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	Monday, August 24, 2009

Small Cap Recap A Bond Debacle $600 Million in a Quarter Panic Selling Dear Small Cap Investor, As of press time, 3:05 P.M. Eastern Time, stocks had given up most gains from the morning session. The Dow was at 9,509, up 3 points; the Nasdaq was down less than 3 points, holding at 2,017; and the S&P 500 had given up less than one point to hold at 1,025. Advances lead declines on the NYSE and Amex while declines were just edging out advances on the Nasdaq. Crude oil futures were up nearly half a dollar to $74.37 and August gold was trading down at 943.60 per ounce. Small-cap gainers trading over 1 million shares include Mercer International (Nasdaq:MERC), up 71%; Charlotte Russe Holding (Nasdaq:CHIC), up 26%; and Electro-Optical Sciences (Nasdaq:MELA), up 20%. *****On Friday, I wrote about how difficult it can be for investors to discern if the information they are receiving is valuable, or even trustworthy. Over the weekend, I read an article from Bloomberg that made my stomach turn. Apparently, as institutional investors began to suspect there was trouble brewing for many finance companies back in 2007, they stopped buying these companies' bonds. And by "these companies" I mean companies like AIG, CIT Group, GMAC and even Lehman Brothers. When finance companies can't sell their bonds to institutional investors, we hear in the news that "capital markets are getting tight" or "disrupted." Of course what that actually means is that institutional investors, the ones who are most "in the know", won't lend money because it's too risky. So what do companies like AIG or CIT Group do when the institutional investors they've been doing business with for years suddenly decide it's no longer worth the risk? Why they go too individual investors who won't ask too many questions… *****There's a company in Chicago called Incapital, LLC, that underwrites corporate bonds intended for sale to individual investors. Founded by Tom Ricketts, whose father founded TD Ameritrade, Incapital controls 75% of the retail bond underwriting market. In February of 2008, an unnamed Fidelity broker recommended CIT bonds to a customer instead of Freeport McMoran (NYSE:FDX) bonds because at the time CIT bonds were rated higher. The Fidelity broker reportedly said that the CIT bonds were pre-screened. Less than a month later, credit default swaps (which is basically insurance for bonds in case the company goes bankrupt and defaults) on CIT Group bonds were already at distressed levels. Bloomberg reports that credit default swaps sellers wanted "…$1.75 million upfront and $500,000 a year to protect $10 million of the company bonds from default for five years…" In other words, the institutional crowd knew full well that CIT bonds were highly risky, as evidenced by the 42.5% insurance cost. And yet that Fidelity broker was selling them to a retired customer as a safe "pres-screened" investment at the exact same time. In all, CIT Group sold $600 million worth of bonds to unsuspecting individual (retail) investors in the first quarter of 2008. They've traded as low as $0.42 since. Unfortunately, the story gets worse… *****Incapital was selling Lehman Brothers bonds to individual investors three months before it went bankrupt. It also helped AIG and Freddie Mac raise money from individual investors. visit our sponsor Learn How to Profit from High Taxes, Inflation, High Unemployment, a Weak Dollar, and Weak Growth Welcome to Managed America. It's already started. But you can get the game plan. Bleak as it may appear, you can make money in Managed America and Top Stock Insights Chief Investment Strategist Ian Wyatt will show investors how to find the most profits from Managed America and how to avoid losses. Joining Ian will be lead research analyst Jason Cimpl and associate publisher Briton Ryle. They show you high unemployment, slow growth, high taxes, and excessive government inflation can actually make you rich. Join us right now at www.TopStockInsights.tv. visit our sponsor The Financial Industry Regulatory Authority is investigating whether the "risks to these securities (cutely named InterNotes) were adequately disclosed…" Sounds like and open and shit case to me. And as for Ricketts, the owner of Incapital, he and his family are the proud owner of a 95% stake in the Chicago Cubs, Wrigley Field and a 25% percent interest in Comcast SportsNet. The cost: $845 million. *****On Friday, July 17, rumors of CIT Group's imminent bankruptcy swirled. CIT Internotes were the most heavily traded bonds that day. Hundreds of millions worth of these bonds changed hands. And as you might guess, it was the individual investor who lost the most money during the panic sale. Individual investors were selling one particular CIT bond that matures in 2016 for $0.42 on the dollar. Institutional investors were selling the same bond for $0.52 on the dollar. And yes, once again, it gets worse. Traders were taking a 6% commission on the CIT Internotes trades that day, while all other trades were generating a 1% commission. So not only were individual investors getting worse prices, they were paying higher fees. It's appalling. And there's really only one lesson: be careful out there. If you're looking for honest advice and want to invest alongside an investment expert, I encourage you to check out my Recovery Portfolio service. I'm putting $100,000 of my own money where my mouth is. So when I tell subscribers we're buying XYZ stock, I'm buying it, too. No hype, no fluff, just real investing with real month. And I'll get you started with the five funds that these jokers on Wall Street won't share with you. Click here to find out more. *****As always, please send your questions and comments to mail us at: yomiteinvestmentsng@gmail.com

NACCIMA laments state of the economy

Wants economy diversified, worried about poor infrastructure

Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) is unhappy about the state of the economy and has called on the Federal Government to address the issue promptly.
NACCIMA, which raised this issue at its recent annual general meeting which held in Oyo, called on government to take the issue of diversification of the economy seriously by putting in place the necessary enabling incentives to empower the non-oil sector of the economy, especially development of agriculture , solid minerals exploration and exploitation.
NACCIMA said it would soon come up with a position paper on the need for diversification of the economy to be presented to the Presidency for consideration.
NACCIMA also is worried about the crippling activities of militant youths in the Niger Delta region which have led to a loss of thousands of barrels of crude oil production per day, and which has translated into a colossal revenue loss to the Federal Government. The association wants a solution to this problem very quickly.
NACCIMA berated the federal government for the poor state of the nation’s infrastructure. It noted the intention of government to open up access roads in different parts of the country and observed that the pace of improving the state of infrastructure as enunciated in the 2009 budget in the areas of rehabilitation, maintenance and construction, particularly of roads, energy and power supply, has not been satisfactory. “Most federal roads in the country, especially in the southern and eastern parts are in very bad state and have hampered economic activities in these areas,” it observed.
NACCIMA has therefore recommended the following as solution to this infrastructure problem:
Government should commence rehabilitation of existing federal and interstate roads that are characterized by potholes and have become death traps throughout the country by dualising them to assist the free flow of persons and goods and create room for heavy traffic; Government should jump start the contract signed with the Chinese government for quick resuscitation of the railway system in the country;
Provision of adequate and reliable infrastructure for road, rail, air and waterways transportation including effective road transport system management in order to achieve supply chain efficiencies;
Government should develop inland waterways by dredging the River Niger so as to create inland ports at Onitsha , Idah etc; Government should rehabilitate our transport system, especially our rail, water and air transport so as to reduce the undue pressure on the road network; Up-grading of major interstate roads, including dualising it and if possible adopt private-public partnership such as Build, Operate and Transfer (BOT) arrangement in its maintenance;
A National master plan with targets on how to resuscitate the railways should be developed and implemented consistently;
Government should explore the concept of privatisation for transportation infrastructure, in line with Build, Operate and Transfer (B.O.T) options.
Railway (North-South, East-West, Inter City , Inter State , and Intracity), Waterways, etc. should be constructed and rehabilitated;
Government should ensure that the special fund released to boost power supply is judiciously utilized;
More aggressive policy should be put in place to eliminate the concurrent vandalization of power infrastructure facilities in the country; Government should support independent power projects and all other initiatives for the exploration of alternative sources of power;
The technical and commercial performance of all business units of the Power Holding Company of Nigeria (PHCN) should be improved upon by ensuring adequate capacity building of all concerned staff;
Government should introduce further measures to fully liberalize the transmission and distribution of power supply and remove its monopoly from PHCN to encourage efficiency;
Government should accelerate and ensure the completion of the on-going power sector reforms so as to improve the present generating power capacity of 3000MW to 10,000MW by December 2011; Government should refurbish, up-grade and expand all existing power generating stations to accommodate more power usage;
Adequate incentives should be provided to encourage more investment in Independent Power Projects in the form of assistance to investors in the sector to secure suitable land and site for their project, import duty concession, tax holiday commuting of capital allowance, one stop shop for licensing procedure or arrangement, etc;
•There is need for a detailed electricity study to facilitate appropriate investment response;
•Independent Power generating plants should be commissioned and built in each State of the country to supply power to that State alone. Each State should maintain such facilities when built.
NACCIMA also recommended the following to stem the pperennial scarcity of petroleum products to Industries:
•LPFO (Black oil) supply from Port Harcourt and Kaduna refineries should be restored as it has affected manufacturing capacity utilization severely.
•There should be effective policing of Nigerian borders to checkmate the activities of bunkerers to ensure that available petroleum products are used for sustainable growth.
•Government should fast-track the gas pipeline project across the country to supply gas for power generation
•Government should hasten the full privatization of the refineries, with a view to achieving effectiveness and efficiency of the sector.
•Local manufacturers and other huge gas users should be encouraged to utilize gas in production through appropriate incentives and price rebate to reduce the huge gas flaring in the country.
•The utilization of renewable energy resources for power generation such as solar, coal wind and hydro should be reviewed. Nigeria being in a Tropical region should encourage investment particularly in solar energy to augment its electric power demand.
•Gas pipeline/supply should be extended to all industrial estates in the country.