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Mutual Fund Scandal, Fama, Free Trade or Trade Barriers?, and more!
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Jim Mahar
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Nov 20, 2003 01:02 PST
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FinanceProfessor News November 20, 2003
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FinanceProfessor.com
Bringing the Real World to the Classroom and vice versa!
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Top Stories
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1. Mutual Fund Scandal
2. An Interview with Eugene Fama
3. Bank America acquires Fleet
4. NYSE reforms
5. Do Boards matter? A look at recent academic studies on Boards of
Directors
6. High cash firms: Good or bad?
7. US reprimanded for steel tariffs
8. Free trade or not? Political expediency or a thought-out plan?
9. Playing cards with Nick Leeson
10. US economy picks up steam
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Hi everyone!
It seems like forever since the last newsletter. First quite a bit of
travel, then my tenure portfolio had to go in, and then trying to catch
up on about a million fronts. But finally it is ready. I have to say,
it is very good! There are just so many interesting articles to choose
from!
The FMA conference was great and the newsletter profiles some of my
favorite papers. I am always amazed at how many new ideas I get out of
the conference. (You really should try to make next year’s meetings!)
Additionally with all the popular press coverage of Boards of Directors,
I decided to include a focus section on current research into Boards of
Directors.
IndexFunds.com has a very cool interview with Eugene Fama! It is
definitely worth checking out!
One final thing, please be sure to check out
http://www.FinanceProfessor.com. I am making an effort to keep it more
up-to date with news items appearing there prior to the newsletter. No
guarantees on frequency of updates, but day, but generally something is
added every day or so. There are even some pictures (kitties, race
pictures, and biking pictures, so enjoy).
jim
JimM-@FinanceProfessor.com
and now the news:
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Top Story
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Mutual funds sure made a mess. By allowing wealthy investors (in some
instances fund insiders) to trade shares with stale prices (and in some
cases trade stocks prior to the fund purchases), the mutual fund
industry has destroyed years of good will with investors.
The best descriptions of what happened may be from John Shinal of the
San Francisco Chronicle: “most of the abuses center on one of two
practices: late trading or market timing. Late-trading abuses occurred
when certain investors were allowed to buy or sell funds after U.S.
markets closed at 4 p.m. Eastern time. Any investor buying after that
time was supposed to pay the next day's price. But Putnam and others are
charged with giving preferred investors same- day pricing….The SEC
revealed that about 10 percent of the approximately 90 funds it is
investigating have so far been found to have allowed some late trading.
In addition, about half of those funds had at least one market-timing
arrangement with preferred customers. Market timing involves frequent
buying and selling of a fund's shares.”
While the severity of the problem is yet unknown, some belief it is very
severe. For instance, former SEC chairman Arthur Levitt called this
“the worst scandal we've seen in 50 years.” Of course like any scandal
politicians are now rushing to show they care in the form of new
regulations.
http://news.bbc.co.uk/1/hi/business/3283127.stm
http://www.washingtonpost.com/wp-dyn/articles/A63561-2003Nov19.html
Strong Capital is the near the epicenter of the mutual funds story. The
reason for Strong’s central position is that Strong’s founder and former
chairman (he stepped down on November 2) Richard Strong is accused of
not only condoning the late trading, but profiting from it as well. He
may face criminal charges. A second fund company at the heart of the
battle is Putnam. They too have been accused of wrong doings and have
replaced several top executives.
http://www.forbes.com/home_europe/newswire/2003/11/19/rtr1154085.html
How did this happen? Many are blaming the SEC for not being more
stringent in their regulation. Even former SEC Chairman Arthur Levitt
admitted as much when he said that his time was largely spent elsewhere
and that he “never saw this coming.”. So now, after the horse has left
the barn, the SEC is being forced to play catch-up. To regain investor
confidence most experts are looking for the SEC to come down hard on the
guilty parties and to step up regulation of the fund industry. (BTW If
the SEC does not do so rather quickly, do not be surprised if NY State
Attorney General Elliott Spitzer does. Be it for political gain or not,
Spitzer is making quite a reputation for himself in prosecuting these
funds. And of course Congress will be involved in passing new laws to
satisfy voters.
http://www.chron.com/cs/CDA/ssistory.mpl/business/2225870
http://www.chron.com/cs/CDA/ssistory.mpl/business/2233299
To prevent harsher penalties in the future, some firms are coming
forward and making deals with regulators. For instance, Morgan Stanley
agreed to pay $50 million without admitting wrongdoings. Other firms
have stated that they will take measures to prevent any such behavior in
the future.
http://news.bbc.co.uk/1/hi/business/3278345.stm
http://money.cnn.com/2003/11/19/funds/fundsfire_merrill.reut/
http://www.forbes.com/home_europe/newswire/2003/11/17/rtr1150474.html
Why is so much being made of this? Approximately $7 trillion is
invested in mutual funds. If investors lose faith in mutual funds, they
may pull their money out, which could lead to a sell-off in the stock
market. While there does not yet appear to any massive exodus from
funds, investors have reportedly pulled $21B out of Putnam mutual funds
(most funds have not yet reported their cash flows). Part of this $21
billion was from CALPERS which decided to seer all ties with the fund.
http://www.foxnews.com/story/0,2933,103301,00.html
http://cbs.marketwatch.com/news/story.asp?guid=%7B4CFEEC53-9EFB-4BDC-9753-76528B0D682D%7D
http://money.cnn.com/2003/11/17/funds/fundsfire_calpers.reut/
Slate reports while some will take their money out of mutual funds, many
more will not. This is in part because the money is often invested
through retirement accounts. Additionally, for those invested in
non-retirement accounts, selling would likely result in a capital gains
tax. (FWIW: the article also has some interesting numbers such as the
number of people owning stocks and how this declined since the market
peak.)
http://slate.msn.com/id/2090714/
One consequence of the investigations is that conflicts of interest are
being made known. For instance, directed brokerage is the practice
rewarding brokers with trades in return for the broker pushing the funds
shares. Upon even casual observation this appears to be a conflict
whereby the broker might recommend a fund that offered a high commission
even if the fund were not really what the customer needs. As a result,
MFS Investment Management (Did you know they are the oldest mutual fund
family?), has decided to end this practice. Good move!
http://www.nytimes.com/2003/11/18/business/18fund.htm
A winner in all of this? Exchange Traded Funds (ETFs) and to a lesser
degree all closed- end funds. Both of these allow trading whenever the
market is open. Additionally, in ETFs the role of mangers is greatly
reduced and subsequently the transactions costs are generally much
smaller.
http://www.washingtonpost.com/wp-dyn/articles/A43837-2003Nov15.html
http://www.pasadenastarnews.com/Stories/0,1413,206~11848~1775747,00.html
Back to basics:
Lost in the above discussion? The Detroit Free Press gives a brief
overview of what a mutual fund is.
http://www.freep.com/money/business/funds13_20031113.htm
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Interview with Eugene Fama!!!
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As Paul Harvey would say, after that, let’s wash our minds out with
something upbeat. How about an interview with the world renowned (and
my odds on favorite to win a Nobel Prize within the next 5 years) Eugene
Fama! Ok, so you may have known his major was in Romantic Languages
(studied French in College, now writes with Ken French,
coincidence?!?!), but did you know his first experience with the stock
market when he was, and sit down for this!, a technical analyst! Great
stuff. You’ll want to read this one!
http://www.indexfunds.com/articles/eugenefama_20031015_interview_with_eugene_fama.htm
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Focus Corporate Boards of Directors
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The board of directors is the group of people who are elected by
shareholders to look out for shareholders’ interests. How well they do
that is always a matter of debate, but at no time more so than now
coming after the corporate governance crisis where shareholder’s
interests were seemingly forgotten at many firms.
How closely do the boards actually monitor management? This has been a
difficult question to answer. Some authors have found there to be
little relation between firm performance and CEO turnover. However,
Goldman, Hazarika, and Shivdasani now give us an explanation to this
troubling finding: the sensitivity is not the same at all times. In
particular the relationship is significantly stronger in years the stock
is down. Thus, even when the firm lags its peers, if the stock price is
up, there is less risk of a manager being forced out. Why? One reason
that the authors suggest is that a stock price decline triggers further
investigation of performance, whereas if the stock price is up, the
board feels things are OK. The importance? In the words of the
authors, the results suggest that “even though the overall sensitivity
of turnover to performance may be low in a broad sample of firms, this
sensitivity can be high for firms that don’t meet a performance
threshold. In this regard, the prospect of CEO turnover can be a
powerful incentive device for certain firms.”
http://207.36.165.114/Denver/Papers/CEOturnover.pdf
In an interesting paper that may surprise some who have grown accustomed
to hearing that Boards of Directors fail to look out for shareholders,
Scholten finds that boards of directors are the main party that forces
out CEOs following a poor acquisition. More importantly, Scholten
reports that Boards do this regardless of whether there is an active
takeover market or not. (This is important because earlier papers, for
example Mikkelson and Partch (1997) and Hadlock and Lumer (1997), had
found that Boards need to be pressured into action by an active takeover
market).
http://207.36.165.114/Denver/Papers/InvestmentDecisionsandManagerialTurnover.pdf
In a forthcoming Journal of Finance article, Yermack investigates how
board members are compensated for their actions. Specifically he asks
how sensitive their wealth is to changes in firm value (much like the
famous Jensen and Murphy 1990 paper that looked at CEO pay). He finds
that for a change of $1000 in firm value, there is a corresponding
change of 11 cents to board members. Thus, for a one standard deviation
change in firm value, the average board member would see his/her wealth
increase by $285,000. This is from not only options and stock
ownership, but also a greater likelihood of being selected to serve on
other boards.
http://www.afajof.org/Pdf/forthcoming/JF%202343%20Final%20Revision.pdf
Any bankers on Board? Xie finds that if you have a banker on your board
of directors, CEO pay sensitivity is likely to be lower. This makes
sense if you consider bankers (who may be looking out for their bank and
not just shareholders of the firm) tend to be more risk averse then
diversified shareholders. Additionally, and not surprisingly, the
banker has a greater impact on smaller boards.
http://207.36.165.114/Denver/Papers/Banker%20Director%20and%20CEO%20Compensation.pdf
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Corporate Finance
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Yet another paper that finds strong corporate governance is good for
shareholder returns! Cremers and Nair report that there is synergy
between internal and external control mechanisms. When both forms of
monitoring are present, returns are even higher.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=412140
Motorola has decided to spin-off its semiconductor business. A spin-off
is when shares in a subsidiary are given to existing shareholders. As
is typical the firm may first sell up to 20% of the shares in the
subsidiary in a public offering. So long as less than 20% of the firm
is thus carved out, the remaining spin-off is considered tax-free.
http://www.miami.com/mld/miamiherald/business/6945178.htm
In a similar move, GE is planning to spin-off some of its financial
divisions.
http://www.nytimes.com/2003/11/19/business/19electric.html
Stand and Poors was the only one of the large bond rating agencies to
downgrade Ford’s debt to only one level above junk status.
http://www.thecarconnection.com/index.asp?n=156,175&sid=175&article=6610
http://moneycentral.msn.com/inc/news/breakingredir.asp?feed=OBR&Date=20031112&ID=3077259
Biased forecasting? Coming after the California Energy Crisis, many
utilities decided to build on. The result? Since 1999 overall US
capacity is up 24%. This increased supply coupled with lower than
expected demand and high fixed costs have led to difficulties making
loan payments.
http://www.quicken.com/investments/news_center/story/?story=NewsStory/dowJones/20031110/ON200311102350001639.var&column=P0DFP
After quite a break following the gigantic internet crescendo, venture
capitalists are again increasing their investments. However, they all
stress that they are being more careful this time around.
http://www.bayarea.com/mld/mercurynews/business/7276039.htm
http://www.bayarea.com/mld/mercurynews/business/7276040.htm
Not surprisingly the IPO market is also slowly coming back to life. One
deal that many have their eyes on is Google. It has been rumored to be
going public but also that Microsoft may acquire it. Stay tuned.
http://www.redherring.com/article.aspx?f=Articles/2003%2F11%2F981d5576-8582-40d2-81d3-ff75d285198d%2F981d5576-8582-40d2-81d3-ff75d285198d.xml&hed=IPO%20market%20creeps%20back
http://www.forbes.com/business/newswire/2003/10/26/rtr1123131.html
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Mini-lesson: A look at High cash firms.
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Is cash good, bad, or both? The basic problem with firms with too much
cash is that they may waste it (Jensen’s Free Cash Flow Problem) and the
firm does not expose itself to the discipline of the capital markets.
On the other hand, in a world with transaction costs and other market
frictions, it may behoove firms to hold cash (for either a rainy day or
for investment opportunities.) The next two articles on High Cash firms
are fascinating!
In a very cool article, Almeida, Campello, and Weisbach develop and test
a model of cash sensitivity to cash flow. That is they test whether
firms that are subject to financial constraints hold more cash when they
have positive cash flows than do firms that apparently have lower
constraints on raising new cash. The results support the theory that
market frictions induce firms to hold more cash.
http://www.afajof.org/Pdf/forthcoming/campello.pdf
For numerous reasons managers have an incentive to hold more cash than
is optimal from a shareholder perspective. These agency costs problems
may be exasperated because cash can provide management with more
flexibility in fighting hostile takeovers (example Harford 1999 and
Pinkowitz 2002). However, as Faleye points out in an upcoming JF
article, takeovers are only one means of disciplining management and
proxy contests rise with cash balances. Equally important, following
the proxy contest cash balances fall regardless of outcome of proxy
battle.
http://www.afajof.org/Pdf/forthcoming/Faleye.pdf
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Investments
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How long to keep IPO shares? A paper presented in Denver by Dssold says
your optimal holding period for shares in an IPO is very different for
up markets and for down markets. If the overall market is dropping,
then the optimal holding period is very short, but when the overall
market is up, it pays to hold until prior to the expiration of the
lock-up periods.
http://207.36.165.114/Denver/Papers/Optimal%20IPO%20Holding%20Periods.pdf
One of my favorite parts of most investment classes is talking about
CAPM. Why? It is such an important and elegant model, but of course
most research ver the last decade suggests it does not work very well
(example Fama And French!). Now why it does not work is the real fun.
Is it the model? The market? The researcher? Or some combination of
the above? Research from Ang and Chen finds that the time period
studied matters as well. For instance, from 1963 on there appears to be
a Value anomaly. However, this disappears when the 1926-2001 period is
examined and “the market factor alone is able to explain the spread of
average returns of these portfolios.” [note the portfolios were created
based on book to market values.] Further they find evidence of a
time-varying beta relationship where value stocks (i.e. high book to
market or equivalently and more commonly in the popular press low market
to book ratios) “were risky in the early part of sample, but not in the
latter part. This could be really big. (If you are going to the AFA
meetings in early January, look for this to be presented there!)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=346600
A good example of insider trading: bond trader knew the Treasury was
about to end the issuance of 30 year bonds. So what did he do? He
placed a large order just before the news announcement. UH, bad move.
http://www.iht.com/articles/117504.html
Is your mutual fund experiencing significant volatility in its cash
flows? If so, your future returns may suffer. That is the conclusion
of Rakowski’s new paper (also presented at the FMA meetings).
http://207.36.165.114/Denver/Papers/Fund%20Flow%20Volatility%20and%20Performance.pdf
Concerned about inflation? Apparently some are as gold is coming back
into fashion. Why? In part because of a falling dollar, and an
improving economy. However, an expansionist monetary policy have some
fearing inflation may be on the horizon. (I am not one of them!).
Additionally gold is really back in fashion. Really. Demand for gold
jewelry is picking up sharply.
http://www.bayarea.com/mld/mercurynews/business/7281989.htm
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Financial Institutions and Markets
(also Money and Banking)
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NYSE announced its new governance plan. Chief among the changes is a
smaller and independent board. While many were originally satisfied
with the changes, CALPERS encouraged the SEC to block the plan on
grounds it does not go far enough. For instance, the dual role of
market and regulator will likely continue.
http://www.washingtonpost.com/wp-dyn/articles/A28428-2003Nov11.html
http://www.nytimes.com/2003/11/18/business/18nyse.htm
http://www.washingtonpost.com/wp-dyn/articles/A59334-2003Nov18.html
A GREAT look at a specialist. Of course a specialist is a person who for
instance on the floor of the NYSE is responsible for the orderly flow of
trading. This story is awesome! Gives you a look at how the specialist
performs his/her duties.
http://seattletimes.nwsource.com/html/businesstechnology/2001792251_dunphy16.html
The CME (Chicago Mercantile Exchange) has opted to lower its fees for
European traders. This price cut is in response to Eurex’s entrance in
to America. Let the competition begin!
http://biz.yahoo.com/rf/031110/financial_cme_europe_4.html
While an older story, the big news in the banking world is still the
BankAmerica acquisition of Fleet. The move is designed to make
BankAmerica a truly national bank thereby increasing their market power
and allowing for better utilization of economies of scale. At least one
person knew about this prior to the announcement. And like above (see
investments), he decided to trade on the information. So he proceeded
to buy options. Well the problem was he bought nearly half of the daily
volume (from various brokers). This triggered an SEC investigation and
well, let’s just say I bet he wishes he had not done it. He was
arrested and charged with insider trading.
http://www.boston.com/business/globe/articles/2003/10/29/insider_trading_by_ex_fleet_official_alleged/
Do you still need more proof that banks are important for a nation’s
economy? And Japan is not enough? German banks are now showing a
reluctance to lend to smaller firms. Result? A slower economy.
http://news.bbc.co.uk/1/hi/business/3262831.stm
Euro forgeries increase.
http://news.bbc.co.uk/1/hi/business/3258035.stm
Are pensions in trouble or not? The recent stock market upswing has
improved their economic position, but are they out of the woods? Most
probably are, but there are some who are still underfunded.
http://news.bbc.co.uk/1/hi/business/3276567.stm
http://news.bbc.co.uk/1/hi/business/3133992.stm
A pension story with a happy ending
http://news.bbc.co.uk/1/hi/business/3258521.stm
Across the board insurance costs are rising. Not only medical, but
property as well. The reasons are varied: more expensive medical
treatments, terrorism, law suits and major claims etc, but one thing is
certain, many firms are balking at offering the same insurance contracts
as they have in the past.
http://money.cnn.com/2002/11/01/pf/insurance/q_insurecost/
Need more fraud and corruption? It seems like many forex brokers were
not so concerned about their customers either. In fact some were
trading fictitious securities. The result? The FBI arrested over 45
people.
http://www.washingtonpost.com/wp-dyn/articles/A63588-2003Nov19.html
http://www.nytimes.com/reuters/business/business-financial-forex-arrests.html
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International Finance
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The World Trade Organization (WTO) correctly ruled against the US for
their ill-conceived steel tariffs. The ruling now allows the EU to
place punitive tariffs on US products if they so desire. And of course,
as we saw in the last newsletter, the tariffs probably ended up costing
the US jobs anyways. Lesson: Tariffs are a bad idea!
http://news.bbc.co.uk/1/hi/business/3256197.stm
http://www.bayarea.com/mld/mercurynews/business/7233734.htm
But lest you think we learned from out mistake, the US is now imposing
quotas (limits) on the amount of textiles allowed in from China.
Consequentially, China has broken off trade talks to increase imports of
US agricultural goods. Stupid, Stupid, Stupid. (go ahead, ask me what
I really think ;) )
http://money.cnn.com/2003/11/19/news/international/trade_china.reut/
http://www.washingtonpost.com/wp-dyn/articles/A63611-2003Nov19.html
In part as a result of a fear that the quotas and tariffs may cut
international trade and in part due to a seeming policy of desiring a
weaker dollar to help exporters, the US dollar fell to a record low
against the Euro.
http://www.washingtonpost.com/wp-dyn/articles/A64062-2003Nov20.html
Oh and if that is not enough, we are still publicly pushing for free
trade throughout the Western Hemisphere. This week in Miami the debate
as to whether there will be a free trade zone for the entire western
hemisphere continues. While officially the US is for it, many,
especially in agriculture, are not. For example, beef and citrus
producers are afraid that if the trade zone is created, they will be
unable to compete against Brazilian farmers with out the tariffs and
bans on fresh beef imports that currently exist. The result? Too soon
to tell but both sides seem unwilling to budge on all things, so likely
they will end up moving towards free trade, but not the entire way.
http://www.chron.com/cs/CDA/ssistory.mpl/business/2223401
http://www.palmbeachpost.com/business/content/auto/epaper/editions/tuesday/business_f39b6afe66ee12c5006f.html
http://news.bbc.co.uk/1/hi/business/3279079.stm
Contradicting most earlier studies, a new study by the a study from the
Carnegie Endowment for International Peace concludes that the benefits
of NAFTA have been overstated. MMM, interesting. I am not sure whether
I believe it, but definitely interesting.
http://www.nytimes.com/2003/11/19/international/americas/19NAFT.html
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Economics
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WOW! That is all I can say. GDP Growth, Productivity, and job growth
all came in much better than expected. In fact the GDP growth in
particular was so high that some are even questioning the measurement of
the statistics. While it may not last at such lofty heights, it was nice
to see the economy rebound. Not surprisingly Bush and others from the
administration are taking some credit for the numbers.
http://www.voanews.com/article.cfm?objectID=5FF501B5-DE5D-4924-B48A14DD1371E4F8
With much disagreement over the validity of certain economic numbers,
Slate suggests a new measure: the number of new businesses incorporated
in Delaware. Interesting article!
http://slate.msn.com/id/2090984/
The Japanese economy continues to show at least slight improvement,
although the recent slide in stock market has some worried again. One
reason for the slow progress is that when governments spend money to
spur the economy, the spending is often for wasteful (negative NPV)
projects.
http://biz.yahoo.com/ap/031118/as_fin_eco_japan_economy_2.html
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Personal Finance
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While credit cards are great, you do have to be aware of credit card
fraud. The BBC gives some pointers.
http://news.bbc.co.uk/1/hi/business/3256031.stm
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Energy Markets
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From Oil to energy? A look into the future maybe? Aberdeen is already
preparing i itself for life after oil.
http://news.bbc.co.uk/1/hi/business/3236703.stm
Oil and petroleum prices have returned to near their year high. This is
in part due to the falling dollar, but also in part due to continued set
backs in Iraqi oil production.
http://www.msnbc.com/news/995275.asp
The Middle East Times (Egypt) provides an interesting look at the
economy of the region and the status of oil from Iraq.
http://www.metimes.com/2K3/issue2003-46/methaus.htm
Saudi Arabia announced further plans to expand its natural gas
production. Moreover the article comments on the impact that continued
terror attacks have had on the Iraqi oil production. In fact, Iraq
remains a net importer of oil.
http://www.metimes.com/2K3/issue2003-46/methaus.htm
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Money and Politics
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The Wall Street Journal (Nov. 5) reported that The White House is
planning on reintroducing the tax-exempt “lifetime savings accounts”
idea. As described, the new accounts, which maybe not coincidentally
will be an election year proposal, will allow up to $7500 to be invested
and money can accumulate without taxes. The investor would be able to
withdraw the money for anything they desire and at any time.
A second planned White House proposal would be aimed at retirement
accounts. The new plan, would raise the yearly contribution limit to
$7,500. As part of the longer term plans, the current IRA and ROTH IRA
would likely be ended for their higher limited off-spring.
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Financial Service Industry
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The IPO and merger markets appear to be coming back. If this pattern
continues, and there is some disagreement as to whether it will, it is
great news for investment bankers and investment banker wannabees.
http://slate.msn.com/id/2090588/
An improving market for IPOs and more mergers have investment bankers
hoping that the worst is behind them. Even better news? With business
improving, the WSJ reported that the financial job market is showing
signs of life and that year-end bonuses may be up 10 to 20%.
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Real Estate
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At long last Real Estate prices in the UK may be slowing their ascent
but this has some worried that the long run up may be a “bubble” and if
it breaks, many homeowners may end up with negative equity in their
properties (that is they owe more than they are worth).
http://news.bbc.co.uk/1/hi/business/3250991.stm
http://news.bbc.co.uk/1/hi/business/3263877.stm
Housing starts in the US hit a 17 year high.
http://www.washingtonpost.com/wp-dyn/articles/A63559-2003Nov19.html
An article in Washington Post by Michelle Singletary claims that home
ownership is the key to reducing wealth inequalities. Which is a reason
for many of the home-ownership plans.
http://www.washingtonpost.com/wp-dyn/articles/A34288-2003Nov12.html
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Entrepreneurial finance
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If marketing can have 4 Ps, we can have 5Cs! The Houston Chronicle has
an interesting look at the what banks look at when making loans to small
businesses. The 5-Cs? Character, Cash Flow, Collateral,
Capitalization, and Conditions.
http://www.chron.com/cs/CDA/ssistory.mpl/business/2224748
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Financial Engineering and Risk Management
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Financial Engineering News does it again. Another simply great article.
This is an interview with Aaron Brown. It touches on too many topics
to review, but I strongly urge you to read it, it will be time very well
spent!
http://www.fenews.com/fen35/one_on_one_interview/one_on_one_brown.html
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Accounting News
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Stick to your guns! Pressure (Ok Lobbying) seems to be lessening the
resolve of the FASB and others to require the expensing of stock
options.
http://www.washingtonpost.com/wp-dyn/articles/A33690-2003Nov12.html
KPMG has been accused of marketing tax saving plan. Why is this wrong?
The law says that if a plan is sold solely to avoid taxes, then the plan
is in violation of the law.
http://www.forbes.com/markets/newswire/2003/11/18/rtr1152572.html
The investigation of the accounting practices at Freddy Mac continues
and now threatens to draw investment bankers into the fray.
http://biz.yahoo.com/rb/031118/financial_freddie_2.html
Houston Texans kicker Chris Brown is about to become a CPA. (Not sure
what “about to” means, but that is how Steve Tasker reported it during
the Bills-Texan game.
More next time on accounting--- this was pretty skimpy this time.
Sorry. If you need more accounting news let me recommend Bob Jensen’s
newsletter and web site.
http://www.trinity.edu/rjensen/
http://www.trinity.edu/rjensen/bookurl.htm
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FinanceProfessor.com Lesson of the week
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With several stories in recent weeks on Islamic Banking and Finance, I
thought it might be a good time to remind people of the differences
between typical Western Finance and Islamic Finance. Basic
differences? Islamic finance does not allow for interest and all money
must be invested in a socially responsible manner in accordance with the
teachings of the Quaran. THANKS LUMA!
http://www.financeprofessor.com/islamicfinance/islamic%20finance.htm
Citigroup announces plans to expand it Islamic Financing operations in
Malaysia.
http://biz.thestar.com.my/news/story.asp?file=/2003/11/17/business/6706148&sec=business
In a related topic, a study of Islamic banks in Malaysia finds that a
majority of the banks customers are not Muslims.
http://www.dailyexpress.com.my/news.cfm?NewsID=22998
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FinanceProfessor.com Site of the Week
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MBA Depot. It is spectacular if you are getting an MBA or considering,
merely great if not. Has links to many very cool articles from all areas
of business. Well done!
http://www.MBAdepot.com
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Financial Trivia/History/Humor
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Nick Leeson is back. Well sort of. Celebpoker.com hired him as a front
man. Of course Leeson is most known for some big bets that went bad and
but Barings bank out of business. However, it should be noted that his
new employer has learned from the Barings debacle: Leeson has a $500
maximum position limit.
http://news.bbc.co.uk/1/hi/business/3277591.stm
I am sure you have all gotten the messages from some third world country
where the author of the email wants you to give him/her your bank
account number. Typically they need somewhere to put a giant stash of
money. Well someone took them up on the offer--sort of. Warning it is
long, but hilarious! Read in order for most effect.
http://www.banterist.com/archivefiles/000024.html
http://www.banterist.com/archivefiles/000028.html
http://www.banterist.com/archivefiles/000037.html
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Of interest to teachers
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Great opportunity to get free working papers: sign up for AFA’s free
journal from SSRN. All papers will be presented at the AFA (American
Finance Association)’s annual meeting in San Diego.
http://umgt.ssrn.com/subscribe/afa-2004-san-diego.html
Presentations from this summer’s European FMA meetings are now online as
is much more. Check out the New FMA online journal.
http://www.fma.org/
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What I am reading
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ok, I left this section out last time and never heard the end of it, so.
This is a bit long, but I have been reading (or ristening) quite a bit
lately, so here goes.. (note to new readers: Risten is my word for
listening and read---as in I risten to Books on Tape.
I absolutely love My Losing Season by Pat Conroy. Great
autobiographical account of novelist Pat Conroy’s 1966-1967 Basketball
season as point guard for the Citadel. One of the best book I have read
this year! It boggles my mind that people (in this case his dad and to
lesser degree the coach) can be such idiots.!
http://www.amazon.com/exec/obidos/ASIN/0684863650/finpapers/104-9378365-5272442
Sea Biscuit. GREAT. As with My Losing Season, one of top three books I
have read this year. (along with April 1865). While I am not a
horseracing fan, the story is so good and Sea Biscuit comes alive so
much that several times I have found myself wishing I could meet this
long-dead athlete. Need further proof it is a good book? I am
ristening to this and I find myself wanting to stay in the car to hear
it all.
http://www.amazon.com/exec/obidos/ASIN/0373169906/finpapers/002-5690491-9880850
Why We Run by Bernd Heinrich. While not as good as the two above, it
too is very good. An investigation into why we run. It compares humans
to other animals and bugs. While it does not sound very interesting it
is.
http://www.amazon.com/exec/obidos/ASIN/00060958707/finpapers/104-9378365-5272442
The Millionaire NextDoor. Yes it has great advice: most millionaires
get that way by living below their means and saving and investing when
others are spending. Yes, I wholeheartedly agree and it makes great
advice. However, as a book, I found it pretty boring. Mainly common
sense.
http://www.amazon.com/exec/obidos/ASIN/0671026682/finpapers/104-9378365-5272442
The Inefficient Stock Market by Robert Haugen. Very interesting and
thought provoking even if I do not believe all of it.
http://www.amazon.com/exec/obidos/ASIN/0130323667/finpapers/104-9378365-5272442
Selling the Invisible: a field guide to Modern Marketing by Harry
Beckwith. Picked it up at JFK airport. It has turned out to be
surprisingly good. It makes several good points about the education
system. For instance, our examples are too product oriented. While
these examples worked when we were predominantly a manufacturing based
economy that is no longer the case.
http://www.amazon.com/exec/obidos/ASIN/0446520942/finpapers/104-9378365-5272442
Hey Whipple Squeeze This, Luke . Yep another marketing book. No I am
not making a career change, but when I told a marketing Professor here
that I was reading a marketing book he sid I had to try this one. He
was right, it is very entertaining and I have had to catch myself a
couple of tiems from learning something.
http://www.amazon.com/exec/obidos/ASIN/0471281395/finpapers/002-5690491-9880850
The Man Who Walked through Time by Colin Fletcher. Makes me want to go
and hike part of the canyon.
http://www.amazon.com/exec/obidos/ASIN/0679723064/finpapers/104-9378365-5272442
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Quotes of the week:
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If a man is poor and not a bad fellow, he’s considered worthless; if he
is rich and a very bad fellow, he’s considered a good client---Plautus
in the year 578.
Whether you think you can do a thing or think you can't do a thing, you
are right---Henry Ford
Never apologize for showing feeling. When you do so, you apologize for
truth--- Benjamin Disaeli
Happiness is a state of activity---Aristotle
Empty pockets never held anyone back. Only empty heads and empty hearts
can do that---Norman Vincent Peale
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St Bonaventure in the news.
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Well we were in the NY Times and USA Today for recovering from the
basketball problems of last year
http://www.usatoday.com/sports/college/mensbasketball/atlantic10/2003-11-17-st-bonaventure-swan_x.htm
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Thanks for reading! I hope you liked it and learned something (or even
many things) from it!
Also thank you to all of you who wrote in support of my tenure. I am
not sure when I will hear (before March), but will be sure to let you
know!
BTW today (November is the great America SmokeOut in the US. I would
encourage all of you to give it a try! If for no other reason I want
you around to read my newsletter :)
http://health.yahoo.com/health/centers/smoke_free/2003.html
If you have any ideas for the site or the newsletter please let me know.
Jim
JimM-@FinanceProfessor.com
Who is ready to coach the Bills.
Where the basketball season begins on Friday.
Where it snowed earlier in the week but has since warmed up and rained.
Who hopes Joe Paterno gets the team turned around before he leaves. It
would be a shame for him to have to think about a bad year for the rest
of his life.
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Oh and a final favor…pass this on to someone you think would like it….a
fellow student, a past teacher, your current teacher, your parents,
anyone who it might help. Thanks!
Thanks for forwarding this so much. That is the only way I know this
newsletter is growing so fast. :-)
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copyright 2003 FinanceProfessor.com
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