matisse capital management

Around the World

Coventry shares fall from $16.30 to $0.69: Globe and Mail

Adviser Ian Thow fined $6 million: Globe and Mail

China's central bank raises rates again: BBC

ANZ Bank plans to double profit in 5 years: Sydney Morning Herald

Petrobras finds even more offshore oil: Brazzil Magazine

Air France cancels 20% of flights at Orly: Bloomberg

Major Artworks Stolen in Brazil

A painting by Pablo Picasso and and one by Brazilian artist Candido Portinari were stolen in Sao Paolo yesterday.  The paintings were in the Sao Paolo Museum of Art, located on the busiest street in the city.  Thieves used a crow bar to get in just before dawn.  This was their second attempt; on the last try, the alarms went off, but this time they did not.  The Picasso, titled "Portrait of Suzanne Bloch", could be worth as much as $50 million and the Pontinari $5-6 million.  The detailed story can be found at the International Herald Tribune.  What, exactly can you do with such well-known paintings?  Hold them for ransom?  Or sell them at a huge discount to a collector that would keep them hidden?  The painting by Portinari, O Lavrador de Cafe, above left, is an equally outstanding work and is pictured after the jump.

Market Notes: More Financial Fallout

The Guardian UK has probably the best discussion of the current credit and subprime issues facing the market today.  The following important stories are covered in its business pages:

Friends Provident, a FTSE100 Index member, suspended withdrawals from its £1.2bn property fund.  Reportedly the funds 118,000 investors will be unable to access their money for "up to six months."  The suspension was made because of the rapid drop in commercial property values, primarily office and retail, and the fact that the fund's cash buffer had dropped to 5%, while it is normally 10-15%. The full story can be found at the Guardian.

Barclays' sues Bear Stearns for fraud and deception related to its loss of $400m (£200m) in a hedge fund invested in mortgage backed securities.  The suit also names two individuals.  The full story can be found at the Guardian.

Sallie Mae CEO's bizarre conference call: CEO Albert Lord on an upcoming mid-January meeting, "I would suggest you get there early because I can assure you, you will be going through a metal detector."  The Guardian reported that "Lord sold almost all his shares in the company for $34m at a market price of just over $27. The shares plummeted $4.69 to $24.18 yesterday."  More here in a story titled "Don't ask me I just run the company."

Around the World

Brussels to Mastercard: drop your fees: Financial Times

Bank of England likely to lower rates in '08: Telegraph

Major commercial property firm's profits slide: Telegraph

EU to create single-market healthcare: Guardian

Petrobras opens two new platforms: Brazzil Magazine

Stocks to Weather the Downturn

The Dow is down 4% over the last 90 days, but these stocks are up.   Most have a beta below 1.0 and pay a dividend.  And all are major companies that have survived past recessions.  Here are their three month returns:

CBI, Chicago Bridge and Iron, +37%

MSFT, Microsoft Corporation, +20%

TROW, T Rowe Price, +15%

OXY, Occidental Petroleum, +10%

FLO, Flowers Foods, +10%

PG, Proctor and Gamble, +10%

Does the Fed Have the Right Strategy?

The Fed cut the federal funds rate 25 basis points on December 11.  But was this the right strategy?  Clearly, the Fed had to do it.  Given the "difficulties" at Citigroup, Morgan Stanley, Countrywide, American Home and Northern Rock, the writing was on the wall.  Mortgage backed securities have become impossible to sell and subprime vehicles that were exported around the world caused problems in Germany, Australia, France, the UK, and even Iceland.  As everyone now knows, this has created a crisis of confidence and liquidity, that has threatened even better capitalized companies.  The consequences of not cutting the rate would have been dire.  So the rate cut was the right short-term strategy, but the hand of the current Fed was forced by Greenspan who left rates too low for too long, a lax policy that, in our opinion, created many of the current problems.  The federal funds rate was below 2% between 2002 and 2004, creating negative real interest rates.  The last time this happened was in the mid 1950's, see the chart above.  While this may have been temporarily necessary, it was the wrong strategy for the long term.  And historically speaking, the Fed's rates are still low.

Market Notes - Economic Signposts

Is commercial real estate the next to fall? Centro Properties, a major retail owner/operator with mall properties in the US, Australia and New Zealand is having difficulty finding sources to refinance loans as they mature in the US.  The company suspended its dividend and may have to sell some properties.  See the full story here.

Britain braces for stagflation - The Confederation of British Industry (CBI) report shows a slowing economy and growing unemployment, coupled with rising food and energy prices.  In short, the possibility of stagflation in 2008.

How Productive is Sarbox?

Under Sarbox, or Sarbanes Oxley, foreign shares listed on the NYSE, NASDAQ, or AMEX require an additional layer of accounting, CEO and CFO certifications, and audit committees. While well-intentioned, Sarbox has its costs.  Recent data shows that for large US companies the cost of compliance averages $2.5 and $6 million per year.  However, for foreign firms the costs are much higher and are estimated to be up to $12 million per year.  Some of the best foreign companies have simply delisted, when costs outweigh the benefits.  This is certainly not a positive thing for investors.  Isn't the free movement of capital desirable, and shouldn't US investors have easy access to investing in foreign companies and vice versa?  Below are a few of the companies that have delisted and their year to date returns.  Some are available OTC:

BASF Corporation, Germany, +76%

Bayer AG, Germany, +75%

E.On AG, Germany, +76%

Volvo AB, Sweden, +26%

LaFarge Cement, France, +35%

Suez, France, +50%

Australia New Zealand Bank, Australia, +11%

National Australia Bank, Australia, +14%

Market Notes

Volatility is here to stay.  It is always surprising to hear reporters on CNBC asking "Where is all this volatility coming from?"  Up 200, down 300 in a day. It's simple.  The elimination of the Uptick Rule is a large part of the problem.  A discussion of this rule and its impact can be found here.  The opaque statements by the Fed don't help either.

Stagflation is a concern.  Core inflation is accelerating in the US, and rose at the fastest rate in two years, see story.  This is occurring at a time when the economy is being slowed by the housing sector and a lack of available credit.  A discussion of stagflation is here. 

Around the World

Canada now China's number two trade partner: Globe and Mail

The Fed is creating market volatility: Financial Times

Subprime hits Hong Kong bank: The Standard

Brazil GDP growth accelerates to 5.3%: Brazzil Magazine

Failed Northern Rock to be nationalized?: Guardian

Still no agreement on BHP's Rio acquisition: Sydney Morning Herald