overhaul, excellent! That will deal with the bankers, the public will love that. Increase the tax on the rich, super! Let's get back to the days of 95% tax for the super wealthy (they will have no place to hide it now that we have dealt with Switzerland). Unionisation, perfect! The Yanks are getting rid of the secret ballot... we can do that too!

Oh, it's happy days for the ego maniacs in government now. I can see the Scottish Army of Darling and Brown doing a little Scottish jig at the thought of using the suffering of unemployed people and businesses throughout the world as an excuse to implement their version of the new world order.

The thing is that the UK and others should be aware that when you start down this path you open yourself up for many a retaliatory strike. For example a Swiss Euro2bn order for Euro Fighters made in Germany is 'on hold' and calls for a reduction of German imports is rumoured. One minster said "We have no problem with the German people, but they may have to choose between their current government or jobs". There is also over Euro300 billion in fiduciary accounts throughout European banks, withdrawing that and bringing it back to Switzerland, could cause a few problems.

The Swiss Finance Minister also gave up his German Mercedes for a French Renault. This may sound like grandstanding, with no real value to it but you only have to look at the cars on the road here. I would guestimate that 50% of the cars are German; BMW's, Mercs and VW's. The Swiss are great for the 'people power' aspect of their society, if there was any sort of German backlash we may find such cars a little less popular here.

Couldn't happen? Don't be so sure. Much of this newly found governmental 'power' is because of the underlying social unrest at the current economic environment. It is fueling controversial policies 'that would not have been possible even a short time ago'. Switzerland is no different, actually I lie, Switzerland is different. If pressures that are being put on this Alpine fortress start to cause unemployment and economic discomfort for the masses and this pressure is seen as the route cause, there could be trouble.

A referendum on law changes only requires 50,000 signatures to be put forward to have it voted upon. Darling et al, may talk a good game about democracy etc, but true democracy is practiced here and could be used by the public to make a point.

The UK, in a precarious position with its convoluted tax 'reforms' for fund managers, should be a little careful. A couple of switches in the Swiss regulatory and tax laws (that would be in line with MiFid rules.. how is that for 'ironic') would see an exodus of wealthy fund managers from UK shores to the shores of Lake Geneva, where there is less crime, a better standard of living, better schools, great skiing and... well... good fondue.

You can bet that certain elements in the Swiss government are sitting down, as you read this, talking about how they can make up for the inevitable job losses that will be felt in the banking sector due to this latest attack. Tax and regulatory changes could be implemented quickly and efficiently and before you know it our ski slopes would be teeming with hedge fund managers taking a lunch break twenty minutes away from their lake front offices while dumping their tiny overpriced London homes via their Blackberries.

I don't mean to have a go at the UK, I am English and proud, but I am exasperated at the way that this government especially, brow beats the general public with populist policies aimed at deflecting the blame for their incompetence on countries such as Switzerland. For goodness sake, we only have 7.5mn people, thats just a little more than London!

Remember, Switzerland is not some second world backward country, it is at the heart of Europe with a highly educated, work-efficient, multi-lingual population and the country has a public infrastructure that makes the UK look like a former soviet country, straight after the collapse.

If Switzerland decided it needed to compete with the UK directly for the title as 'financial capital of Europe' in order to boost its economy I am afraid the UK would be the Goliath to Switzerland’s David.

If I was in this fight, I wouldn’t be watching the stumbling giant; I would be watching the little guy, loading up his sling.

Wednesday, March 25, 2009

AngelSift - A Winner for Investors?

I am very fortunate to have been asked to work with a new business angel/business networking site called AngelSift.com. The site is aimed at business angels and sophisticated investors that are looking for investment ideas for, generally, Internet based businesses.

Having looked at many sites that offer a similar service the founders of the company saw that some sites charge relatively high fees to become members and upload deals, even charging on funds raised. While, as a traditional corporate finance model, this works, on the Internet people are not used to having to pay huge sums for information that, with a little work and research, could be found for free.

AngelSift, therefore, has a free membership level where members can view the site and find out if it is for them. If an investor would like to interact the fee is a mere £20 for a year’s membership or, for a limited time, £120 for life membership.

Entrepreneurs who are seeking funding can upload one deal per month for an annual payment of £20 and multiple deals for a £60 annual payment.

The site is primarily aimed at web entrepreneurs seeking funding and the investors who would be interested in this area, but it also will be encouraging web entrepreneurs who wish to sell there web based businesses.

From our own research, and from some of the businesses we have bought online, we know that there are literally thousands of small web businesses making a profit for very little work, through advertising. There are other marketplaces but most are US based, AngelSift, although welcoming all investors and entrepreneurs, is targeted at the European market.

The first site should go live in a few weeks and the team has promised to furiously add functionality as the site grows. The concentration initially is building up the database of users and the resources available to those users.

Next stage development is being kept hush, hush but I can say that they have an ambitious business valuation project to implement and a variety of data gathering tools that will enhance membership and the information available to that membership.

The great thing that we have found is that the guys putting it together are not taking themselves too seriously. One of the backers, who has been in corporate finance for 20 years and is funding the site, says, "The approach is not like some of the big angel networks who have turned the space into a boring science project. Angelsift, and the guys behind it, are looking at it from a low cost base for users and a genuine desire to fit angels with investors, but in a hands-off, none meddling way"

Looking at the people they have got as initial members (I won't steal their thunder), the founders may not take themselves too seriously but the users of the site certainly should.

Monday, March 23, 2009

Madoff Case - You Have To Read About This Mess-Up

I have followed the Madoff case with a growning sense of anger at regulators and the very people who should have protected investors. I went to the CNBC site recently for an update and found a section that detailed letters having being submitted from victims who wanted to be heard at the meetings.

Now you would have thought that that Department Of Justice, The SEC and everybody else involved would be on the ball now, afraid to let the slightest thing pass without scrutiny. The slightest slip in the investigation, an oversight from some investigating officer or a miniture mistake could through more egg on the faces of embarrassed government officials.

Couldn't happen right? Too much at stake right?

Wrong.

Have a look at this link before it gets taken down.
Go to page thirty six. You will see an email that has been included in the heart rendering responses from Madoff Victims. That email goes something like this:

"My Name is ********* but my origins are from the Republic of Congo. I have inherited fund I want to invest in a business in your country....

Beggining to sound familiar?

It goes on:

"If you can assist, I am willing to give you 10% of the funds that is US$3.5 Million......"

Yes, you guessed it. On court submitted documents on the headed paper of the Department of Jutsice, someone, somewhere submitted a Nigeria scam email to the Judge in the Madoff case. Now, I don't know about you, but is this not indicative of the whole mess? A scam letter, submitted to a Judge in the case of the biggest scamster in history.

Surely they have people looking over these documents. Highly paid and highly skilled regulatory bodies and lawyers scouring every detail? If this evidence is anything to go by, is it any wonder Madoff got away with it for years?

Thursday, March 19, 2009

New Shiny Regulations Lined Up By FSA

I had to have a chuckle today when I read the statement from the FSA Chairman Lord Turner, when he said "We are not going to fall into the trap that we did in the past of trying to get a minor competitive advantage by making regulation a little lighter than elsewhere. The disadvantages of getting it wrong are hugely bigger"

Er.. did I miss something? Lord Turner may believe that regulators have been 'lighter' for his buddies at the big banks and powerful broking companies, but those of us who have been in the trenches for the last 10 years would not describe regulations as 'light'.

Costs have escalated out of control and the richest guy in any small brokerage is the compliance manager.

I suppose this is all good news. For a long time we have said that the banks are too big and out of control, squeezing smaller operators out of business. We recently reiterated our belief that this was, consciously or unconsciously, the will of the regulators. It is easier to manage a few huge companies, n'est pas?

Clearly that strategy has been seen to be a huge.. well.. cock-up.

So what are the solutions being put forward? As we have being saying for a year now, the changes will be stringent for the big banks.

In a reversal of MiFid (and, dare I say the word 'protectionism') Lord Turner said there would be major changes for foreign banks with subsidiaries in the UK. The system of allowing foreigners to "passport" so that branches in Britain are overseen by their home regulator will be curtailed. The FSA could force the local entity to hold a specific level of capital, or may insist it accepts direct FSA regulation, Lord Turner said.

He warned hedge funds that if the FSA believes they are a systemic risk, it will either squeeze the UK-based part of their business, or will put pressure on their offshore domain for information.

If the FSA deems something unacceptably risky in any financial institution, it will force it to hold so much capital that it makes the action prohibitively expensive. The FSA will also pay far more attention to the "macro prudential" big picture risks when looking at individual companies, Lord Turner said.

Basically all the things MiFid was supposed to do, ease cross boarder business etc, will be stripped away. He didn't say it, but I bet that is what happens.

So we enter another round of regulatory upheaval which, if it was to be aimed solely at the banks, would be a timely and well-needed thing. Only problem is, and you and I both know it, that these regulatory changes will impact everyone in our business.

No doubt we will see a hastily crafted and badly timed new set of regulations rushed through with the merest splattering of feedback from those it will affect down the financial food chain.

I am sorry to be so cynical, but when regulators start talking tough, you just know there going to be massive cost involved for those who never caused the problems in the first place.

Oh... and who gets to decide whether an investment strategy is 'unacceptably risky'? I think we all better get used to the phrase 'nanny state'.

Friday, March 13, 2009

The Daily Show Slams CNBC

The media is blamed more and more for deepening the fear of the general public. We mentioned this in an article we wrote in September. We were talking about who was to blame for the whole thing and some of our conclusions were not particularly popular.

It seems that Jon Stewart, from The Daily Show, didn't apprecaite a rant along similar lines by Rick Santelli of CNBC. Rick was not pleased at Obama's plans to bail out home owners who couldn't afford to pay their mortgages and, of course, Stewart jumped on this. I guess Rick was a bit over the top, but Stewart and the rest of the media are happy to side with everyone who took out mortgages and blame it on the bankers for offering all this money 'educate yourselves' he mocks.

Problem is, Jon, that the general, populist media doesn't have the balls to actually say how it is, people over extended themselves, Wall Street, foolishly, provided the money for this, but now all we hear is how Wall Street is to blame for eveything and the trucker on $20,000 per year who bought 20 houses with 'no money down', is totally blameless.

Come on Jon, you seriously do not believe that the American people are stupid enough to borrow beyond their means because a banker/mortage broker told them it was OK?

Where does the personal responsibility of the individual come into this? Is the US 'The land of the free, home of the brave' or 'The land of the free, home of the brave (as long as we are told what we can do, when we can do it, and not given any free rain, because if we do we can't help ourselves)'.

Having said all this I happen to agree with the thrust of the video below. Stewart is bringing to book those that make a living from reporting financial news. I think there is always going to be a problem when people like Cramer make actual recommendations on TV, he is always going to blamed somewhere along the line because all of his calls cannot be right.

I think some of the criticism of CNBC's shows are unfair. I watch them everyday and they offer a balanced rounded view of what is going on. The thing is though, CNBC is like everyone else in the industry, we try to take a look at the information we have and make sense of it in relation to the market. Taking as fact eveything that is said by commentators and contributors on CNBC is about as stupid as taking The Daily Show news seriously.

Regardless of it's simplistic view and the fact that Stewart is on the 'beat-up Wall Street band wagon' in the search for higher ratings, it is a fabulously funny bit of TV.


Monday, March 02, 2009

The Trap Of Globalisation

I took delivery at the weekend of 'The Trap' by James Goldsmith. I must say it is a fabulous read in these times and a bizarre peak into the mind of a man who saw it all coming.

The front page has a description of what is in the book, bearing in mind it was written in 1993, it says;

"Rising long-term unemployment, increasing violence, growing poverty in urban slums, environmental deterioration and a general realization that something fundamental has gone wrong...."

Catchy, and all the more scary when you take a look at these words in the current environment.

I also bought 'The Response'. This was a book written to answer criticism from the media and 'professional' economists. This is a shining example of one of the arguments against Goldsmiths negative stance on global free trade:

-European Commission - 1994

'Outflows will, over time, match in flows. If the countries of Asia export more than they import, the excess cash will be invested abroad and ultimately the inflow will equal the outflow suffered by those with a trade deficit'

Norman Macrae, Sunday Times, 12 December 1994

'Suppose (in fun not in realism) that ... all present world-tradable manufactures and services fled to {low-wage countries}.... {They} could then do three things with their export surplus... Either (a) hoard it in foreign exchange; or (b) use it to buy everybody’s ICI's and other principal industries; or (c) buy new goods and services from the West.

Course (a) would be the loveliest for us. {The low-wage countries} would put all their hugely expanded export earnings in America and British and other foreign bonds.... We could then import their nice cheap goods (much reducing our cost of living) at near-nil net foreign exchange drain, and expand our budget deficits.... to create internal jobs and live the life of Riley'

Goldsmith gets this 'lesson in economics' from people who must now be feeling a little silly. His response in 'The Response' was:

'The idea that accounts must balance, and that inflows must ultimately match outflows, is an accountants idea.

But there is a fundamental misunderstanding here. If you make a loss, perhaps because you own a business that is trading unprofitably or because you have made a bad investment, you will not get rid of the loss by borrowing the amount needed to pay for it. You will have avoided or postponed a personal liquidity crisis, but you will still be poorer by the amount of the loss. You will also have to pay interest on the loan.

Alternatively, you might sell your house and rent somewhere else to live. You will have used the proceeds of the sale to pay your debts, but you will remain poorer by the value of your house. And in future, you will have to pay rent.

When the Asian counties, as mentioned by the European Commission, invest their 'excess cash' abroad, normally they do so by buying into businesses or by lending money. The latter normally takes the form either of buying governments debt or of deposits, say in sterling or dollars, in the banking system. Now consider the position of the nations which, unlike the Asian countries, import more than they export and which, as a result, have a deficit as opposed to an excess of cash.

To finance their deficit, businesses or other assets are sold and debt is issued. This puts them in exactly the same position as an individual who sells his house or borrows money to cover his debts. Such a hemorrhage can last only a limited time before ending in bankruptcy....

... The ability to borrow will depend on its (a country's) credit-worthiness, as it does for an individual. And the credit-worthiness of the West is extremely doubtful...

... Far from the 'life of Riley' it is increasing unemployment and impoverishment that the West has to look forward to - unless it changes course, and in time.'

Put simply, Goldsmith's objection to global free trade was, essentially, what has come to pass. He believed that the West was exporting jobs abroad, that the export of these jobs would lead to lower wages and higher unemployment.

What he didn't predict with any great force was that individuals would stave off the consequences of lower earnings by borrowing to invest in the stock market and property as well as increasing traditional credit card and overdraft debt. The increase in markets and property values gave the veneer that the utopia of good returns on investments and low price goods could go on forever.

Such debt was part of the biggest Ponzi scheme of all time, making Madoff look like a cheeky pickpocket from the musical Oliver.

Let’s face it, between 2003 and end of 2007, anyone could get credit for pretty much anything. TV shows in the UK such as 'Bank of Mum and dad' showed wayward kids, sometimes unemployed, who had wracked up £20,000 plus in debts on credit cards and overdrafts, and now were being helped to manage the situation. Adverts in the US showed big SUV's and cars could be bought on leases in the low hundreds of dollars.

Need a mortgage? Don't have good credit, or even the money to put down as a deposit? No problem self-certification 125% mortgage on its way for you sir. Spend the extra 25% on home improvements...

Really, how long did we think this would last? The housing market was the start, we know that.. bankers could securitize no more loans, house prices were getting silly and people could not borrow any more money to keep the merry-go-round spinning.

That is what has exposed the problems that Goldsmith warned of 16 years ago. The credit markets got clogged up and it came to a point where the system ground to a halt. Basically new money stopped entering the Ponzi scheme and those left holding the assets when the music stopped got severely burned, in stocks, houses, bonds even some bank accounts (Landsbanki as an example).

Goldsmith agrees that protectionism is not the antidote to globalisation, but it is simple math to understand that companies will not bring jobs back to high salary and unionized countries when they can have non-unionized cheap labour elsewhere.

The basic tenet of the start of Goldsmith's book, The Trap, is that we have lost site of what science, technology and the economy is there for. These three have been treated as an ends in themselves rather than a tool to enhance the lives of the society they serve and as such this inversion of values is back firing on society as a whole.

If protectionism is not the answer, and global free trade is here to stay, then we must get used to a lower standard of living.

Although the wages earned by those in the West have been won by hundreds of years of negotiation, unionization and civil rights law, our governments, at a stroke, allowed businesses to by pass the cost of these issues and export the jobs they were designed to protect to low-wage economies.

I am coming over all socialist... I think I need to sit down...

Friday, February 20, 2009

Lessons From a Billionaire - Goldsmith's 'The Trap'.

Have you ever read the book 'The Trap' by Sir James Goldsmith? I read it when it first came out and the follow up 'The Response'. The books are a little hazy in my mind so I have ordered both from Amazon and will be scouring through them for prophetic nuggets relevant to our current times.

Goldsmith was as famous for his personal life as well as his business life. His first wife, whom he married when 20, was the Bolivian heiress Maria Isabel Patiño, 18-year-old daughter of tin magnate Antenor Patiño and the Duchess of Durcal, of the Spanish royal family.

When Goldsmith proposed the marriage to Antenor Patiño, Patiño is alleged to have said, "We are not in the habit of marrying Jews to which Goldsmith is reported to have replied, "Well, I am not in the habit of marrying [Red] Indians". This story if true is typical of Goldsmith's humour and his forthright views.

He was also attributed with the quote "When you marry your mistress, you create a job vacancy" although the French actor Sacha Guitry is believed to be the first to coin the phrase.

In business he was characterised as 'The Lucky Gambler' after predicting the 87 crash but his best years, in my opinion were those later in life.

It is easy for billionaires to criticise the very system that allowed them to be so wealthy, but Goldsmith, influenced by his brother Teddy, became an ardent environmentalist before turning his intellect on the problems with free trade and globalisation.

Mocked at the time for being 'old fashioned' and 'blinkered' some of his words now look prophetic and those who dismissed him look... well... pathetic.

On his dislike of the free trade agreements he pointed out that although consumers in the developed world will have access to cheaper imported goods, the real cost to them "will be that they will lose their jobs, get paid less for their work, and have to face higher taxes to cover the social cost of increased unemployment."

Does that ring any bells with anyone?

This 'transfer of wealth' was highlighted by a report of the US-based National Intelligence Council 2025 Project, published in December 2008, which foresees “the unprecedented transfer of wealth roughly from West to East:”

The whole international system, the report says, “as constructed following WWII – will be revolutionized,” according to the council. “Not only will new players – Brazil, Russia, India and China (BRICs) – have a seat at the international high table, they will bring new stakes and rules of the game.”

India and China have crossed the US$1 trillion-plus gross domestic product, the latter far exceeding the former. Indian GDP grew at 9.2 percent, close to double digits, during 2007 according to the IMF. China did even better at 11.4%. They lend money to the US government.

Both achieved all this with export-led growth, not by catering to their own population. India achieved high growth by exporting service sector products like IT and IT enabled services. China exported small-scale and large-scale industrial products – steel, garments, toys, milk products, electronic products, etc.

We all know why these economies were able to increase the wealth of their countries and experience it personally when we are routed to an Indian call center after calling our local bank.

As Goldsmith said in the second section of the book;

"The New Utopia GATT and Global Free Trade' is a powerful attack on... ..liberal/capitalist dogmas.

Goldsmith pointedly states "...forty-seven Vietnamese or forty-seven Filipinos can be employed for the cost of one person in a developed country like France".

"The adoption of global free trade would therefore be utterly disastrous for the middle- and working-classes of the West, as the transnational corporations simply move their production operations offshore. But the poor of the less-developed world would not benefit much, either.."

"...one of the characteristics of developing countries is that a small handful of people controls the overwhelming majority of the nation's resources. It is these people ... who assemble the cheap labour which is used to manufacture products for the developed world. Thus, it is the poor in the rich countries who will subsidize the rich in the poor countries".

Goldsmith's assertion of the 'transfer of wealth' is one which economists brush off. They tell us that the increased productivity of nations whose companies are taking advantage of the lower wages paid to emerging countries workforces increases the standard of living of people in that nation.

I must admit, over the last 10 years I have watched as all of Goldsmith’s assertions on free trade were swepped aside by increasing stock market, low unemployment and affordable quality goods. Unfortunately, we find out now, with the benefit of hindsight, that our economies were not enriched by free trade per se, but by the debt to fund it.

The best example of Goldsmith's views was the oil spike. Newspapers were happily quoting Bonne Pickens and his mantra of the US 'exporting' $750 billion a year from the purchase of oil. It is nothing new, of course, but it the easiest way of explaining the tramsport of cash from West to East.

I will say that I do not profess to be an economist, merely and observer of the current crisis. Goldsmith was not a learned scholar, nor a modern day Nostradamus, but a practiced businessman who made billions and therefore had certain, some would say skewed, views of the world. But the points that Goldsmith made, which at the time seemed backward looking, have come to haunt us as we look at the current crisis and should not be dismissed a the musings of a rich socialite.

It is said that a wise man profits by the experience of others, a man with common sense profits by his own experience, and a fool profits by neither.

Many in our industry are looking like fools right now and we must look to those who have criticised our system in the past to see how we can mend it for the future.

Wednesday, February 18, 2009

Open Letter From The Banking Establishment To The Taxpayer

The Naked Capitalism Blog posted a very funny article entitled 'An Open Letter To The Western Banking Establishment' (click the link to read it first).

It started:

Dear Western banking establishment,

I notice that your unauthorised credit facility from international lenders of last resort now totals approximately $10 trillion. As a taxpayer and therefore your largest shareholder I would be grateful if you could repay this facility at your earliest convenience. I have charged you an additional £30 for this letter and a monthly unauthorised overdraft fee of £28. If you do not repay this facility shortly I will have no choice but to become further massively impoverished along with legions of fellow taxpayers for multiple generations to come.....

No doubt this would be a response:

Worlwide Taxpayer
Everywhere
Anywhere

Re: Unauthorised overdraft facility

Thank you very much for your letter concerning our overdraft facility. We appreciate that it has gone over the allowed limit but we had to get bonuses paid to our top executives and star traders before any interference by governmental authorities.

This sorted, we can now assure you that we are working diligently to repay the debt owed and we would very much like to tell you how your funds are being put to use.

1. We have spent some of the money on consultants, and some other very clever people, to analyse our previous business plan to see if they can suggest any changes.

Unfortunately, as it turns out, lending money to people was, ultimately, a flawed plan and cost us lots of money so, in the spirit of improving cash flow and the ability to secure payment of our overdraft, we have suspended all lending.

It may be that this could complicate the financial system further, but we are very keen to make sure that we do not lose anymore money; bonus time is only 8 months away.

2. You will be happy to know that we have come down very hard on expenses. We have halved spending on water by limiting our offices to one water machine per floor instead of the two we had in our heyday. We are aware this is a sacrifice but I can tell you that all in our firm fully support it.

I personally now clean my own shoes having let my company paid valet go. He shall be missed, but we all have to pull together.

Our executives have also made many personal changes to their daily routine. The executive dining room, for example, is now only open between 12 and 6pm and we have all decided to eat our stakes rare to save on cooking bills. (Jenkins in compliance has gone the extra mile and only eats steak tartar, would you believe! He is such a team player.)

3. Reference your comments on strategists and economists, we have to agree, publishing unsolicited comments in the financial press is not helpful. We have canvassed all of our economists and have found that, although many have experience of brothels through Brother Spitzer, none play the piano.

We have set up a company wide working group with outside lawyers and consultants to assess the viability of having them all learn to tickle the ivories. Thank you very much for your input in this process.

4. Your views on there being 'no real need to have 18 different banks' on your high street is a radical idea which we feel deserves further investigations. Following your suggestion we have set up a company wide working group with outside lawyers and consultants to assess the viability of this impressive, if unorthodox idea.

5. The 'monstrous pile of credit' issue is one where we may have to disagree. The simple fact is, we are a bank, we do lots of complicated banking type things which I won't bore you with, and as a bank we pay our people big bonuses, without the 'monstrous funds' given to us, how would we pay these bonuses?

I think you have underestimated the affect on the wider economy if such bonuses are not paid. What, for example, would happen to Porsche, Lamborghini, Bentley, Aston Martin etc? Surely you are not suggesting in such bad times for the auto industry that you would cut off the very clients these poor companies depend upon.

Think of Crystal, Spargo's, the Ivy in London, Harrods, Moet & Chandon, Versace to name just a few. To underfund the banking industry could, I am afraid to say, cause these companies fatal financial hardship.

Also what would happen to the property market in areas like Seventh Arrondissement in Paris, TriBeCa in New York and London's Kensington Palace Gardens? Homes in these areas go for several million dollars, without the banking community to pick up these properties we could see a meltdown in the neighborhood with management consultants moving in all over the place. I mean would you want one living next to you?

6. I thank you for your quotes from Garet Garrett but I found it hard to understand what it meant. I mean 'panacea for debt is credit' who really knows what that means and it is relevant now that we don't lend? I think not.

7. The news on the UK government encouraging lending to buy homes is, quite frankly, a shock to myself and my colleagues. Suggesting the purchase of an asset that is falling at a rate of 17% per annum is outrageous and you are right to bring it to our attention. We have several securitised mortgage obligations that these people could be buying that have already fallen by far bigger amounts than that.

8. Your suggested slogan for our investment management departments is “When it comes to moral hazard, we’re Number One. We helped trigger the biggest financial and economic collapse in history through our imprudent lending and investment. Between 18 million and 30 million jobs throughout the world are almost certain to be lost. And more than 50 million jobs throughout the world are now in jeopardy. As a result of our investment expertise, we’ve lost billions, and those of us that still exist and aren’t owned by the taxpayer are technically insolvent. Now, how can we help you with your finances?”

This is genius. Honesty, integrity and some scary numbers, simply brilliant! We have set up a company wide working group with outside lawyers and consultants to assess the viability of putting this to jingly music, sung by a baby. We will then post this on YouTube and feel sure it will go viral.

I must say, when your letter arrived at my mansion I was a little worried that it was another gift from Bernie Madoff or even a letter from some awful riff raff saying cruel things about us. Your letter, however, was constructive and thoughtful.

I enclose a company check for £58 to cover your expenses and hope to be able to report how we are getting on with the repayment of our debt soon. As you will see, we are committed to making it work this time and you can rest assured your money is in good hands.

Regards
Charles Richard Oliver Olsen-Klarke
Merchant Banker


Regulators Catch Alleged Fraudster (Even a Blind Squirrel Gets The Ocassional Nut)

I am thinking of changing the name of this blog to 'Bang Up The Banker'. Back in 2007 (you remember the good old days, don't you?) we could write articles on the latest deals, stellar performing hedge funds, interesting IPO's etc. Now it seems that the only thing worth talking about is the latest implosion and subsequent arrest of some 'banker' somewhere.

Ever heard the saying 'Eventually even a blind squirel will find nuts in the forest' well today's edition of 'Bang Up The Banker' focuses on the SEC who have 'caught' an alleged dodgy banker , Sir Allen Stanford, who has been accused of a fraud of 'shocking magnitude'.

Stanford's companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action.

The SEC, reeling from a caning in Washington, 'seized' the opportunity (15 years after the alleged fraud began) to arrest the companies executives and freeze all their assets.

"As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

Apparently the scheme centered on the defendants misrepresenting to CD (Certificates Of Deposit) purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds into 'liquid; investments. A team of 20 analysts was said to monitor the portfolio and was subject to audits by Antiguan regulators.

It also turns out that this multi-billion dollar portfolio is managed by Stanford; Stanford's father who resides in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who prior to joining SFG had no financial services or securities industry experience; and Davis, who was Stanford's college roommate.

The words 'flag' and 'red' come to mind.

The SEC's complaint also alleges an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (SAS), by using materially false historical performance data. According to the complaint, the false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $25 million in 2007 and 2008. The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to SIB's CD program.

I find this all a bit depressing for a number of reasons, however the one that is gnawing at me today is the realisation that for years I have been playing cards with others dealing from a crooked deck.

How, in the financial industry, are you supposed to believe that you can build a legitimate business when you are competing against the likes Madoff, Freeman and Stanford?

The banks haven't covered themselves in glory either. For years they have been making bogus profits, plowing these into advertising, sponsorship and manpower so much so that smaller companies just cannot compete.

You maybe sitting there in your guilded office at an investment bank (if there are any left) or a massive fund chortling at my naiveté but I wouldn't get too comfortable.

It is my opinion that the regulatory agencies and governments were very keen on large institutions, mammoth operations that could be relied upon to have massive compliance departments looking after Joe public. This would make the regulators job easier n'est pas? Then all you have to do is make it harder and harder (enter MiFid etc) for smaller companies to compete against their buddies in the banks and, Bob's your uncle, you have a utopian financial system.

Only problem is, it didn't work, did it.

Moving forward I believe that the big banks and huge financial institutions should be broken up... what is the point of their existence? We have already seen that they couldn't manage a piss up in a brewery. The only thing the masses relied upon them for was to be good shepherds of their money, and they couldn't even do that. If governments had not stepped in millions would have lost money and I fear we would have entered the dark ages.

Even now, anyone with any sense knows that most of these institutions are broken. Replacing the CEO is like moving deckchairs on the Titanic.

What is needed is a complete overhaul. Put someone in charge of the regulatory authority that is not some pussy who never got picked for the football team when he was kid and was not a Fag at public school for half the boards of the banks and institutions. Get someone in there with some gumption, for God's sake.

Did you see them getting grilled on The Hill? Seriously, would you want them to be fighting on your side? They were, frankly, pathetic. I know we hear of these top guys 'tough' reputation, but do you believe that? I certainly don't, they looked like a bunch of bean counters who worked their way up in a cushy admin job waiting for a call from a bank to employ them for millions.

I rabbit on, and I am just getting angry.... Here are my thoughts..feel free to comment..

1. Break up the banks into smaller operations

2. Ban banking mergers

3. Have a company select its mode of business and do not allow it to have any other operations. You sell stock, you trade stock, you advise on mergers, acquisitions etc, you manage a fund, you give financial advice, you take deposits and make loans (you get the picture).... pick one... and that is your lot. Want to do any other business... forget it.

4. Break up the regulators into specialist authorities (just like it was in the UK) Specialist regulator for fund managers, financial advisors, stockbrokers, banks etc. This will provide more concentrated focused regulation

5. Prosecute some regulators for their failings in Madoff, Stanford and Freeman. The authorities banged up some bankers, to teach the market a lesson, why not the people who were asleep at the wheel, would focus the minds of those to come would it not?

I have heard others like incentivising regulators etc, but shouldn't they be doing their job anyway?

Bottom line is that there needs to be a shake up, we have to admit that some have screwed it up for us all and now I want my bail out. I don't want money, I just want a level playing field.

Tuesday, February 17, 2009

Gary Ackerman Beats Up The Regulators.. Go Gary!

I have repeatedly talked about politicians being... well... useless. I do, however, have a new respect for Gary Ackerman. He kills the regulators over the Madoff thing. I have to say he was absolutely right here, and kicked ass. It really was a cock-up of mammoth proportions and the regulators deserve this beating and more. Don't see any remorse here do you? Wasters....




Investors Forced To Give Madoff 'Profits' Back?

Imagine this scenario; You are an honest fund manager who has returned pretty good profits to your investors and you are just beginning to think that you might scrape through the credit crunch with a fund, happy clients and a future. Then you get a letter from lawyers saying that one of the investments you made, and then withdrew from, wants the profits back.

Nightmare right?

Looks like this is what is befalling a number of investment managers and charities in the Bernie Madoff case.

The bottom line is that investors who withdrew funds in the last 4 years may be sued for those profits, and perhaps, some principal. The problem for the bankruptcy trustee, Irbing Picard, is that those who have to pay back withrawn funds will then have a claim for losses from the scandal. These claims have to be submitted before July 2nd, only issue is that the trustee hasn’t told investors how clawback claims would be handled.

This means that people who withdrew money before the firm imploded may be compelled to file documents before the July 2 deadline to preserve their claim. If they do, they may lose the right to a jury trial if Picard sues seeking return of the money.

Confused? Me too.

Picard said Feb. 4 he has recovered about $946.4 million in cash and securities for customers of the bankrupt New York company, allegedly at the center of a $50 billion Ponzi scheme. Picard, appointed as part of the Securities Investor Protection Corp.’s supervision of the advisory firm, declined to comment when asked by reporters.

Bernard Madoff was arrested by FBI agents in December and charged with securities fraud. Madoff, 70, hasn’t formally responded to the criminal charge, though on Feb. 9 he partially settled a parallel suit by the U.S. Securities and Exchange Commission. He said he wouldn’t challenge the SEC allegations when the judge in that case determines the penalty. Madoff didn’t admit or deny any wrongdoing in the settlement.

Creditors of his firm may file claims until July 2, though customers should submit their forms before March 4 to be paid “out of customer property,” according to Picard’s Web site.

Any way you look at it, the only certainties will be time, litigation -- and pain. "It's hard to have a rule of thumb on this," says Robb Evans of Robb Evans & Associates. Evans was the receiver -- the person appointed by authorities to oversee the company while it's in government control -- for the Bank of Credit and Commerce International after it collapsed in a multibillion-dollar fraud and has also served as receiver in dozens of Ponzi schemes. "But the longer the Ponzi scheme has run, the less money is going to be available. Because the only way a long-running Ponzi scheme can keep going is by paying off early investors."

As Evans puts it, "The sad part of it is that it usually works out that your primary source of recovery is innocent people who put in their money early and got their money out -- and are asked to return it."

This is the legal notion known as "fraudulent conveyance," and it's a concept whose interpretation has recently gotten much more onerous for investors.

The basic notion is ancient, says Philip Bentley of New York-based law firm Kramer, Levin, Naftalis & Frankel. "It's an old concept going all the way back to back to Elizabethan times," he says. "The first case involved a man who transferred all his sheep to his wife to keep them out of the hands of people who were suing him. Nowadays, the classic case of a fraudulent transfer is a man who is being sued who transfers his house or his investment assets to his wife."

According to Bentley, it is long-settled law that some investors might have to give back some or all of their investment gains. But what has changed as a result of a federal court ruling in 2007 -- stemming from the faked results and misappropriation by the now-convicted managers of the $450 million Bayou hedge funds -- is that some investors might have to return some of their principal, too.

In the abstract, there's some logic here. Here's how Bentley, who represented 70 clients who had invested in, and then exited, the Bayou fund before its collapse, explains it: "The court ruled that because there was clearly a fraud going on at Bayou, and because arguably the redemption payment to investors furthered the fraud by fostering the illusion of profitability, the investors who took out their money were liable if they knew of the fraud or if they should've known of the fraud."

As Bentley puts it, "the first part -- having to give money back if they knew of the fraud -- is uncontroversial. Because if they were in on the fraud or had inside information, not many people would quarrel with the view that they should give money back. But what's problematic about the Bayou decision is holding them liable if they should've known; in other words, if they saw enough red flags that they should've investigated further."

"There's going to be a very big policy issue at stake," Bentley argues. "You're penalizing the investors who were savvy enough to see the warning signs that others overlooked... And the question is, especially in today's world, when you've got a financial crisis caused by people being blind to risk, do you really want to put in place a legal rule that penalizes investors who were savvy about risk and did something about it?"

Apparently, this is going to take years to resolve and with all the convoluted legal issues here I doubt any investor will get back much. I do know one thing though, this is going to soften the recessionary blow for many a lawyer, and the trustee? He wants $28 million for salaries and expenses.
So investors have paid their taxes for the SEC to protect them, which they didn't and now they are going to pay money out of potential settlements to trsutees and lawyers to sort the mess out.
Is it just me, or is something very wrong here....

Friday, February 13, 2009

UK FX Trader Arrested In Alleged Ponzi Scheme Investigation

Having graduated from the University of Life with a First Class Honors Degree in Hindsight, I am not averse to having a little bout of 'told you so'. Today we hear of another chap being arrested for alleged dodgy dealings.

Our modern day Sun Tzu, Warren Buffet said "It is only when the tide goes out that you can see who has been swimming naked".

Like the Emperor in Hans Christian Anderson's 'The Emperors New Clothes' Bernie Madoff managed to convince all around him that if they didn't believe the performance and legitimacy of his business they were stupid or unworthy of their position. The regulators fell for it, as did a lot of other high powered people. The tide went out on Bernie several times but his nakedness was ignored. Unfortunately for him the tide receded again, big time, and there were plenty of people shouting "But he has nothing on!

Unfortunately for Terry Freeman, a director of GFX Capital in London, his 'invisible clothes' have been flagged and he has been arrested by police investigating a £40 million fraud.

The ironically named 'Freeman', a foreign exchange trader, was arrested at his home in Buckhurst Hill, Essex, on Monday by detectives from the City of London Police Economic Crime Department. His home and offices were searched and large quantities of documentation were taken away for analysis. Mr Freeman was released on police bail after questioning.

The City of London force has appealed to investors in the firm, which had offices in Leadenhall and Moorgate, to come forward if they had concerns. It is understood the company recently stopped trading.

A police spokesman said officers were investigating suspected money laundering and offences under the Financial Services and Markets Act.

One source said: "This is a very fast-moving inquiry and we don't expect the dust to settle for a few weeks. Only then will we have a clear picture of what has been going on."

Police sources said they were investigating claims that GFX was running a Ponzi fund — a scam that appears to be succeeding wildly by paying supposed returns out of victims' own capital.

Detective Chief Superintendent Steve Head, of City of London police, said that his force had detected a marked rise in financial crime as the recession deepened.

Mr Head said: "There is no doubt in my mind that the present economic situation has led to this rise in reporting [of fraud].

"Most fraud is discovered internally by businesses, but historically I believe only a fraction of those crimes have been reported to the police. Time will tell if we are experiencing two rare positive effects of the economic climate: not only are procedures to prevent and detect fraud being tightened, but victims have a greater confidence to report suspects to the police."

Mr Freeman had a blog which gave updates and allowed comments from investors, some of these comments are reminiscent of how people described their dealings with Madoff before things went bad:

"I can only speak for myself but I can say that I am ecstatic about what you are doing with my money and can only thank you for giving my husband and I the chance to take part. You have our full support whatever you do".

"I haven't posted before, but I would like to reiterate the praise given about Terry's brilliant work. This fx investment is the only shining light in the current mood of economic gloom and has yielded quite extraordinary returns".

"Having met you on a couple of occasions, we have come to the conclusion you are a man that we trust implicitly and that you obviously know exactly what you are doing with regards to the investments".

"I like most others trust you implicitly, and I also agree with everybody on the blog that your results and strategy are excellent."

I sincerely hope, for the people that posted the above comments, that this all turns out to be a mistake and that funds can be returned to clients of Mr Freeman, but the police having arrested Mr Freeman is not a good sign. There were also some issues from investors who were getting worried. Mr Freeman even looked to give comfort after the Madoff situation hit the news:

"I have phoned round and can confirm that this news does not affect GFX, its custodian bankers, or any of the Swiss Banks with whom we trade".

And, perhaps prophetically he said:

"The news is another glowing testament to our decision to base our trading operations in Switzerland, where the financial regulations are as tight as a well-wound Swiss watch!"

Many of the comments on the blog have been removed or redirected but the last post on the 9th January said:

"We must not allow the Diary to become a forum for individual grievances and negative comments, even in some cases abuse of our staff which can never be acceptable. That is not to say that we are not taking your comments seriously, but we view the Diary as a valuable communications tool".

Comments were beginning to be made on the lack of info coming from the company:

"Firstly why not give an indication of ballpark trading results good or bad with a clear indication that the figures are not final and could be subject to change. We are grown up and some information is better than none"

"...any sort of communication is better than none"

"I do not believe that it is being negative to ask for some honest communication from people when we have invested with you."

"Terry, Can you confirm if you are in fact trading? Admin has advised me not to fund my new account until further notice as they are too busy at the moment".

I post the above comments not as a judgment of Mr Freeman or his investment fund, in my book a man is innocent until proven guilty and I do not subscribe to the Kangaroo Court of the web. I post these comments because they are strikingly similar to those that I have seen in the Madoff case.

The most telling being "thank you for giving my husband and I the chance to take part". This was almost a word for word account from an investor in Madoff. He made it so that people were grateful to be just included.

Again we make no judgment on the issue and have seen, many times before, a storm of publicity surrounding an investment vehicle being some sort of scheme, when the issue turns out to be misreported very little press covers that point. If this turns out to be one of those times then we will happily report so but, as is so often the case, the mere reporting of impropriety causes the destruction of investor value.

Madoff was clearly a different case in that he admitted from the time he was arrested that it was a Ponzi scheme, for the sake of investors with GFX through Mr Freeman, I hope this turns out to be one of those occasions where all is not as it seems from the reports in the press.

Thursday, February 12, 2009

Sorry Is The Hardest Word

In the spirit of everyone in our industry saying sorry for something or another, you know global meltdown, greed, dodgy lending practices, that sort of thing, I was looking through some old posts written in 'the gold old days' to see what predictions I made that were total and utter... erm rubbish.

The one that hit me straight in the chops was my article on Arev the Icelandic private equity firm and how great they were. I made a joke about the fact that their private equity firm was called Kcaj and that Arev and Kcaj spelt backwards is 'Jack and Vera' the Coronation street stars. Emails abound on the fact that this was mere coincidence but having named another part of the firm Yrret it has to be confirmation. 'Terry' was Jack and Vera's wayward son in the soap.

Thing is that the situation that Icelandic firms find themselves in now is anything but funny. Our Corry loving friends have had a bad year, Hardy Amies, the UK Couture House, bought by the firm, collapsed in 2008 after Kcaj refused further funding. Kroll were appointed administrators but could not secure the sale of the company as a going concern causing the closure of all but the Saville Row head office. The lease on this building which is beautiful (I have been there and can personally attest to this) was bought by Hong Kong based fashion supplier Li & Fung.

Kroll administrator Peter Saville said: "We believe that the sale of the assets has achieved the best outcome for creditors in the current economic climate. Sadly, the closure of these stores and couture house has meant a number of redundancies have already been made, and we anticipate there will be further job losses as the wind-down progresses. This is yet another example of an iconic British company falling victim to the credit crunch."

The assets sold to Li & Fung's Fung Capital Europe include the Hardy Amies and Norman Hartnell brands, the lease to the Savile Row store in London, and all of the licensing agreements owned by the group.

In 2008 a string of investments have soured for Arev - fashion brand Ghost, has warned of the same fate as Hardy Amies. Maternity retailer Blooming Marvelous, which it bought last year, is thought to require more funds. Some management teams, including Aspinal of London founder Iain Burton, are understood to be preparing buyouts.

Hardy Amies was a classic case of being in the right business at the wrong time. Arev, in our opinion, had ploughed the right furrow by bringing licensing back into the company and opening stores to create a retail name for the iconic brand. Unfortunately the credit crunch killed it off before it really got going. Seeing a 60 year old brand, such as Hardy Amies, disappear is a testament to how bad things are in the world of private equity.

The private equity party may be over in its old form and a few people will be licking their wounds for years to come, but you can bet that in 18 months time we will be toasting those who took the risk to dive into some businesses during these dire times.

I for one, hope Arev are one of them, if only so we can see which Coronation Street characters appears on their list next.

Oh, and by the way, sorry.....

Tuesday, February 03, 2009

A Small Company Begs to Differ With Harvard as Report on Online Child Safety Goes to Print

One of the areas of investment that we have been very interested in is the online security sector. The reason for this is that we have a healthy suspicion of the web... ironic as this is on a blog, but follow my logic.

The web, as a tool, is mind blowing. We have become so used to being able to communicate at the speed of light, to being able to socialise on a world stage all from our laptop like some empowered super Jedi, that we have forgotten about the Dark Side of the Force.

In our online world millions of villains sit in the shadows. There are small timers who just sit and write rubbish about their enemies on chat rooms and bulletin boards, there are those who want to shoot down competitors so make sure lies can be seen as fact on anonymous chat rooms using multiple names to make it more sensational. There are robots combing the web for email addresses to deliver to their masters who control millions of zombie computers, ready to email you a lottery scam, a Nigerian scam or a manhood extension.

As adults, now veterans of the web, we can recognize these cynical ploys and even buy filters to wipe them out. I get at least 200 emails a day, offering everything from knock-off watches to Vicoden which are vaporized by my spam filter.

These tools, a healthy suspicion of everything that comes into my inbox and everything I read on the web, protect me from the worst of what the Dark Side has to offer. What worries me most though is not my inbox or what I read; it is my son's experience on the web.

My cynicism could be seen as being over protective, but in the real world I would not let my son wander around a porn shop, hang out with people significantly older than he is and let him be influenced by those whose views I don't approve of, so why should I do this with the web?

I for one would take a bullet for my boy and say 'thank you very much can I have another' before I would let any harm come to him. On the web I am handing that responsibility to companies such as MySpace, Facebook and the like and they don't know my son exists, never mind having the motivation to protect him like I would.

These sites say that they 'do what they can' for security, indeed, MySpace removed 29000 sex offenders from their site in 2007, that's great, but how did they get on there in the first place? The cynical would suggest that they only removed these profiles after law suits became overwhelming. To be fair they are looking into new security measures, but for us, it’s not fast enough.

That is why we are watching a company that has gone the whole hog in protecting our kids and, in an ironic twist of fate, it launches in beta tomorrow, the same day as a Harvard report on this issue is published.

The highly anticipated report -- results of a year-long study ordered by 49 state attorneys general -- found that "a combination of technologies, in concert with parental oversight, education, social services, law enforcement, and sound policies by social-network sites and service providers, may assist in addressing specific problems that minors face online," according to a draft of the report reviewed by The Wall Street Journal.

Task-force members included representatives of several top Internet and security companies, including News Corp.'s MySpace, Google Inc., Time Warner Inc.'s AOL and Facebook Inc. The conclusions, therefore, that "age and identity verification, filtering and auditing, text analysis and biometrics" were found to come up "short of a comprehensive way to protect children and teens", should be taken with this in mind. After all, these companies are not keen on spending the money to develop such technologies, nor want others to filter out their sites. As the report said "deploying these technologies would be costly and could create broader privacy and security problems" .

MySpace Chief Security Officer Hemanshu Nigam said in a statement that MySpace "fully supports the key conclusions of the report." One could be unkind and say 'they would say that, wouldn't they'.

As is the speed of development on the web, a year long study done by very important people and rich web companies is about to look old and out of date on the day of its publication because of a small company in Miami.

Dolphin Secure from Dolphin Digital Media (their blog is here) (OTCBB:DPDM) is a groundbreaking Internet security system that provides parents with the necessary tools to protect their children while they are using computers inside the home.

Specifically, Dolphin Secure provides parents the peace of mind of deciding which websites their children can view and whom their children can interact with online, safeguarding them from exposure to pornography, gambling and unsolicited chat requests from potential predators.

Children log in and authenticate their account with their fingerprint utilizing a reader that is either built into the computer or connected via a USB port. Once logged-on, the personal computer is completely protected from accessing unauthorized internet sites as directed by the parent.

The Dolphin Secure system lives as a system process on the computer (those icons by the clock on the computer) that can only be turned off with a parental password.

Children can open and close multiple browsers, turn the computer on and off or throw their laptop down the stairs! Unless directed by the parent, the child will be unable to disable the security settings. The computer will still be Dolphin-Secured.

To utilize the program there is no software to purchase as the system application is downloaded upon registration. Furthermore, members are restricted to Instant Messaging and communicating only with other members within Dolphin Secure.

The parental control panel is where the action is. If your child surfs to an unauthorized site but has heard from friends it is 'cool' they can press a button to request that it be added to the white list of 5000 sites. If the parent thinks it is appropriate and Dolphin has reviewed it, it will be added to the list of available sites. This creates an organically growing network of websites that are suitable for your child and are deemed to be safe, something that sites who do not place a value on security will not be happy with.

The instant chat facility is cool too. For example, parents of four daughters may determine their six year-old daughter is not allowed to chat at all, their nine year-old daughter is only allowed to chat with a select group of five friends, their thirteen year-old daughter is only allowed to chat with other girls her age or younger, and their sixteen year-old daughter is allowed to chat with boys and girls 18 years old and under.

Also when a child attempts to send a message to an unauthorized buddy, an error message will appear, at which time a notification will be sent to the parent indicating the request for a new buddy from the child.

For instance, if your nine year-old son’s chat settings were limited to boys within one year of his age and he wanted to add his twelve year-old female cousin to his buddy list, a notification will be sent to the parent account requesting approval to add the requested person. Furthermore, if a chat request to the child is attempted from a user outside the child’s settings, a notification of such attempt is given to the parents (and never to the children).

Email forwarding is included, so your kids can keep their email address, but it is filtered for chat requests and spam, porn etc.

And the charge for giving control back to where it should be? $59.00 per year. Personally I think that is a very small price to pay.

The technology was developed by Dolphin Digital Media Inc. The company was born out of Dolphin Entertainment who are producers of popular kids TV shows and movies for Nickelodeon such as Zoey101 and Roxy Hunter. They have a High School Musical type TV movie coming out called 'Spectacular' and a movie about Bethany Hamilton, the true story of a 13 year old shark attach victim who lost her arm and became a world class surfer on her come-back.

The marketing synergies are obvious for the two companies.

There are other products on the market that do similar things but none that we know of that combine the instant chat facilities and other add-ons. The interesting thing, from an investment point of view, is that the company is not looking to become a software provider, like the other companies in this space.

Dolphin Secure is more likely to be developed as a portal for children and teens. Two social networking sites will be launched this week. Unseen content from TV shows and movies, friendship contact with the stars of the movies and shows as well as teasers, deleted scenes and even walk on parts in upcoming movies will all be used to add to the excitement for kids to join the network.

The point, missed by the Harvard report, is that protection on the web is hard, but to create a network of safe sites within the web submitted by an army of kids and approved by their parents is a scalable solution to the problem. The big sites, who have not concentrated on safety issues, due to cost and the fact that any safety barriers reduce their user base (and therefore ad revenue), could get left out in the cold as parents reclaim the web for themselves and their families.

President Kennedy once said 'we do these thing not because they are easy, but because they are hard'. Wise words and ones that should be remembered when we put child security into the 'too hard' basket.

Billion Dollar English Wreck Found

As a 'child of Thatcher' I have looked with contempt at the various pathetic excuses for government that have dragged themselves through the House of Commons over the years, but have always seen my homeland as 'God's country'.

As if to cement this view further God decides that he will help out our Sceptered Isle in these current times with the discovery of a billion dollars worth of gold under the English Channel.

Like a 265 year old piggy bank it was uncovered by a US based treasure hunting firm, Odyssey Marine Exploration, going to show that the US and the UK still make a good team.

The Florida-based firm found the site 330ft under the English Channel, nearly 100km from where the ship was historically believed to have been wrecked, near the Channel Islands.

Jason Williams, executive producer of JMW Productions, which filmed the discovery, said: "Reports from the time say that the ship was carrying four tonnes of gold, around £400,000 sterling, which it picked up from Lisbon on its way to Gibraltar. Today this has a bullion value of £125 million, but that is just its raw weight. That means it is worth about a billion dollars."

The Ministry of Defence has given the company permission to go back down to the wreck to try to find the treasure. The British Government will legally own any gold that is recovered, but Greg Stemm, chief executive officer of Odyssey Marine Exploration, said he was in negotiations and would expect to be rewarded for the find.

Mr Stemm said: "The money is not as important as the cultural and historical significance of the discovery. It is a monumental event, not only for Odyssey but for the world.

"It is probably the most significant shipwreck find to date. HMS Victory was the mightiest vessel of the 18th century and the eclectic mix of guns we found on the site will prove essential in further refining our understanding of naval weaponry used during the era."

Having plundered our gold reserves and sold them for historically low prices, Gordon Brown will probably be thanking his own personal God for such an amazing discovery.

Could it help it in current times? Doubtful. In a sane world, any find from this ship would be auctioned off to the highest bidder and the money put towards helping out military veterans, or something similar. After all 1000 sailors are estimated to have perished in the storm that sank the Victory, it would be a fitting tribute.

Problem is the historical value of the find is so significant that any gold found on this ship will, no doubt, be plonked in a museum somewhere. Not such a bad thing if the money made from visitors is used for helping out veterans. You know as well as I do, that it won't be, it will just be pushed back into the Treasury for some hair brained governmental scheme.

I know this is all a bit cynical, but suffering years of incompetence will do that to you.

Looking on the positive side, maybe this is a sign, a sign that things are not so bad after all. A reminder of the once unrivalled greatness of England. Maybe it can stir the hearts of the English people to remember that we are a great people and we can get through anything that is thrown at us and still come out the other end as winners, the Prom King to the rest of the world's prom Queen.

I know US readers always believe that the US is the greatest nation on the planet (and as Americans they should believe that) but I would, as an Englishman, beg to differ.

Shakespeare said it best.

This royal throne of kings, this scepter'd isle. This earth of majesty, this seat of Mars. This other Eden, demi-paradise. This fortress built by Nature for herself against infection and the hand of war. This happy breed of men, this little world. This precious stone set in the silver sea which serves it in the office of a wall, or as a moat defensive to a house against the envy of less happier lands.

This blessed plot, this earth, this realm, this England.

Monday, February 02, 2009

House of Lords Sleazefest

Don't you just love the whole House of Lords scandal? I must admit I had to laugh... a lot. The socialists in New Labour were salivating at the thought of getting into power and socking it to the elitist Lords. "Currupt!" They said, "Undemocratic!" They said. All I can say in response is "What a collosal balls up!".

News is that recently enobled peers, mostly Labourites (you know, that Party of the working class, those against capitalism and the evil of self betterment), have been setting up consultancy companies and making a pretty penny from 'influencing' amendments on bills that affect their 'clients'. Didn't we see this coming?

In 1999, the Government completed a deal with the Lords to remove most of the hereditary Peers and passed the House of Lords Act 1999 leaving amongst the majority of appointed Peers a rump of 92 Hereditary Peers until the second phase of reform was complete. These 92 were elected from within those who had had a right to be members of the House of Lords as a result of their hereditary status. This arrangement was intended to be purely temporary until the second stage of reform was completed. This led to some claims (perhaps not all serious) that the elected Hereditary Lords were the only democratic members of the House.

Don't get me wrong here, I have no interest in supporting a bunch of silver spooners who's titles may have be earned by heroic deads of their forefathers (or not), but that are rarely are deserved by those who follow. One only has to look at how many country estates have disappeared to see how incompetent many of these peers are, I mean how difficult can it be to earn a substantial legitimate living having 'Lord' before your name? In my opinion you would have to be pretty dim to fall on hard times...

The thing that I do not like is the fact that Labour came to power on the basis of 'no sleaze'. Er... I don't mean to be funny but how many sleazefests have we had from Labour now?

There is a great article here from Iain Dale, who keeps a blog post up to date on Labour sleaze. (We are up to 70.. he says)

We then see some of this Labour government's appointed peers accussed of improprietary in the Lords. Hypocracy? You may say that... I couldn't possibly comment.

The thing we all know is that most politicians are in it for their own ends. Don't give me all that c**p about altruistic efforts to do their part, it is total and utter rubbish. If it was for social means you wouldn't need to be paid huge sums of cash; £63k Salary, £100,000 staffing allowance, £22,000 in 'incidental expenses',£3,000 London supplement, £24,000 'additional cost allowance', 47.2p per mile 'travel allowance', £10,400 'communication allowance'plus all computer equipment supplied and maintained.

Thats not a bad deal. Approximately £232,000 to run your business and pay yourself. You will also be interested to know that since labour got in the basic pay of an MP has risen by an average of £1666 per year. Nice

I would be very interested to see what percentage of MPs earn more money as an MP than they did in their previous jobs. Of course people will go on about the PM and senior ministers getting nowhere near what they woud have in Civvy Street. Gordon Brown only gets £194,000... boo...hoo. Never mind Gordon, it is estimated that Tony Blair has made £12mn since he got out, so don't fret too much. Having left us all in the worst economic situation we have faced Blair wanders off with his golden winnings. Why is no one complaining about that?

I know I have ranted on in this post and strayed off the point, but it gets right up my nose that Labour came in and messed with a system that has been working for 400 years. I am aware that most should not be there. Most titles in the old days were given out to cronies of the King or Queen, some for heroic deeds, but most for sucking up to whomever was in power at the time. Once enobled you could use your title to enrich yourself in support of the powers that be...

Wait a minute... perhaps things haven't changed all that much after all.