In a beachside villa somewhere on the northeastern coast of cuba, an octagenarian revolutionary turns on CNBC and has a good laugh to himself. His stock portfolio isn't traded on the NYSE, or the LSE - it hasn't even listed yet. But, when it does, it will soar.
For the past 10-15 years, Fidel Castro has invested over $1bn into a burgeoning national biotechnology industry. Cuban scientists have already developed a couple of dozen products, including monoclonal antibodies, streptokinase--a drug used to break up blood clots--and the world's only available vaccine against meningitis B, and under development are cancer vaccines and other compounds that would be considered cutting-edge in U.S. labs. In order to secure intellectual property rights, they have patented a whole host of drugs and treatments in the US through Canadian shell companies, set up with the help of the Canadian government. Once the long-standing and oft-criticised trade embargo is lifted by the US government, these drugs can go in front of the FDA for approval. No matter how tough the economic environment, people will buy the drugs to make them better. The US will make Cuba bigger than Pfizer.
Karl Marx's ultimate last laugh, and Fidel Castro's legacy to the Cuban people. Irony at its best.
MNG
Thursday, 25 September 2008
Tuesday, 23 September 2008
Beneficiaries of the latest doom
The underlying cause of the credit crunch is really the oversupply of credit to those who ultimately could not service the debt. Banks are in business to profit from interest charged on money lent to individuals. Secured credit (like a mortgage) is normally a no-brainer for banks. For as long as the individual is able to service the debt, the bank makes profit and (normally) if they cease to be able to service the debt, the bank can always seize the asset placed as security (normally the house). So, in normal circumstances, any mortgage to a regular individual is an automatic 'yes' for any bank. If the average an in the street is honest, he would realise that the responsibility considering his ability to repay rests with himself and not the bank. It is fundamentally incumbant on every person to make every attempt to consider his/her ability to fulfill each and every financial committment they enter into.
Now, let's consider who benefitted from the proliferation of cheap credit. No doubt, executives and senior employees of banks, finance houses, private equity companies, and hedge funds alike, made a lot of money from leveraging investments to gain large returns by taking advantage of a high growth/low interest rate economic environment. However, we will get back to that. The other big beneficiaries are the average man in the street. He has been able to borrow money cheaply to buy the dream house and lifestyle that his parents could only dream of. As houses and property changed hands and individuals made money, the overall level of borrowing increased in the economy. People who made money from property spent it and benefitted the economy at large. Now that people are finding that they are over-leveraged and can't service their debt with higher rates, they whole cycle is unravelling.
Ultimately, any public money used to unburden banks of this toxic mortgage debt, is merely paying for the economic benefit the average Joe experienced during the boom period. Thus taxpayers money is ultimately paying for the inability of the average taxpayer to pay for his/her lifestyle over the previous 8-10 years.
We can all point fingers at the fat-cat greedy bankers who tricked us into buying that mercedes or, that villa in portugal, or that bottle of 1999 Cheval Blanc but, in reality, we are responsible for our own excesses and now its time to pay for them.
Start getting used to the bus - you'll be taking it for at least another year.
MNgC
Now, let's consider who benefitted from the proliferation of cheap credit. No doubt, executives and senior employees of banks, finance houses, private equity companies, and hedge funds alike, made a lot of money from leveraging investments to gain large returns by taking advantage of a high growth/low interest rate economic environment. However, we will get back to that. The other big beneficiaries are the average man in the street. He has been able to borrow money cheaply to buy the dream house and lifestyle that his parents could only dream of. As houses and property changed hands and individuals made money, the overall level of borrowing increased in the economy. People who made money from property spent it and benefitted the economy at large. Now that people are finding that they are over-leveraged and can't service their debt with higher rates, they whole cycle is unravelling.
Ultimately, any public money used to unburden banks of this toxic mortgage debt, is merely paying for the economic benefit the average Joe experienced during the boom period. Thus taxpayers money is ultimately paying for the inability of the average taxpayer to pay for his/her lifestyle over the previous 8-10 years.
We can all point fingers at the fat-cat greedy bankers who tricked us into buying that mercedes or, that villa in portugal, or that bottle of 1999 Cheval Blanc but, in reality, we are responsible for our own excesses and now its time to pay for them.
Start getting used to the bus - you'll be taking it for at least another year.
MNgC
Monday, 22 September 2008
Accountability and Responsibility
A wise woman once told me that you get the government you deserve. It is one's responsibility to carefully consider potential political representatives and exercise their right to vote. A low voter turnout is usually exploited by incumbant representatives. Antipathy on the part of an electorate and the inevitably careless stewardship of compacent government is the fault of every eligible voter within a democracy.
The same could be said with regard to the running of a company. The quintessential essence of any private enterprise is that the stewardship and resulting profits or losses thereof are the responsibility and reward of its owners. The difficulty associated with running any organisation by committee increases exponentially with size so, most companies appoint a board of managment which is ratified by the shareholders at each AGM. No less than the democratic process of electing a government, the formation of a board of management is one of the most vitally important consideration for the shareholders of any company. The most important consideration however, is whether the business activities of the company are understood and accepted by the shareholder. This is not always the case.
Much in the same way that the average person in the street is capable of taking a tip on a horse that they no nothing more than the name of, and put £10 to £20 pounds, or more, on the fortunes of its racing career, there are intelligent, hard-working people who will buy shares in a company with little more understanding of their operations than the knowledge of one of their high street brand names. When these companies then lose money or, even go bust, the same people who took little care in researching the operations of this company then cry foul and demand all manner of government intervention. The necessity for rules enforcing responsibile corporate governance is without reproach however, the failure of a company due to the shortcomings of its business model or, indeed, the execution thereof, is ultimately the fault of its shareholders. By owning shares in a company, a shareholder implicitly acknowledges their endorsement of its executive board and the business practices it employs.
The sage of Omaha, Warren Buffett, has always said he only ever invests in companies he understands. An investment philosophy the man in the street would do well to practice.
The same could be said with regard to the running of a company. The quintessential essence of any private enterprise is that the stewardship and resulting profits or losses thereof are the responsibility and reward of its owners. The difficulty associated with running any organisation by committee increases exponentially with size so, most companies appoint a board of managment which is ratified by the shareholders at each AGM. No less than the democratic process of electing a government, the formation of a board of management is one of the most vitally important consideration for the shareholders of any company. The most important consideration however, is whether the business activities of the company are understood and accepted by the shareholder. This is not always the case.
Much in the same way that the average person in the street is capable of taking a tip on a horse that they no nothing more than the name of, and put £10 to £20 pounds, or more, on the fortunes of its racing career, there are intelligent, hard-working people who will buy shares in a company with little more understanding of their operations than the knowledge of one of their high street brand names. When these companies then lose money or, even go bust, the same people who took little care in researching the operations of this company then cry foul and demand all manner of government intervention. The necessity for rules enforcing responsibile corporate governance is without reproach however, the failure of a company due to the shortcomings of its business model or, indeed, the execution thereof, is ultimately the fault of its shareholders. By owning shares in a company, a shareholder implicitly acknowledges their endorsement of its executive board and the business practices it employs.
The sage of Omaha, Warren Buffett, has always said he only ever invests in companies he understands. An investment philosophy the man in the street would do well to practice.
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