               |
Sox Sux By Mike Gasior I am prepared to take some grief over my second "bi-monthly" newsletter in a row, but to better comprehend the extent of my travel/work schedule, imagine this. Since the last edition of this newsletter was written, yours truly has spent 44 nights in hotels in Grand Cayman, New York City, Bermuda, Seattle, Juneau Alaska, Rotterdam, Aarhus, and Heidelberg. I've been on 22 different flights totaling over 30,000 air miles, not to mention the 64 hours I spent sitting in airports between those flights and waiting out a variety of delays. And while this may not strike many of you as any sort of burden because it sounds like the vacation of a lifetime, please remember that this WASN'T a vacation since I was lugging my typical 100+ pounds of luggage everywhere I went and doing my job in the middle of all that travel. Over the years I've had many offers from people seeking to become my "traveling assistant" and I have always issued the warning to be careful what you wish for. So I basically hope you'll forgive the delay in getting these newsletters out; and I promise to return to my dependable monthly schedule immediately. With that, the defense rests and we can now move on to what I believe to be one of the best newsletters I have authored in a long time. I have important, interesting and funny things to share and I am very excited and enthusiastic about the topics on the agenda this month. Clearly, the title this month is provocative and blatantly anti-Sarbanes-Oxley, but there is more to it than meets the eye. I also want to share some information about our friend Warren Buffett and his interest in derivatives that not enough people know about. Many have heard his sarcastic comments regarding derivatives being "financial weapons of mass destruction" and that they are "a lot like hell; easy to get into and not so easy to get out of", which are very amusing. The casual observer would surmise that a person making such statements really doesn't like derivatives very much. In this case, the casual observer would be quite wrong. I'll even share with you some of my observations about how some amazingly useless people can actually manage to make themselves seem like the most productive, busy people in your office. I promise you that after reading my guide for "slacker success", you'll be able to spot these screw-offs who occupy every enterprise. But first a short amount of business. REMAINING TRAINING SESSIONS FOR 2006 It is difficult to accept that less than half of the year remains, but I will still be presenting some outstanding programs in New York, Bermuda and Grand Cayman as 2006 draws to a close. Here is the list of courses arranged by city, and please click on the link to view a complete description of the session or register: BERMUDA (The venue for these programs has been moved to the Fairmont Southampton Princess) Providing Services to the Hedge Fund Industry Securities Operations, Processing & Accounting GRAND CAYMAN Providing Services to the Hedge Fund Industry Securities Operations, Processing & Accounting NEW YORK Introduction To Securities & Markets Advanced Securities & Markets Securities Operations, Processing & Accounting Sarbanes-Oxley for Investment Departments CMO, ABS & CMBS Securities VIDEO COMMENTARIES FOR JUNE AND JULY ARE UP I took advantage of being in Bermuda during the bi-annual Newport to Bermuda Regatta and used Hamilton Harbor as my backdrop for the commentary this month. Although I don't fancy myself much of a sailor (except perhaps in the drinking and swearing categories) it was an amazing event to witness in person and some of the yachts were gorgeous and displayed technology that NASA wishes that they might be able to afford someday. The topic is whether or not actions taken by governments have a positive effect on the economy or not, and focuses on changes implemented by the French government in recent years. Recently I also traveled to one of my favorite places on earth, Alaska, and filmed my July video there. This video includes the usual, educational aspect with a discussion of catastrophe bonds (cat bonds), but I also include a wonderful tour of the Juneau, Alaska area. You can view the current and all previous videos at the following link: http://www.afs-seminars.com/v-commentary.html Now on with the show. SOX SUX I usually find myself able to see looming issues that are going to positively or negatively impact my client companies far in advance, and I certainly was aware of the Sarbanes-Oxley legislation (SOX) well before it was passed and implemented. Where I disappointed myself was in not adequately assessing the onerous burden that SOX placed upon U.S. companies, or the billions and billions of dollars that are being spent by these companies to try to comply with this hideous law. It wasn't until I spent two months over last year-end on a consulting project that I was really able to witness first hand the wasted time and money that is thrown at this piece of garbage regulation. Please understand that not every single aspect of this law is horrible, and that I do believe that there are very important practices and procedures contained within it that companies should comply with. The issue is that this law was unnecessary and has drained massive quantities of money and efficiency from the U.S. economy. I can guarantee that it has not made the financial markets even 1% safer than before I don't sleep a tiny bit better at night knowing that this law is on the books and in you shouldn't either. It was a very predictable, knee jerk reaction by U.S. politicians to the scandals of 2001, but it was bad legislation that should have been skipped. Unfortunately we didn't skip it and now we're stuck with it. Let us first remember the scandals of 2001 that caused the politicians to react with this legislation, primarily Enron and WorldCom. Everything these corporations did, and the resulting convictions in those cases, were all covered by existing securities laws and Sarbanes-Oxley would not have made any difference in the way they were prosecuted. I should also point out that these scandals were not a uniquely American situation, since during the same timeframe we also witnessed comparable non-American scandals at Parmalat, Royal Dutch Shell and Royal Ahold. Interestingly, the only real prosecution of the SOX statute so far was against Richard Scrushy of Health-South, and it failed in securing any convictions. What causes me to address SOX this month is the amazingly negative effect that it is having on the U.S. financial markets and the very real chance that SOX will suddenly become the "de facto" global regulation. America and Americans have a tendency to think that the way that we do things here is the best way, and we are often eager to export our methods to all corners of the world. In all candor, I often think this isn't that bad of a thing, especially when it relates to accounting standards and securities markets regulation. Unfortunately, in the case of Sarbanes-Oxley it could ultimately be our most unfortunate, regulatory export and could result in substantial weakening of the competitiveness of the U.S. markets. The exodus of foreign companies being listed on U.S. securities markets has already begun in a robust way because any company listed on these markets will be required to comply with the onerous SOX requirements. The legislation has already made non-U.S. markets more attractive to foreign companies and unfortunately it goes deeper than that. Consider the recent deal that was struck between the New York Stock Exchange and Euronext, and the other that makes it impossible for anyone to buy the London Stock Exchange without securing the permission of NASDAQ. Once Euronext is owned by the NYSE, and if NASDAQ were to acquire the LSE, then those European markets are suddenly just subsidiaries of their U.S. parents. It has been suggested that this will make all those companies listed on the non-U.S. exchanges suddenly subject to the SOX regulation, making it the "de facto" global standard. This is a nightmare scenario to me. You might already be thinking that companies like IBM or GE might just decide to totally delist from a market like the NYSE and head off to some foreign exchange to make them immune from the SOX guidelines. Good idea, but it probably wouldn't work either. According to the Sarbanes-Oxley law, once 500 Americans own stock in a foreign listed company, the company is then subject to SOX. So even if a company tried to escape the legislation by going abroad, it would have to limit U.S. shareholders to 499 or less, which sounds like a dicey and unlikely proposition to yours truly. Unless Congress acts to stop this unfortunate exportation of a crappy law, it is reasonable to assume that the U.S. will only become a less and less desirable destination for large companies to do business. Jog your own memory here, and consider every large merger in recent history that involved a U.S. and a non-U.S. company. Ask yourself why it almost never comes to pass that the combined entity ends up being an American company (read Chrysler/Daimler Benz, Bankers Trust/Deutsche Bank, et al) and you'll quickly realize that nobody wants to operate within the U.S. regulatory climate if they can avoid it. The list of merged companies grows pretty darn fast the longer you think about too. It is a thin line that separates insufficient regulation and over regulation. Never mind the inability of politicians to accept the possibility that they may have passed flawed legislation, but this issue needs to be addressed sooner rather than later. Otherwise the U.S. risks becoming one of the least desirable and most unfriendly jurisdictions in the world in which to operate a business. So perhaps the politicians might have difficulty coming to grips with admitting the flaws in their law, or uttering the words. Luckily, I don't. Sox sux. WARREN BUFFETT'S "FINANCIAL WEAPONS OF MASS DESTRUCTION" On the surface, this story will simply sound like another example of hypocrisy and "do as I say, not as I do", but it is deeper than that. When you are the world's second, richest man and perhaps the best investor who has ever lived, you are expected to hold yourself to a higher standard. We're all tired of the professional athletes, who film public service announcements about the perils of kids doing drugs sometimes moments after they've smoked a joint in the dressing room or booted yet another syringe of steroids. This particular topic is in that vein. Berkshire Hathaway's Chairman, Warren Buffett's position on derivatives has always been fairly obvious, based on his very quotable public comments about them. He doesn't like them. I have shared many of these quotes with the audiences of my live training sessions over the past few years, because while they are damn funny, I also found them pretty ironic. You see, I think there are tremendous similarities between the derivative market and the insurance market to the point that you will find it increasingly difficult to tell the two apart as more years pass. My amusement stemmed from the fact that everyone knows Warren Buffett's fondness for the insurance business, given that Berkshire has massive stakes in a bunch of insurers. I would wonder how someone who loves insurance so much could hate derivatives. Well it seems Mr. Buffett doesn't actually hate derivatives at all. He would simply prefer that HE can use them, while perhaps nobody else is able to use them. This fits wonderfully with his comment that derivatives are "financial weapons of mass destruction". Just like REAL weapons of mass destruction, people who already possess them usually don't think anyone else should be able to possess them as well. So here is what I would like you to know and remember about our friend, Mr. Buffett: --In a filing on March 7, 2006, Berkshire Hathaway reported they had $801 million of derivative assets, and $5.06 billion of derivative liabilities. This included 435 million in assets, and $1.59 billion in liabilities on equity-option contracts with a notional value of approximately $14.5 billion. These options had a time horizon of 15 to 20 years in length and are effectively put options (which I discussed in my October 2005 video commentary - http://afs-seminars.com/v-commentary.html) that will require Berkshire to pay money if a basket of global stock indexes decline during this time period --In addition to the stock index derivatives, Berkshire also announced that they had made comparable bets on the bond market using credit default swaps (which I discussed in my May 2006 video commentary - http://afs-seminars.com/v-commentary.html) with Berkshire speculating that issuers will not default on their bonds. The company stated in the filing that "Berkshire utilizes derivatives in order to manage certain economic risks of its businesses as well as to assume specified amounts of market and credit risk from others". --Back in 2002, Buffett made a completely contrary bet on the U.S. stock market when Berkshire was the purchaser (in the recent transaction they were the seller/writer) of put option on the S&P 500. The S&P 500 ultimately did decline and Berkshire was in line to collect $60 million. --Later that same year, Buffett and his partner Charlie Munger decided that the U.S. trade deficit might cause the dollar to weaken against other world currencies. They entered into foreign-currency forward contracts with an estimated notional value of $21.8 billion, and enjoyed a $2 billion gain when the dollar did indeed drop. SLACKING FOR PROFESSIONALS I saw a statistic the other day that stated that slacking at work cost U.S. corporations $544 billion during 2005, and that 87% of employees in the United States have reported being angry about colleagues they felt didn't pull their weight at the office. Well, I'm now 25 years into my "professional" life, and my current business allows me to be present in wide array of corporate offices every single year, allowing me to see some of the best corporate screw-offs in the world today. I'm not talking about the obvious, lazy slob who everybody clearly knows is useless. This list of traits I am about to share with you, are the techniques that are employed by the world's finest slackers. You all know the type of people that I'm talking about too; the person who the boss considers one of the best employees in the department, but who truthfully does very little at all. It's quite a science really. Although I am going to frame these behaviors I've observed as sort of a "How to Manual" for how to be a more successful slacker, I hope it will help bosses and colleagues` around the world bust these corporate cheaters once and for all. So here are the keys to professional goofing off. 1) Always act impatient and irritated When you appeared annoyed and agitated all the time, people tend to think that you must just be way too busy. This technique works wonderfully on two fronts, since some people will be afraid to add to your already heavy workload, while others will just want to avoid this cranky jerk. 2) Multitasking It is critically important to make certain you are at least somewhat associated with as many projects as possible (but obviously in no important sort of way) so you will always have an excuse on why some work didn't get done. "I've been so buried with Project A, I just haven't had any time to get that stuff done on Project B. Sorry boss." 3) Make lists Make sure to write down every possible thing you might do, even including stuff like "check voicemail" and leave the list in a prominent spot on your desk with a couple of the things scratched off. This will give anybody stopping by an idea how you are swamped with stuff to take care, and with only a few items crossed off your extensive list they might think twice before they burden you with anything more. Not to mention that your list making actually makes you look organized and diligent. 4) Keep a pretty messy desk Really hard working people have no free time to be cleaning their desks, so nothing screams "VERY BUSY" more than a disaster on your desktop. After all, with all the projects you have going on, you NEED all those piles, right? 5) Always have lots of windows open on your computer monitor This is basically the oldest trick in the book, but with 4 spreadsheets, 5 emails and an open word processing document all open at the same time, it makes the Spider Solitaire and eBay windows very difficult for anyone who unexpectedly walks into your workspace to detect. It also conveys the sense of how busy you are. 6) Carry documents EVERYWHERE you go Never leave your desk without at least a few memos, folders, notebooks, binders or papers of some kind with you. This gives the appearance that you're always on your way to somewhere important and related to business, versus just heading to the coffee machine or the restroom to read Sports Illustrated. 7) Document your time in the office Whenever you find yourself in the office unusually early or late, make certain to send you boss emails or leave voicemails that will time stamp your extreme hours. It doesn't really matter that the only reason you were in the office at 8:00 p.m. was because you forgot your concert tickets in your top drawer. All that matters is that you WERE actually there, and not much else really does. 8) Drink tons and tons of coffee Nothing screams "I'm so freakin' busy" more than sucking down gigantic buckets of coffee all day long. Every time you go on a coffee machine run, make sure to announce to the boss how you are in critical need of a "caffeine fix". Plus, all this caffeine will help you with my first suggestion of always being impatient and irritable. So those are my observations, and if any of you know some other beauties, I would love to hear about them. AL GORE: GREEN OR BROWN? When considering what stories or topics for inclusion in these newsletters, I weigh how important the story seems to me versus how much coverage the story has received in the mainstream media. This is one of those where it seemed the topic could have used a bit more discussion. Let me first mention that I am in complete agreement with Al Gore that global warming is a real and serious issue that the world's population should address sooner, rather than later. I also look forward to seeing Al's new movie, "An Inconvenient Truth", although I'm holding out for the DVD release. Readers of this newsletter and viewers of my video commentaries on the website will recall that I cut my total oil consumption by 75% three years ago by switching the heating of my home to solid fuel. I switched to lower consumption, compact fluorescent light bulbs, use the air conditioning less often to conserve electricity and I recycle everything you can imagine. All things the former Vice President endorses to help move toward a "carbon-neutral lifestyle", which he tells the audiences of his speeches that he is already living today. But is he really? Come to find out, Al and Tipper own three properties and spend the majority of their time divided between their primary residence in Nashville and a second home in Arlington, Virginia near Washington, D.C. Their Nashville home is a 10,000 square foot spread with 20 rooms and 8 bathrooms. The house in Arlington is only 4,000 square feet. With the advent of deregulation of the electrical utility industry, many consumers have a choice of whom they purchase their electricity from. Often this includes a "green" choice like power produced by windmills, although the cost is usually 2 to 3 cents more per kilowatt-hour. This choice is actually available in both Nashville and Arlington, yet the Gores have not signed up for this option. When Mr. Gore's office was contacted by the media to inquire about this situation, his staff said that they were looking into perhaps making the switch at both the homes soon. Hmmmm. Of course the Democratic Party has embraced Mr. Gore's position with both arms, and the Chairman of the party, Howard Dean has said, "Global warming is happening, and it threatens our very existence." A quick visit to the DNC website will tell you they are thrilled that Mr. Gore has "tried to move people to act". Clearly Mr. Gore was unable to move his own party to act, since they haven't made the switch to the "green" electricity option at their headquarters, and neither have the Republicans for that matter. Oddly though, the Bush administration has switched several federal office buildings to the clean power. Mr. Gore has held these doomsday views about the environment for many years and has always been concerned about the world's dependence on oil. Well, as the executor of the Gore family trust, who owns a fairly large position in Occidental Petroleum stock, he has not felt compelled to dispose of this holding even as Occidental has been mired in controversy over drilling in ecologically sensitive areas. So apparently one needn't use "green" electricity nor dispose of big oil company stocks in order to stay "Carbon Neutral". It also seems that giving up mining royalties isn't necessary either. You see, the 10,000 square foot house in Nashville just so happens to sit on top of a zinc mine, and the Gores receive $20,000 per year in royalties from the mining company to whom they've sold the mineral rights. On one hand, you could argue "good for them". I own a fairly large tract of land and only wish I could find some oil, gold or even zinc to help pay for my daughter's future college education. But then again, I'm not one of the world's most visible "environmentalists" running around the world making movies and giving speeches about the pending doom that awaits us all. I am also not the one that was cited by the State of Tennessee for dumping large quantities of barium, iron and zinc in the nearby Caney Fork River and endangering wildlife. That was the mining company on Al Gore's property. Frankly I could care less what any particular person does with regard to the size of their car, their house or whatever sort of electricity the use. Just don't lecture ME about what I ought to be doing when you are just another two-faced gasbag. I am personally quite fond of large houses and can only imagine that Al Gore's Nashville home is quite lovely, and he has the right as an American to live in any sort of house he likes. But my advice to him is that if that 10,000 square foot house you live in is a glass one, I would stop throwing stones immediately. Now there's an inconvenient truth. YOUR JUNE AND JULY BRAINTEASERS I'm trying to make it up to all of you for the newsletter shortage, and we'll be trying something completely new this month. We're talking multiple questions, with multiple-choice answers with varying degrees of difficulty. I tried to go for a nice mix of economics and finance, but you will ultimately be the judge here. Here is your quiz: 1) Under normal circumstances, when the price of a commodity falls, the quantity demanded will______________? a) Increase 2) What is the alternate name for the Consumer Price Index (CPI)? a) Laspeyres Index 3) What type of options has the largest number of contracts outstanding at any given moment? a) Index options Good luck, and please give yourself a decent shot before peeking at the answers, which you will find the at the following link: http://www.afs-seminars.com/brainteaser_July2006.html Copyright 2006, Michael Gasior. All Rights Reserved AFS Seminars LLC |
||
Home | Register | Courses | Course Locations | In-House Seminars | Consulting Services | 2008 Schedule Newsletter | Video Commentary | Radio Shows | About Michael Gasior | Glossary | Alumni | Links | Contact Us |
|||
AFS Seminars LLC:
500 Chamberlain Hill Rd. : Middletown, CT 06457-5564 Tel: (860) 347-6568 Fax: (860) 347-6258 |
|||
Material Copyright © 2008 AFS Seminars LLC |
|||
June
/ July 2006 Newsletter
