unintended consequences of lower oil price

The IEA released 60 million crude oil and the crude price dropped 5%. It may backfire. The supply in crude is tight and the high price is keeping a lid on demand. When the high price lasts longer, it can change people's behaviour, such as buying electronic car. If the prices turn lower quickly then people will go out buy those SUV again and demand will shut up. The longer the crude price is kept low, the bigger the supply problem will be. I hope the IEA release is one-time only. if not, we will see crude price shut up to 150 in the summer of 2012.

lsx increase bid for TSX

Just as I expected, London stock exchange increased the bid for TSX by 4 dollars. In response, Maple group increased its bid by $2 to $50. There are still regulatory hurdles to overcome. I will sell the share around 46.

RIMM

Research in Motion dropped 20% today. Just as I predicted in Nov. 2009, smart phone would become a commodity and competition would intensify and margin would drop. Sure it all happened in 18 months. How should we value RIMM right now. From income point view, a p/e of 5.5 does not give you much for a negative growth company. Instead, I would turn to the balance sheet. RIMM has 3 billion dollar cash and very little debt. 3 billion cash transfer to $5.5/share. The ongoing business is selling about 13 billion dollar. The real estate and equipments probably are worth 3-4 billion dollar and Patents are worth 1 billion dollar. Given that the company is still profitable and make 2-3 billion dollar a year, I do not see the share go lower than 20 dollars (around 12 billion Enterprise value). I would buy it below 25 dollar.

ｌｏｗ ｉｎｔｅｒｅｓｔ ｒａｔｅｓ ｔｈｒｅａｔｅｎｓ ｉｎｓｕｒａｎｃｅ ｃｏｍｐａｎｉｅｓ

Ｔｈｅ　ｕｌｔｒａ　ｌｏｗ　ｉｎｔｅｒｅｓｔ　ｒａｔｅｓ　ｉｎ　ｄｅｖｅｌｏｐｅｄ　ｃｏｕｎｔｒｉｅｓ　ｈａｖｅ　ｃａｕｓｅｄ　ｐａｉｎ　ｆｏｒ　ｉｎｓｕｒａｎｃｅ　ｃｏｍｐａｎｉｅｓ，　ｅｓｐｅｃｉａｌｌｙ　ｌｉｆｅ　ｉｎｓｕｒａｎｃｅ　ｃｏｍｐａｎｉｅｓ．　Ｍｏｓｔ　ｌｉｆｅ　ｉｎｓｕｒａｎｃｅ　ｃｏｍｐａｎｉｅｓ　ｈａｖｅ　ｔｏ　ｉｎｖｅｓｔ　ａｎｄ　ｒｅｉｎｖｅｓｔ　ｔｈｅ　ｐｒｅｍｉｕｍｓ　ｉｎ　ｌｏｎｇ　ｔｅｒｍ　ｇｏｖｅｒｎｍｅｎｔ　ｂｏｎｄｓ．　Ｔｈｅ　ｌｏｗ　ｉｎｔｅｒｅｓｔ　ｒａｔｅ　ｗｉｌｌ　ｆｏｒｃｅ　ｔｈｅｍ　ｅｉｔｈｅｒ　ｉｎｃｒｅａｓｅ　ｐｒｅｍｉｕｍ　ｏｒ　ｇｅｔ　ｉｎｔｏ　ｒｉｓｋｉｅｒ　ｉｎｖｅｓｔｍｅｎｔｓ．　Ｎｏｎｅ　ｏｆ　ｔｈｅｍ　ａｒｅ　ａｔｔｒａｃｔｉｖｅ　ｏｐｔｉｏｎｓ．　Ｔｈｅ　ｄｏｗｎｔｕｒｎ　ｉｎ　ｓｔｏｃｋ　ｍａｒｋｅｔ　ｗｉｌｌ　ａｌｓｏ　ｈａｖｅ　ｉｍｐａｃｔ　ｏｎ　ｖａｒｉａｂｌｅ－ｇｕａｒａｎｔｅｅｄ　ｐｒｏｄｕｃｔｓ．　

toronto stock exchange

The battle for control of TSX has intensified but the stockholders are more confused than ever. The stock drooped one dollar today and the vote is June 30th. My guess is that London Stock Exchange will increase its offer closer to 48 and give little time for Maple to react. If London Stock Exchange keep the current offering price, there is less likely it will get the vote. I will buy X @around 43.30 in Toronto today and get our around 47

supply disruption vs. demand surge

The high commodity prices have caused inflation around the world. The slowing demand induced by high interest rate in China and other emerging market have somewhat the muted impact on overall commodity prices. The reason is simply, we have supply disruptions. First, OPEC refused to increase output yesterday (you have to question if they have the ability to increase the supply), Second, the weather has played a major role to disrupt agriculture products. Third, the political and military difficulty in Africa and middle east have made investments in mining in those countries less desirable. All these increase the prices of commodities. I am afraid we are in a high inflation and low growth period and The Fed can do little about it.

QE3, nokia and msft

The economic data are very downbeat and the market is speculating that Fed is going to do a QE3. My take is QE3 won't happen. The cost is much higher than benefit for another round of QE. The inflation would fly higher and average American will suffer. Emerging market will have to tight more and Fed's reputation will suffer greatly.

There is rumor that MSFT will buy Nokia's wireless business. It would be good for MSFT if it happens. Nokia still has the biggest market share in emerging market. If window platform can takeoff, then the merge will be good for both companies.