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Adrian Scott

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Post New Message 1 - 20 of 289  | Previous  Next  [ First | Last ] 04/11/08 Latest from George Soros # Adrian Scott A conf call with him: http://www.georgesoros.com/call040408 -- with a few interesting comments re credit default swaps, amongst others A recent article: The worst market crisis in 60 years http://www.georgesoros.com/?q=worst_in_60years His new book: The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means http://www.ryze.com/books.php?isbn=1586486837 Enjoy!! -Adrian Post Reply     Reply by Private Message (new win) 12/09/07 A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation # Adrian Scott Highly worth reading: A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation http://www.ryze.com/books.php?isbn=0471227277 A few good things: - some great historical perspective on financial market developments, with first-hand experiences recounted - if you read between the lines, you can extract from this book a system for making nice profits off of the trading units of publicly-traded companies because of the overall management structure (you can see this in action in the current mortgage market situation). Something to filter out: - the author can't shake his EMT -- efficient market theory -- bias. This always cracks me up, I'm sorry... Anyhow, a must read for serious students of the markets and the world. Enjoy! Adrian --- PS What I alluded to in the last book review is the role of technology in markets... Read the Origin of Wealth, especially if you've let EMT-oriented professors cloud your mind in the past :). Post Reply     Reply by Private Message (new win) 07/23/07 Book recommendation: The Origin of Wealth; Web of Finance reloaded... # Adrian Scott Hi, I'm rebooting the Web of Finance. I will mainly be posting recommendations of readings, tools and such, along with occasional commentary. I have created a companion Network for discussion, available at http://financeconv-network.ryze.com/ I will post these posts there, where they can be replied to and discussed. This post is regarding the book: The Origin of Wealth. It is quite a read and well worth the price of admission. The great thing is that it discusses the flaws in traditional academic theory and how academic finance and economics took a detour into fantasyland for many years, and discusses how behavioral finance and complexity show how, um, irrational the previous theories were in their assumptions. But even better than that is how the author combines it all to point out the very good companion to the inefficiency of free markets, which I will disclose in a later post. I haven't seen anyone bring it all together in quite this way. It should be an eye-opener for those who are not sold on free markets. More details at: http://www.ryze.com/book.php?isbn=157851777X Enjoy! coming soon... Web of Finance Network, the rebirth... http://weboffinance-network.ryze.com/ Post Reply     Reply by Private Message (new win) 10/17/04 Oracle 4 PeopleSoft # Melanie Hollands Now that Craig Conway's been fired from PeopleSoft, it isn't the shareholders that count now - it's THE shareholder: Dave Duffield. I don't know what Dave (the founder of PeopleSoft) wants with regard to the Oracle bid - he might want the deal to go through but I sort of doubt it (it probably would already have happened if he did). All the folks that I pinged to see what they knew did not answer back. My guess is they don't know either. Dave, despite his calculated nice guy exterior (his email address, harkening back to when PeopleSoft was small enough that everyone used their initials, is dad@peoplesoft.com) is a hard hitter. It's more likely he grew tired of Craig's style after three years as CEO and wanted someone else to run his company - someone like, uh, him. Craig is walking out with about $100 million in stock (not sure what his cost basis is) and options worth a pile too. He might not be able to afford the G-V (mogul lingo for Gulfstream Five) time-share, but something a little smaller is certainly affordable. Who knows - maybe Larry Ellison would hire him. PeopleSoft went through a wrenching moment in 1998 as it started into the post Y2K abyss. There was a huge battle over whether it should continue spending money on R&D and let the earnings go to hell or not. The company compromised and created "Momentum Business Applications", the clever off-income-statement device that would never be allowed today. I never did find out where Dave stood on that issue – but it would be a good clue as to what he wants to do now. It’s interesting as the company also indicated what the revenues would be – it had to because otherwise everyone would have assumed Craig was getting the axe because of a revenue shortfall. I was using $160 million for the current quarter's license revenues - $20 million higher than the highest analyst number on the Street, and closer than anyone to the actual number. If I were to grow horns and be a sell side analyst once again I never would have used that number because there was nothing in it for me especially if I was neutral on the stock. (Neutral and a way high number would ensure that Cap Research would not have given me a vote for another five years.) I probably would have been at $140 million, though. Not sure what's going on at FILE. Couple of analysts dropped their rating going into the last day of the quarter. Interesting to see if they pre announce. If they don't then my guess those guys are wrong and they come in at or above the license revenue median. The likelihood of Oracle’s hostile bid for PeopleSoft being successful is higher now; all the more so since Oracle plans to ask the chancery court in Delaware to remove two “poison pills” in PeopleSoft’s capital structure. Oracle claims these poison pills have been used by PeopleSoft to block its $7.7 billion bid at the expense of PeopleSoft’s shareholders. A poison pill (also called a poison pill defense) is a slang term for a finance tactic a company can use to defend itself against a hostile takeover. Usually, the poison pill takes the form of an issue of convertible preferred stock issued as a stock dividend to shareholders. This preferred stock is convertible into a number of common shares, but due to the dividend adjustments shareholders don’t have incentive to convert the preferred stock unless there is a hostile takeover. Consequently, the hostile bid (such as Oracle’s) becomes its own poison pill since it significantly increases the price that would need to be paid for the target company (PeopleSoft). Former PeopleSoft CEO, Craig Conway's vehement opposition to Oracle’s tender offer has brought criticism from Oracle, as well as some quarters of the investment community. Some believe Conway should not have rejected the offer on the day it was launched and before the PeopleSoft board of directors had had time to consider it. I have argued in this column that I think the merger is bad for the ERP business, and that it’s unlikely to go through (although it looks more likely now); but I have also argued that from a purely financial perspective Oracle’s offer makes sense for PSFT shareholders - $21 per share is considerably more than the company is worth (around $16 per share, tops in my opinion). Speculation has been rife that Conway was fired due to his opposition to the bid. However, when he was fired PeopleSoft said that it had lost confidence in him as CEO, despite the fact that management also disclosed that sales of PeopleSoft’s new software licenses for the current quarter were (so far) higher than expected. The market reacted favorably to news of Conway’s firing and PSFT shares jumped nearly 15% on Friday, October 1. In addition, news that the Department of Justice would not appeal against the August court ruling that overturned efforts to block a takeover on antitrust grounds contributed to the rally in PSFT. The European Union is also expected to drop its opposition to Oracle’s bid. PeopleSoft's poison pill was one of the company’s last defenses against Oracle’s tender offer. But Oracle has asked the chancery court of Delaware (where many US companies are registered) to overturn two of PeopleSoft's defenses. One is the poison pill, which is essentially a shareholder rights plan put in place as a defense against unwanted takeover attempts. The second is a provision PeopleSoft has been including in its new software sales contracts since 2003 (after Oracle’s bid was announced) that could provide guaranteed compensation to PeopleSoft customers in the event the company is taken over. Aggregate payments to PeopleSoft customers under this provision could exceed $2 billion, which makes a takeover by Oracle less attractive. If one (or both) of these two defense tactics is overruled by the court this could remove the last obstacles to a takeover by Oracle. Cheers Melanie Hollands President Koala Capital, LLC Post Reply     Reply by Private Message (new win) 09/09/04 valuation question # Erwin Versleijen Dear fellow Ryzers, Imagine a company that patented a new technology that is a) faster then UMTS, b) more secure then UMTS/wifi etc and c) also cheaper to operate and use. For example, Dutch KPN paid over 2B euro for the UMTS frequency and the infrastructure and it's still not ready. The company I represent can do this in the Netherlands for nearly 300M euro... not to mention the huge potential of this technology in other countries. Reason for asking: we are trying to picture how much an investor should get (capital against shares) and what the value of it all (can be) is. NPV? Please send me a message instead of using the board. I don't read them that often. Best regards, Erwin Versleijen Managing Partner LSC Symbiosis Investors welcome) Post Reply     Reply by Private Message (new win) 09/04/04 re: re: Gold # Robert Davidson Dear Robert, I have tried to reply a couple of times but I think my posts may be being vetoed by the moderator. In short gold is a small market held in place by huge opposing forces of support for the USD and resistance to rising interest rates to meet inflation. If these forces get out of balance then there is the potential for large moves in gold. Generally the movement of the locus of wealth from West to East has been going on for centuaries and will continue but in the medium term (five years) I think we will see a big move as the savers in the East tire of loaning money to the spenders in the west. Kind Regards Robert Post Reply     Reply by Private Message (new win) 09/02/04 re: re: Gold # Robert Davidson Dear Robert From our viewpoint here in New Zealand we see the locus of wealth generally moving from West to East. Conspiracy theories abound with gold but from the point of view of long term investor they are just winding the rubber band tighter for the inevitable correction. Cheers Robert > Robert Blumen wrote: > Hi Robert, > >I am curious, if you woulod like to share wiht the Wof, what is your opinion of the recent Sprott report (www.sprott.com) on the long-term manipulation of the gold price by a coalition of central banks? > >Sprott also has spoken about the long-term movement of the world's gold reserves from West to East, as the Western central bankers sell, the Eastern ones buy. I am curious if you have any insight into this from your location in a "western" nation situated nearer to Asia? > >Robert Blumen > >> Robert Davidson wrote: >> I think gold is in a long term bull market as the reality of the twin deficits in trade and government spending hit home. Long term America and hence the world has a problem. >>Robert Davidson >>Director >>Datmatrix New Zealand ltd Post Reply     Reply by Private Message (new win) 08/31/04 re: Gold # Robert Blumen Hi Robert, I am curious, if you woulod like to share wiht the Wof, what is your opinion of the recent Sprott report (www.sprott.com) on the long-term manipulation of the gold price by a coalition of central banks? Sprott also has spoken about the long-term movement of the world's gold reserves from West to East, as the Western central bankers sell, the Eastern ones buy. I am curious if you have any insight into this from your location in a "western" nation situated nearer to Asia? Robert Blumen > Robert Davidson wrote: > I think gold is in a long term bull market as the reality of the twin deficits in trade and government spending hit home. Long term America and hence the world has a problem. >Robert Davidson >Director >Datmatrix New Zealand ltd Post Reply     Reply by Private Message (new win) 08/31/04 Gold # Robert Davidson I think gold is in a long term bull market as the reality of the twin deficits in trade and government spending hit home. Long term America and hence the world has a problem. Unless some of the hype of the 90's technology boom turns into real productivity gains then the market will have to wait for the next wave of dreams to carry it higher. To be sure some of the technology companies have found a sweet spot and are making real earnings growth but many are just broken dreams waiting for the market to clean them out of its system. In the meantime there will be lots of volitilty which is good for technical traders but for mum and pop investors the outlook in equities is bleak. Kind Regards Robert Davidson Director Datmatrix New Zealand ltd Post Reply     Reply by Private Message (new win) 08/08/04 book review: Bull's Eye Investing by John Mauldin # Robert Blumen Bull's Eye Investing by John Mauldin Review by Robert Blumen I didn't expect to like this book quite as much as I did because from time to time I read Mauldin's weekly column, and his macro views are utterly mainstream and conventional, while I am an adherent of the Austrian School of Economics . From an Austrian perspective, he suffers from the usual fallacies about inflation, deflation, the importance of demand rather than savings in driving production, and others. The book, subtitled Targeting Real Returns in a Smoke and Mirrors Market is a guide to achieving absolute, rather than relative returns in what Mauldin forecasts will be a secular bear market. Relative returns, meaning beating a benchmark such as the S&P 500 Index, are fine for fund managers who manage other peoples' money, but most investors would not be happy with losing ONLY 20% when the benchmark index that their manager uses was down by 25%. Mauldin defines real returns as doing better than you would in cash. Mauldin spends the first third of the book building a case that stocks are still expensive, they cannot remain expensive forever, the standards of what is expensive have not undergone a fundamental change, and therefore the bear market will run until stocks get to be cheap. By historical standards, this would mean the entire market selling for a P/E of less than 10, and maybe less than that. He comes at the problem from several different angles, combining finance theory and financial history. The strength and rigor of his analysis is outstanding. Along the way he takes aim at a number of the bullish arguments that defy history and logic in suggesting that stocks can achieve average, or even above-average returns from this point on out. The strongest part of the book is his ability to take a series of studies that have appeared in academic finance journals and quasi-academic practitioner journals such as the CFA journal and summarize them in clear and simple terms. Here he give the individual investor access to the lastest research about financial markets that would be unavailable to most and difficult to interpret and apply without his thoughtful analysis. Then he reviews some of the other clouds on the horizon: under-funded pension plans, unrealistic expectations about retirement and the over-valued US$. To more pessimistic people like myself, this all leads to the conclusion that we are headed for an utter financial and economic collapse of devastating proportions. But wild optimist that he is, Mauldin believes that we are in the "muddle-through economy", a period much like the 1970s in which things will be bad relative to the glow of the bubble years, but somehow we will all manage to get by. A couple of chapters on behavioral finance summarize the work of Montier in this area. The last third of the book, which I did not read in its entirey, deals with Mauldin's strategies for finding value and safety in today's markets. Post Reply     Reply by Private Message (new win) 05/03/04 Google IPO - Buy it, then Flip it ASAP # Melanie Hollands On the surface, I like the idea of a Dutch Auction (as opposed to a syndicate allocation) for the Google IPO. It seems like the company is doing well, although I'm sure the valuation will be lunacy - but that’s no surprise considering all the hype its gotten. That said, things that don't deserve to go up don't usually stay up over the long-term. But sometimes, the long-term takes a frustratingly long time to play out. I see some short-term euphoria coming... and if the banks generate enough enthusiasm, then I can see the retail crowd running the stock up. That said, I think (I hope) the “mom and pops” of the world will not be as easily duped by Wall Street mania as they were in the late 1990s. Then again, there are still a lot of stupid, gullible, hopeful and greedy investors out there. However on balance, I think the market is way more selective than in 1999, and there is more skepticism these days than there was then. Canada recently had a “mini-Google IPO” up there for a new lower-cost oil sands company, and it was over-subscribed by 5,000 times!! Of course, many of those were phantom orders to get an increased allocation, but the stock is now underwater. I'll also be interested to see how the rest of the Internet names behave after the Google IPO. Will getting this supposedly wonderful market event behind us be the reason to sell them? I’m inclined to think so. Now, Google and the media have been spounting about the more "egaletarian" benefits to investors of conducting its IPO via Dutch auction, compared with the more usual "allocation to the good old boys" syndicate process. At first blush, a Dutch auction should be a better reflection of pricing to market. It has a number of positives to it. It removes the distortions caused by the syndicate allocation process. It reduces power of bankers and big favored mutual fund clients. (Why should a few hedge funds and large institutional accounts get to make money just because they are preferred clients?) But I also think this is a “Be careful what you wish for” situation, as with a Dutch auction there’s some benefit to pricing it cheap and placing with follow on buyers. Personally, I've seen a Dutch auction work both ways. Either the investment banks create a bidding war before the stock starts trading, or the investment banks actually price low and then create the buzz for the offering. It’s difficult because investors (and potential bidders) have to come up with the price for the stocks in advance, essentially. In addition, there’s all sorts of opportunity for collusion in a Dutch auction; it can get real scummy, like closed bids on a house. Think of it this way: everyone wants the item and nobody knows what the other guy is bidding. If I’m bidding, I come up with price on my spreadsheet analysis; a price that, based on the fundamentals and “likely” market reaction, looks “fair” to me. But in the case of Google, we're talking about a stock here, and the truth of the matter is the damn stocks are worth whatever every other bidder in the market is willing to pay. And what I'm willing to pay would be directly impacted by what I think other people who do what i do are willing to pay. So this can create an artificially high bid price – exploiting investors’ greed. In an efficient market, and in a perfect world a Dutch auction is the best way to do an IPO. But we don’t live in a perfect world, and I don’t believe that we have an entirely efficient stock market. We live in a world where Mary Meeker has more money than I do, anyone with a PC and a cable modem can trade stocks, Abbey Joseph Cohen is not starving to death and is still employed, CNBC is considered a "news" station and Maria Bartiromo a "reporter", not the obedient compliant cheerleader that she is. The point here is that it is far from a perfect world or an efficient market and the Dutch auctions are designed to exploit those inefficiencies. So, does Google trade up after the IPO? Sure. Would I buy it in the aftermarket? No. I'd let it settle and then consider adding. I think the stock may pop a bit because of the media buzz. But too much hype in the news is not a good thing. Google's business seems to be sound and I don't doubt that there will be growth there. That said, the valuations being bandied around in the media are staggeringly ludicrous. And the kinds of valuations that are being talked about in the media about cannot be sustained by a rational market. The hype on this stock alone would be enough to keep me away. And the "Internet auction" format (an investment banker's nightmare) means that any first day stock price pop will be dampened. If I was so inclined as a hedge fund manager, I might day trade it but I wouldn't expect any long term value increase. I think it's quite likely that the stock sets its all-time high in the first week after the IPO. So, would I plan to play this one? I’d buy whatever I could get in the IPO or at the opening bell and flip out of it ASAP. But as a long-term hold (long-term meaning in this case anything more than a few days) I wouldn’t touch it. Cheers Melanie Hollands Post Reply     Reply by Private Message (new win) 04/24/04 re: re: VXO and P/C Ratio suggest a rally could be close # # Steven Poser Melanie, I largely agree with you, although I can make an argument for a new high, it is a difficult one. To be honest, we are still in a nine-month long mega range in the bond market and we might be stuck in a 6-month or longer range in stocks as well... > Melanie Hollands wrote: > Steve, > >You totally got the 1126 level right! > >Actually, the numbers are fascinating on this. During the 2000-2002 bear, if you bought the market only when it was 105% of the 50 DMA and sold when it dropped back below, you were in the mkt 256 days and had a positive return >of 6.28%. However, if you waited for 110% of the 50 DMA then you were in for 186 days and made 12.79%. > >From this 1124 level, I think we rally up to around 1140 (maybe 1150) and then it putters out. I doubt that we break 1150. A move above there would break the downtrend line - a very important battle. As for what happens from 1140, it depends how it behaves at that level. I think it bounces off and we sell off again. > >Cheers > >Melanie Post Reply     Reply by Private Message (new win) 04/23/04 Oracle / PeopleSoft # Melanie Hollands Apparently Ellison thinks the Department of Justice ruling was bad law and is hell bent to overturn it because it's bad precedent. As I have previously mentioned, I agree with this point of view (that it's a bad law). But in the particular case of the Oracle / PeopleSoft merger, I still think the DoJ made a good decision - for both companies (only Larry doesn't realize it). All this means is that Larry's got enough money to invest in making his point and will continue to press it until there is no further avenue for appeal. I still think the odds are very much against the Oracle / PeopleSoft deal closing because of the numerous roadblocks that are not going to go away quickly. Cheers Melanie Hollands Post Reply     Reply by Private Message (new win) 04/22/04 re: VXO and P/C Ratio suggest a rally could be close # # Melanie Hollands Steve, You totally got the 1126 level right! Actually, the numbers are fascinating on this. During the 2000-2002 bear, if you bought the market only when it was 105% of the 50 DMA and sold when it dropped back below, you were in the mkt 256 days and had a positive return of 6.28%. However, if you waited for 110% of the 50 DMA then you were in for 186 days and made 12.79%. From this 1124 level, I think we rally up to around 1140 (maybe 1150) and then it putters out. I doubt that we break 1150. A move above there would break the downtrend line - a very important battle. As for what happens from 1140, it depends how it behaves at that level. I think it bounces off and we sell off again. Cheers Melanie Post Reply     Reply by Private Message (new win) 04/13/04 re: VXO and P/C Ratio suggest a rally could be close # Steven Poser Melanie - Using a 50-day m.a. to signal oversold on VXO is relevant if this is still a bull market. If a major top is in, then this would be a major sell signal. I am not suggesting that it is a major sell signal, but it is definitely something one must be aware of. Personally, I have been looking for a drop to 1126.66 in the S&P 500 and then expect a small new high. However, the odds are far greater for a move below 1,000 in the next six months in the S&P 500 than a move above 1,200 in my opinion. Steven Poser, http://www.poserglobal.com > Melanie Hollands wrote: > Looking at the VXO and the Put / Call ratio suggests that we could be close to a rally. > >Once again the VXO has just signaled a buy signal by trading back above the 50 day MA. It might be a few days early, but a tradeable rally is coming. The track record of the VXO is nothing short of amazing. > >The Put/Call ratio also suggests that selling exhaustion coming - range of 83- 1.19 today. > >On top of the spiking VXO and high Put/Call, we're getting very close to another oversold indicator. We're currently having a > 87% down day. I understand that 90% down days are rare and signal an oversold market. > >Trin at 1.24 also confirming... I think I'm getting ready to do some buying. > >Cheers > >Melanie Post Reply     Reply by Private Message (new win) 04/13/04 VXO and P/C Ratio suggest a rally could be close # Melanie Hollands Looking at the VXO and the Put / Call ratio suggests that we could be close to a rally. Once again the VXO has just signaled a buy signal by trading back above the 50 day MA. It might be a few days early, but a tradeable rally is coming. The track record of the VXO is nothing short of amazing. The Put/Call ratio also suggests that selling exhaustion coming - range of 83- 1.19 today. On top of the spiking VXO and high Put/Call, we're getting very close to another oversold indicator. We're currently having a > 87% down day. I understand that 90% down days are rare and signal an oversold market. Trin at 1.24 also confirming... I think I'm getting ready to do some buying. Cheers Melanie Post Reply     Reply by Private Message (new win) 04/09/04 re: Rupee v/s Sensex # Shamil Chotai In an export driven economy, the exchange rate is bound to affect the secondary markets. However, as your analysis indicates, the sensex and exchange rate have no correlation which means that the sensex is well balanced with equal number of companies benefitting from the rise in the rupee, and those facing adverse effects due to this rise. However, we find that the overall weightage of companies that would suffer from the rising rupee is quite high compared to those that benefit from it. This seems to indicate that the markets may not be considering the long term impact of the rising rupee. Given that software and new economy stocks (which depend heavily on exports) have seen rising valuations, there appears to be a willful disregard to facing the consequences of a rising rupee. Whatsay? > Haresh Soneji wrote: > Off late and rather so during the previous few days, players in the market are throwing tantrums about the impact of the depreciation of the dollar against the rupee. And why not? Barring the previous few trading sessions where the equity market rose sharply, the rise in the value of the rupee against the dollar was at a much faster rate than the surge in the equity market. Consider this: in the ten consecutive trading sessions during March 18-31, markets appreciated by nearly 1% but the dollar depreciated against the rupee by nearly 3.9%. this caused worries among players that when the equity market will fall, the dollar rise against the rupee will be at the same pace. But, the markets have already laid to rest those fears. > >Several players in the market still seem to be sceptic about this fact, but we don’t think so. We studied the movement of the rupee against the dollar with the movement of the equity market to find their correlation in the long run. The Bombay Stock Exchange’s (BSE) premier index – sensex was taken as a benchmark to calculate movement in the equity market. The result was not surprising and proved that the fears of many market players are all hyped. Here’s the result: the depreciation of the dollar against the rupee and the movement in the market has virtually no correlation. > >The correlation coefficient between the two variables calculated for the previous one year was as low as 0.06. Squaring the correlation coefficient makes it easier to understand. The square of the coefficient is equal to the percent of the variation in one variable that is related to the variation in the other. Here the square is a negligible 0.35%, indicating no correlation. Further, the number of times both the rupee and the sensex moved in the same direction was 54%. Even this suggests that the movements between the two are not correlated as there is almost an equal chance of either way movement between the two. So, investors need not worry whether there will be any direct impact on the stock markets, if the dollar continues to depreciate against the rupee. > >Correlation is a statistical technique, which can show whether, and how strongly pairs of variables are related. In order to calculate the correlation coefficient, daily closing levels of the rupee and the sensex for the previous one-year were taken into consideration. Daily percentage changes were tabulated and yearly data was then correlated to arrive at the correlation coefficient. >The main result of a correlation is called the correlation coefficient. It ranges from -1 to +1. The closer the correlation coefficient is to +1 or -1, the more closely the two variables are related. If the correlation coefficient is close to zero, it means there is no relationship between the variables. If the correlation coefficient is positive, it means that as one variable gets larger the other gets larger. If the correlation coefficient is negative it means that as one gets larger, the other gets smaller (often called an "inverse" correlation). > Post Reply     Reply by Private Message (new win) 04/07/04 Rupee v/s Sensex # Haresh Soneji Off late and rather so during the previous few days, players in the market are throwing tantrums about the impact of the depreciation of the dollar against the rupee. And why not? Barring the previous few trading sessions where the equity market rose sharply, the rise in the value of the rupee against the dollar was at a much faster rate than the surge in the equity market. Consider this: in the ten consecutive trading sessions during March 18-31, markets appreciated by nearly 1% but the dollar depreciated against the rupee by nearly 3.9%. this caused worries among players that when the equity market will fall, the dollar rise against the rupee will be at the same pace. But, the markets have already laid to rest those fears. Several players in the market still seem to be sceptic about this fact, but we don’t think so. We studied the movement of the rupee against the dollar with the movement of the equity market to find their correlation in the long run. The Bombay Stock Exchange’s (BSE) premier index – sensex was taken as a benchmark to calculate movement in the equity market. The result was not surprising and proved that the fears of many market players are all hyped. Here’s the result: the depreciation of the dollar against the rupee and the movement in the market has virtually no correlation. The correlation coefficient between the two variables calculated for the previous one year was as low as 0.06. Squaring the correlation coefficient makes it easier to understand. The square of the coefficient is equal to the percent of the variation in one variable that is related to the variation in the other. Here the square is a negligible 0.35%, indicating no correlation. Further, the number of times both the rupee and the sensex moved in the same direction was 54%. Even this suggests that the movements between the two are not correlated as there is almost an equal chance of either way movement between the two. So, investors need not worry whether there will be any direct impact on the stock markets, if the dollar continues to depreciate against the rupee. Correlation is a statistical technique, which can show whether, and how strongly pairs of variables are related. In order to calculate the correlation coefficient, daily closing levels of the rupee and the sensex for the previous one-year were taken into consideration. Daily percentage changes were tabulated and yearly data was then correlated to arrive at the correlation coefficient. The main result of a correlation is called the correlation coefficient. It ranges from -1 to +1. The closer the correlation coefficient is to +1 or -1, the more closely the two variables are related. If the correlation coefficient is close to zero, it means there is no relationship between the variables. If the correlation coefficient is positive, it means that as one variable gets larger the other gets larger. If the correlation coefficient is negative it means that as one gets larger, the other gets smaller (often called an "inverse" correlation). Post Reply     Reply by Private Message (new win) 03/30/04 Indian Equity Markets # Haresh Soneji Look at Beta Players in the equity market are throwing words of caution, after looking at the rising volatility in the market. Volatility seems to have become a very common feature in the equity markets. And if you are a close tracker of the market, you might have seen how markets move with a bang towards the close of the session, on any given day, of late. While long-term investor might just shrug this off as a normal happening there are several others who would like to understand what exactly is going on. A proper understanding would also enable one to understand the situation better rather than just be afraid of volatility. Before going on to what volatility is one has to remember that a measure which one can refer to is that of beta. But, since the subject of volatility has been thrown open, lets understand it very briefly. Volatility is calculated by dividing the difference between the index’s or stocks high and low points by its closing value on that day, and multiplying it by 100, to express the result in percentage terms. For example, if the difference between the intra-day high and intra-day low value of the sensex was 400 and the sensex settled at 5800 levels for the day, volatility for the given day would be 6.9% ((400/5800)*100)). When the Indian markets were on a one-way ride, daily volatility in the Indian markets was around 1-2%. This was a healthy sign for the Indian markets since most of the time, markets opened with a significant gap in the positive and remained there or move upwards. There were very few occasions when market actually moved in the red or closed negative. So, volatility at that point in time was marginal and good for the all the players, including small and long-term investors. But, of late (the last 4-5 weeks) things have changed. Daily volatility in the Indian markets has perked up to around 6%. This kind of volatility brings us back to the old days, where daily volatility was in the range of 5-9%. Now this could be a tough ask for a day trader and chances are that the day trader may catch the market on the wrong side leading to heavy losses. Now let us understand what is beta of a stock. Also known as beta coefficient, beta is a measure of volatility, or systematic risk of a company’s stock as compared to the market as a whole. In a simple sense beta shows how a particular stock moves in relation to the market. Beta is dependant upon the time period used to calculate it and therefore it makes more sense to use long-term returns to calculate it. Usually, beta is calculated using several years returns. The reason is simple, an assumption that five years generally covers different sets of market conditions. Beta is calculated using regression analysis. Investors need not get into the intricacies about the calculation of the beta but should be more concerned with its interpretations. To start with the beta of a stock will be between 1- and 1. A beta of 1 indicates point-to-point movement with the broad market. A beta of less than one indicates that the stock is less volatile than the market and a beta of more than one indicates that the stock is more volatile than the market. So, basically beta of a stock measures the tendency of the stock to respond to the swings in the market. For example, Zee’s beta is 1.6 to BSE 100, so theoretically, the stock price of Zee is 60% more volatile than the market. A negative beta means that the stock moves in an opposite direction when compared with the general markets. One has to remember that while this might not be true on all days on an average such a situation will be witnessed. We calculated beta with data as far as 1998 of the BSE 100 stocks and compared it with the index to get a broader picture. About 63 stocks had a beta of less than 1, indicating that they moved in lesser proportion to the market and were less volatile. So, why do we consider them? Investors who are slightly risk averse would like to hold stocks with low beta as they might not be able to stomach so much volatility in their holdings. This brings us back to the point as to what contributes to volatility? There are multiple reasons for the same – the expected rise of interest rates in the US may see money being pulled out of Indian markets, the recent bird flu in Asia causing panic in FII community and restricting inflow of funds into India, expiry of contracts in the derivative markets in India, the upcoming assembly elections, huge P-notes outstanding positions in India, existing of quick money by way of hedge funds and other such reasons. Most of the reasons, if you see are external in nature and cornering around FIIs and some of them are recurring. FIIs have become an integral part of Indian capital markets and the market reacts accordingly. The investor on their part need to look at the betas carefully and these are usually made available by brokerage houses and other research outfits. Some financial publications also give details of beta but the key to the whole process is understanding them properly. Regards, Haresh Post Reply     Reply by Private Message (new win) 03/24/04 EU Ruling Against Microsoft # Melanie Hollands The European Union's ruling (leaked Monday, and officially announced today) against Microsoft -- a fine of €497 million for antitrust violations -- is a joke. Even if Microsoft has to end up unbundling the audio and video from this version of Windows -- which is not a technical problem whatsoever -- the company will find somw way to justify a reason to bundle it all back together again the way it was planned - possibly in Longhorn (the next version of Windows, due out in 2006). It could also reassemble the pieces in some other product. Alternatively, the company still could reach a compromise with the EU. The hope appears to be that the ruling would prevent rebundling the audio and video in Longhorn or some other package. But I don't think it sticks. Microsoft's point is that integration makes the user experience better - that its audio and video programs will still work the best with the Microsoft product. In addition, the company argues that (me paraphrasing) it is being unfairly treated in a "free market". Yeah, whatever. Anyway, as a result of this ruling, the company may have to let in competitors on its API code. Now, I think there are many customers who would welcome buying an unbundled product, for thomw these video and audio apps add little (if any) value. And my guess is that if Microsoft charges the same price for "bundled (Windows + Apps)" versus "unbundled "Windows" + "unbundled apps" (and I don't see why they wouldn't), then it's all the same to its bottom line. Now, other companies can make an interface between Microsoft and these other programs to simulate an integrated user experience. But it seems these programs don't run as fast or as well. Anyway, these are come of the claims being made by the Microsoft camp. The EU ruling potentially opens up the door for other organizations to sue Microsoft. And over time, it's possible this could erode Microsoft's credibility. But I doubt that erosion to its credibility will be quick, due to its way dominant market position and the substantial financial resources it has at its disposal to defend itself. I don't see a major or immediate impact on the MSFT stock price as a result of the EU ruling (perhaps a small "relief rally" after the official announcement). But I do think that the stock progressively and gradually will continue to weaken over the long-term (say, 1-2 years). For now, I see support for the stock in the $23.50 to $24 range. MSFT is in the process of forming a substantial bottom pattern, so I would hold off going long until that bottoming process is more complete, and so long as the broader market continues to soften. Looking out longer term, say in 12 months' time, I believe that MSFT will be trading at lower levels than it is currently, even if the market is marginally higher. It's a rough period for a share price when a company goes from being a growth stock to a value stock and the ownership constituency shifts from growth- to income-oriented. Then discount the risk of being declared a monopoly at Microsoft, as well as the threat of a substitute technology such as Linux, which is a substantial longer-term threat in my opinion. The basic problem I see for Microsoft (and to reiterate some of what I have written previously in this column) is that IT budgets are not going to grow very fast over the next several years, and the company already owns large chunks of the market. So there is limited ability to increase revenues from the Office business, because Microsoft risks ticking people off and driving more people off license. Growth in new PCs, and therefore operating system sales, is likely to be constrained to three to four upgrades for laptops and four- to six-year cycles for desktops. Creation of new markets for other sorts of operating systems will probably be constrained by the reluctance of many potential partners to get into bed with Microsoft. That said, Microsoft does have some areas where it can grow, such as databases and analytical services, as well as growth opportunities in the small business end-user segment. Weighing up these factors, my view is that MSFT stock trading at nine times sales seems a bit high. I think five to six times sales is more reasonable, considering its growth opportunities for the next couple of years. However, mutual funds often own MSFT as a proxy to the NASDAQ Index (of which MSFT contributes around 12% on a weighted basis) or the tech sector. So, I doubt that the stock would sink to such lower valuations any time soon. Going forward, I think MSFT can continue to trade in a $24 - $28 range for a while. Cheers Melanie Hollands President Koala Capital, LLC Post Reply     Reply by Private Message (new win) 1 - 20 of 289  | Previous  Next  [ First | Last ]

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