Light at the End of the Tunnel

The first morsel of light poked through the darkness today.  It was reported on CFO.com that the bond market is showing signs of thaw.  According to the article, a "number of energy companies this week tapped the slowly thawing fixed-income market."  One such company, Nabors Industries Inc., an offshore and onshore drilling company, raised $1.125 billion in senior unsecured notes due in 2019.  What is encouraging is that the coupon rate is 9.25% while the bond is expected to yield 6.76%, impying the bond is priced at a premium.  

What is also remarkable is that the company was downgraded to a BBB-plus rating from an A-minus as a result of the added debt, meaning that this company was able raise a significant amount of capital at a premium price while being considered a lower-medium investment grade.  This was just one example among a number of others that have been able to tap into the bond market at premiums over par though not being considered high investment grade.   

These are promising developments, though by no means sure signs of relief, they do indicate that there is appetite in the market.  It should be noted that these are striclty energy companies, which generate revenue from a commodity that has a price right now that is unanimously considered to be poised for significant appreciation, namely oil.   But what is encouraging is that there are pockets of optimism brewing.  

 

Has Manufacturing and Engineering Lost Value?

Tom Peters posted an inspiring post on the value of the well-engineered hammer. He could not resist buying the one in this photograph. Reading Tom's comment section, I noted that a person called "ZED" wrote that that being a scientist or engineer has lost its value in North America.

I agreed and noted that "my two teenagers (who are heading towards engineering) tell me that the general comment by his peers are that those are Asian jobs and are being offshored to Asia. One of my teens is the only one in advanced math who is not Asian, but he tells me it's because of parenting. The hammer reminded me of Clint Eastwood's new movie, Gran Torino, where Clint's character teaches a second generation immigrant the American value of getting out the hammer and fixing up your home, your neighbour's home and getting a job. Just as Tom Peters discusses, it all comes back to that hammer. It's not fancy but it's work - decent hard work. It also makes me wonder when I read Daniel Pink who tells people that the engineers at his university were not loving their school work. Pink says to do what you love and if it's not making you happy all the time, don't do it. I really question that. Seems self indulgent."
Posted by Jacoline Loewen at January 5, 2009 9:54 AM

Tom Peters (my hero) responded:
I don't want to get in the middle of this, but beware apples and oranges. The Chinese are turning out engineers by the bushel. Or are they? A McKinsey Institute study last year claimed that some-many-most Chinese graduate engineers would not be accepted for engineering jobs in the U.S., EU, Japan, Korea, etc. At this point at least, many of the so-called engineering grads are holding what we might call a technician's certificate. Part of this is attributed to state control of curricula. Again, not my area of expertise.

Apples and oranges II.

Swedes, I just read, are horrified at the recent precipitous drop in math-science test scores. Most of it may come from a rapidly increasing immigrant population not as well prepared for school as the natives. For a long time, probably today, much of the U.S. SAT gap could be explained by the fact that everybody of age in the U.S. is encouraged to take the test--it's restricted to the educational elite in many countries.

Posted by tom peters at January 5, 2009 12:39 PM

Tax Cuts for Business Owners

Not to dwell on the past, but Bloomberg estimates that $30 trillion was erased from public equity markets worldwide last year. And Tunisia was the only market out of 69 in MSCI Inc. indexes that increased in 2008. 28 national benchmarks lost more than half their value, led by the 67% drop in Russia's Micex index, a 66% drop in China's CSI 300 Index and a 52% decline in India's Sensex Index. The U.K.'s FTSE 100 Index posted the smallest decline among the word's 20 largest markets falling 31%, and on a bright point - I believe that the TSX was second with a decline of 35% on an absolute basis.
"If there is something positive this early in January 2009," says Jacoline Loewen, author of Money Magnet and partner at Loewen & Partners, "It would be that the market continues to welcome actions taken by President elect Barack Obama who will be sworn in on Tuesday January 20."
Obama's stimulus package appears to be a mix between spending (to appeal to Democrats) and tax cuts (to appeal to Republicans). The funny thing about putting together such a large package is that it's really hard to find $800 billion worth of stuff to spend on that will be immediately stimulative to the economy; hence another reason perhaps that Mr. Obama is leaning more towards tax cuts.

PIPEs

According to Ron Burgundy, the "only way to bag a classy lady is to give her two tickets to the gun show, and see if she likes the goods".  Any red-blooded male would agree with Ron, but I'm not about to talk about those sorts of "pipes".

PIPEs, or private investment in public equities are beginning to come to the forefront of private equity investment strategy.  With the access to debt shut off and the amount of capital under management (or "dry powder") growing ever more restless, private equity fund managers are simply becoming more creative in their pursuit of returns.  Rather than pursuing the leverage buyout model, its fall from grace having been extensively documented, private equity funds are pursuing new models.  When the the sexy investment banks were de-robeing last summer for all of us to see what lay underneath their sophisticated Gucci credit default swaps and Prada securitized loan obligations we found a dumpy-looking pair of underpants from Writedowns Inc. The writedowns from Merril Lych, Citigroup, and the family on Wall Street offered a tremendous amount of discounted debt in the market.  Private equity funds bought this up.  

Since then the public markets have lost half their value, also, public listings have come to a standstill.  In Q3 of 2008, there were zero IPOs in the Toronto Stock Exchange.  Apparently, there is no appetite for private companies to see half of their value lost in a matter of weeks upon listing.  However, public companies looking to raise some funds are still able to do so, but from private equity funds.

Private investments in public equity (PIPEs) have picked up beginning at the end of last year according to this article in the Globe and Mail.  This is not news to those operating in the private equity space as this is becoming an increasingly active market to operate in, but it is a testament to the adaptable nature of private equity flexing its intelectual capital to generate returns from their "dry powder" when others spout on about the doom that lay ahead.  

6 Surprises of Transition Management

Transitions of leaders in businesses can be surprising, especially for the new leader. Here are the common surprises new CEOs face, and how to tell when adjustments are necessary.
Surprise One: You Can't Run the Company
Warning signs:
You are in too many meetings and involved in too many tactical discussions.
There are too many days when you feel as though you have lost control over your time.
Surprise Two: Giving Orders is Very Costly
Warning signs:
You have become the bottleneck.
Employees are overly inclined to consult you before they act.
People start using your name to endorse things, as in "Frank says…"
Surprise Three: It Is Hard To Know What Is Really Going On
Warning signs:
You keep hearing things that surprise you.
You learn about events after the fact.
You hear concerns and dissenting views through the grapevine rather than directly.

To read more
Transition within companies is the most important time to reap wealth for your hard work. Loewen & Partners advises owners on how to get the most value out of their businesses.