Honda may have found the answer to $4 plus gas.It has started production of the FCX Clarity fuel cell car that goes on lease in California this year. It is the first regular production fuel cell car aimed at individuals. The others have been aimed at fleet operators. The response has been overwhelming. People have been literally falling over themselves to get a chance to drive the sleek four door car, and Honda has drawn a lottery to decide who will be among the around 100 lucky ones who get to drive it.Mind you, this is when leasers will have to pay $600 a month as lease charges plus extra for fuel. The $600 a month however includes both collision insurance and maintenance.Even then it is a bargain as each car is estimated to cost more than $300,000 to build.A gallon of hydrogen fuel costs about the same as as a gallon of gasoline, but you get two to three times the mileage with hydrogen. Although GM has about a six month start with its Chevy Equinox fuel cell vehicle, Honda has come up with a much more attractive car.
The car's V-flow fuel cell has been developed in-house by Honda. It uses hydrogen to generate electricity, which powers the 134hp electric motor. The car is a front wheel drive, and travels 270 miles on a full tank of hydrogen. It has a top speed of 100mph, and goes from 0-60mph in 10 seconds. Honda intends to develop up to 300 FCX Clarity models over the next three years.
But presently there is a big negative to using hydrogen as a fuel. Making hydrogen takes more energy than hydrogen produces. It is proposed to produce hydrogen from natural gas and the world's reserves of natural gas are limited. Till such time that hydrogen can be produced from sea water, the days of really cheap fuel are still far away.
Saturday, June 21, 2008
Friday, June 13, 2008
Hedge Fund Manager Cheats Investors Of $450 Million And Vanishes.
Samuel Israel, founder of the Bayou hedge fund group has disappeared the day he was to begin a 20 year prison term for defrauding investors of $450 million. Police have put out 'Wanted' posters, and describe him as 'armed and dangerous.'
Founded in 1996, the fund raised about $300 million from investors, promising them that the fund would grow to $7.1 billion in ten years. The fund however never seems to have made any money and got along by overstating gains, or reporting gains where there were losses. In 1998, about three years after the fund was launched, international financial markets were in turmoil following the Asian crisis, and in America things were made worse by the threatened collapse of Long Term Capital Management. The fund made huge losses. In order to cover their losses the group approached investors for fresh money. In order to attract investors , Israel allowed them to join by bringing in a minimum of only $250,000, which is much smaller than the amounts typically demanded by hedge funds. He also waived his management fees and charged only 20% of the fund's profits as his remuneration. Simultaneously he hired a fresh firm of auditors who were willing to fake accounts to hide the mountain of losses the firm was saddled with.
But it was these very practices that started making people suspicious. As news got around about the true state of affairs, investigations were started, and in September 2005 the Commodity Futures Trading Commission filed a complaint in court alleging misappropriation and fraud.
In April of this year, Israel was sentenced to 20 years in prison and ordered to pay a fine of $300 million after pleading guilty to defrauding investors. On the 10th of June he vanished just hours before he was to begin serving his sentence. It could be suicide, but people suspect that he has faked his death and is on the run.
Founded in 1996, the fund raised about $300 million from investors, promising them that the fund would grow to $7.1 billion in ten years. The fund however never seems to have made any money and got along by overstating gains, or reporting gains where there were losses. In 1998, about three years after the fund was launched, international financial markets were in turmoil following the Asian crisis, and in America things were made worse by the threatened collapse of Long Term Capital Management. The fund made huge losses. In order to cover their losses the group approached investors for fresh money. In order to attract investors , Israel allowed them to join by bringing in a minimum of only $250,000, which is much smaller than the amounts typically demanded by hedge funds. He also waived his management fees and charged only 20% of the fund's profits as his remuneration. Simultaneously he hired a fresh firm of auditors who were willing to fake accounts to hide the mountain of losses the firm was saddled with.
But it was these very practices that started making people suspicious. As news got around about the true state of affairs, investigations were started, and in September 2005 the Commodity Futures Trading Commission filed a complaint in court alleging misappropriation and fraud.
In April of this year, Israel was sentenced to 20 years in prison and ordered to pay a fine of $300 million after pleading guilty to defrauding investors. On the 10th of June he vanished just hours before he was to begin serving his sentence. It could be suicide, but people suspect that he has faked his death and is on the run.
Thursday, June 12, 2008
U.S. Economic Slowdown Threatens Deflationary Spiral.
When the subprime crisis first broke in August of last year, few anticipated the extent and depth of the crisis. At that time it was estimated that subprime related losses would be about $140 billion. The situation was bad but not impossible and Bernanke rightly assumed that simple adjustments to interest rates would take care of the situation. But the banks and financial institutions had hidden their risky investments too well in off balance sheet entities, to avoid regulatory supervision, as a result of which losses were grossly underestimated. As the magnitude of the crisis unfolded, there was panic all round and the Fed's primary task became one of saving the financial system, never mind inflation or the value of the dollar.
In order to prop up the financial system an unprecedented amount of money has been pumped into the market. It is this growth in money supply which lies at the root of inflation, although it has become fashionable to blame emerging market growth and commodity prices for it. Inflationary pressures coupled with falling home prices, have finally taken their toll on consumer sentiment. A near stagnant economy, together with falling asset prices and the devaluation of the dollar has impoverished the American people.
The economic numbers released lately paint a picture of the economy which is not as grim as expected, which has prompted many experts to stick their necks out and predict that the worst is over. But this may not be the case, and in fact the worst may just be about to begin. This is because in order to fight inflation the Fed will have to increase interest rates sharply, although it may choose to wait till after the November elections to do so. Central banks all over the world are expected to follow the Fed in raising interest rates to tame runaway prices. The impact of rising interest rates on an economy already teetering on the brink of recession is almost a foregone conclusion. Economic activity in the US is expected to decline further. These recessionary conditions will put further pressure on asset prices and they are expected to fall across the board. Bond prices will fall as interest rates rise, as will stocks, as higher interest rates eat into corporate profitability and falling demand reduces their ability to raise prices. Home prices are already projected to continue falling till the end of the year at the very least.
Banks and other financial institutions have already written down the value of their assets by about $389 billion, which has impacted their share prices. Reduced economic activity will impact future revenues and reduce earnings as well as valuations. The only chance of avoiding this scenario would be if by some miracle oil and commodity prices were to come down sharply. If this happens without having to raise interest rates too far, a deflationary spiral may perhaps be avoided.
In order to prop up the financial system an unprecedented amount of money has been pumped into the market. It is this growth in money supply which lies at the root of inflation, although it has become fashionable to blame emerging market growth and commodity prices for it. Inflationary pressures coupled with falling home prices, have finally taken their toll on consumer sentiment. A near stagnant economy, together with falling asset prices and the devaluation of the dollar has impoverished the American people.
The economic numbers released lately paint a picture of the economy which is not as grim as expected, which has prompted many experts to stick their necks out and predict that the worst is over. But this may not be the case, and in fact the worst may just be about to begin. This is because in order to fight inflation the Fed will have to increase interest rates sharply, although it may choose to wait till after the November elections to do so. Central banks all over the world are expected to follow the Fed in raising interest rates to tame runaway prices. The impact of rising interest rates on an economy already teetering on the brink of recession is almost a foregone conclusion. Economic activity in the US is expected to decline further. These recessionary conditions will put further pressure on asset prices and they are expected to fall across the board. Bond prices will fall as interest rates rise, as will stocks, as higher interest rates eat into corporate profitability and falling demand reduces their ability to raise prices. Home prices are already projected to continue falling till the end of the year at the very least.
Banks and other financial institutions have already written down the value of their assets by about $389 billion, which has impacted their share prices. Reduced economic activity will impact future revenues and reduce earnings as well as valuations. The only chance of avoiding this scenario would be if by some miracle oil and commodity prices were to come down sharply. If this happens without having to raise interest rates too far, a deflationary spiral may perhaps be avoided.
Wednesday, June 11, 2008
High Oil Prices May Cause De-Globalization!
The global economy today is more integrated than ever before. Globalization has on the whole, brought tremendous benefits to the participating nations.Among other reasons, the unprecedented worldwide economic boom witnessed in the last few years was due to manageable oil prices. I say manageable because, while oil prices which were around $30 a barrel before the start of the US led invasion of Iraq, rose to about $60 a barrel by the end of 2006, they were still well below earlier peaks after adjusting for inflation. Trade between nations has grown exponentially, particularly between the US and other Asian countries, which have been able to successfully leverage their low wage structure. In the process these Asian countries, notably China, came to enjoy sustained double digit rates of growth, which lifted a large proportion of its huge population out of poverty. The cheap goods which they exported to the US, helped in keeping inflation there in check and prevented any major increases in wages. This led to a tremendous improvement in US corporate productivity and profitability.
Now the dream is coming to an end.The cost of transporting both goods and people is rising at such a fast pace that it threatens to derail global trade. Shipping costs to the US from Asia have already tripled since 2000, and are set to rise further as oil prices show no signs of coming down.Not only is the cost of shipping goods to the US from China increasing, China finds that the cost of importing raw materials is increasing as well, which will undoubtedly impact its profitability. The rising cost of imports will further increase inflationary pressures within the US economy and will make the Fed's job of restraining inflationary pressures more difficult. The Fed is well aware of the problem that it faces, and in recent comments Bernanke has focused more on the dangers of inflation with the housing crisis taking a back seat. It has to perform a tough balancing act in the days to come. Faced with expensive imports, consumers are likely to switch their demand to locally manufactured goods, which though being good for local industry as it gives them pricing power, will certainly impact global trade. The process of de-globalization seems to have begun.
Now the dream is coming to an end.The cost of transporting both goods and people is rising at such a fast pace that it threatens to derail global trade. Shipping costs to the US from Asia have already tripled since 2000, and are set to rise further as oil prices show no signs of coming down.Not only is the cost of shipping goods to the US from China increasing, China finds that the cost of importing raw materials is increasing as well, which will undoubtedly impact its profitability. The rising cost of imports will further increase inflationary pressures within the US economy and will make the Fed's job of restraining inflationary pressures more difficult. The Fed is well aware of the problem that it faces, and in recent comments Bernanke has focused more on the dangers of inflation with the housing crisis taking a back seat. It has to perform a tough balancing act in the days to come. Faced with expensive imports, consumers are likely to switch their demand to locally manufactured goods, which though being good for local industry as it gives them pricing power, will certainly impact global trade. The process of de-globalization seems to have begun.
Sunday, June 8, 2008
Iran Backs Morgan Stanley Prediction Of $150 Oil.
Oil prices spiked by a record 9% in a day, to slightly over $139 a barrel, Friday. The spike is widely believed to have been prompted by a Morgan Stanley forecast that oil prices will rise to $150 a barrel before July4th, the Independence Day holiday week, which is traditionally the busiest driving week in the US.
Now Mohammad Ali Khatbi, Iran's representative to OPEC, has said the same thing. On Sunday he said,'I forecast that by the end of the summer, the price of oil will reach $150 per barrel.' He blamed the weak US dollar and the situation in the Middle East for the rise in oil prices. The already tense situation in the Middle East was further aggravated by the remarks of Israeli minister Shaul Mofaz, who on Friday said that an attack on Iran looked 'unavoidable,' to stop it from acquiring nuclear weapons. The Israeli government, undoubtedly under pressure from the US, sought to distance itself from these remarks, and a senior defense official said Sunday that the remarks did not reflect official policy. The Iranian government meanwhile has demanded action against Israel from the UN Security Council, for making the threat.
Meanwhile, an increasing number of influential voices have now started saying that there is a bubble in oil prices. George Soros says:' Speculation....is increasingly affecting the price. The price has this parabolic shape which is characteristic of bubbles.' However, no one has as yet stuck his neck out to predict when oil prices will decline.
How good is Morgan Stanley's prediction? It is worth remembering that it wrote off about $9.4 billion in subprime losses in December of last year, and was itself rescued by the Chinese state investment company CIC, which picked up a 9.9% stake in the company for $5 billion!
As for Iran, inflation for the Iranian month ending May 20th was at 25.3%, up from 24.2% in the previous month, its central bank revealed Sunday. President Ahmadinejad's government is facing increasing criticism at home, for its handling of the economy. One of the country's most influential clerics, Ayatollah Nasser Makaram Shirazi has said that,' the bad management in the economic affairs of the country is perfectly clear.'
So you have a choice between the prediction made by a failed merchant banker and a failed State. It will be interesting to see whether, once the oil bubble gets pricked, the US government will come up with another bail-out package for the banks and financial institutions involved.
Now Mohammad Ali Khatbi, Iran's representative to OPEC, has said the same thing. On Sunday he said,'I forecast that by the end of the summer, the price of oil will reach $150 per barrel.' He blamed the weak US dollar and the situation in the Middle East for the rise in oil prices. The already tense situation in the Middle East was further aggravated by the remarks of Israeli minister Shaul Mofaz, who on Friday said that an attack on Iran looked 'unavoidable,' to stop it from acquiring nuclear weapons. The Israeli government, undoubtedly under pressure from the US, sought to distance itself from these remarks, and a senior defense official said Sunday that the remarks did not reflect official policy. The Iranian government meanwhile has demanded action against Israel from the UN Security Council, for making the threat.
Meanwhile, an increasing number of influential voices have now started saying that there is a bubble in oil prices. George Soros says:' Speculation....is increasingly affecting the price. The price has this parabolic shape which is characteristic of bubbles.' However, no one has as yet stuck his neck out to predict when oil prices will decline.
How good is Morgan Stanley's prediction? It is worth remembering that it wrote off about $9.4 billion in subprime losses in December of last year, and was itself rescued by the Chinese state investment company CIC, which picked up a 9.9% stake in the company for $5 billion!
As for Iran, inflation for the Iranian month ending May 20th was at 25.3%, up from 24.2% in the previous month, its central bank revealed Sunday. President Ahmadinejad's government is facing increasing criticism at home, for its handling of the economy. One of the country's most influential clerics, Ayatollah Nasser Makaram Shirazi has said that,' the bad management in the economic affairs of the country is perfectly clear.'
So you have a choice between the prediction made by a failed merchant banker and a failed State. It will be interesting to see whether, once the oil bubble gets pricked, the US government will come up with another bail-out package for the banks and financial institutions involved.
Saturday, June 7, 2008
Yahoo vs. Icahn-War Of Words Hots Up.
The embattled Yahoo board has shot off a brief letter to Icahn in response to his post-proxy plan. 'Leaving aside Mr. Icahn's inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo. We believe that Mr. Icahn's suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo and would clearly not be in the best interests of our shareholders. Furthermore, his suggestion that we put out a price probably to see if Microsoft will alter its stated position is ill advised. As we have stated numerous times publicly and privately, we are open to any transaction including a sale to Microsoft if it is in the best interests of shareholders.'
Yahoo is clearly sticking to its old line that it is still open to negotiations with Microsoft if the price is right. It is also successfully driving home the point that Icahn has no intention of running the company and only wants to sell it, most probably to Microsoft. Microsoft's silence has only served to confuse the shareholders. It clearly finds itself in a dilemma. If it comes forward to say that it wants to buy Yahoo that will certainly drive up the share price, and weaken its bargaining position. On the other hand if it keeps quiet then Icahn is certainly going to fail in his attempt to unseat Yahoo's board on August 1st. This is simply because most shareholders feel that if Icahn manages to gain control, Microsoft will have no incentive to pay more than $33 a share.
The plot is thicker than it appears at first sight. Icahn has launched his assault even while Yahoo and Microsoft are already engaged in negotiations. Does he want to broker a deal between the two companies or does he simply want to arm twist Yahoo's management into accepting Microsoft's next offer? Let's see what happens next.
Yahoo is clearly sticking to its old line that it is still open to negotiations with Microsoft if the price is right. It is also successfully driving home the point that Icahn has no intention of running the company and only wants to sell it, most probably to Microsoft. Microsoft's silence has only served to confuse the shareholders. It clearly finds itself in a dilemma. If it comes forward to say that it wants to buy Yahoo that will certainly drive up the share price, and weaken its bargaining position. On the other hand if it keeps quiet then Icahn is certainly going to fail in his attempt to unseat Yahoo's board on August 1st. This is simply because most shareholders feel that if Icahn manages to gain control, Microsoft will have no incentive to pay more than $33 a share.
The plot is thicker than it appears at first sight. Icahn has launched his assault even while Yahoo and Microsoft are already engaged in negotiations. Does he want to broker a deal between the two companies or does he simply want to arm twist Yahoo's management into accepting Microsoft's next offer? Let's see what happens next.
Sunday, June 1, 2008
'Liar Loans' To Blame For Housing Crisis.
It is now clear that the housing crisis was basically caused by liar loans. Liar loans are those which do not require any documentation of income. Ironically such people have only ended up harming themselves. They overstated their incomes to buy houses they couldn't afford and now they are bankrupt. It is not as if the lenders did not know that the guy taking out the mortgage was lying about his income. Most of the time they had a fair idea that he was lying, but as long as the fees and commissions were coming in it was all right. They pushed loans which they knew he couldn't afford, and worst of all they concealed facts from him. The teaser rates hid the fact that the rates would reset later at much higher levels. After all everybody has to pay the price some day.
To get a fair idea of the extent of the problem and also why it isn't going away, you only have to look at some of the figures. For instance, during the boom years 43% of first time buyers purchased their houses with no-money-down loans. The average first time home buyer put down only 2% of the price of the house before moving in. He then usually managed a second loan to make improvements to the house according to his liking. Predatory lenders pushed innovative financial instruments to induce more Americans to buy a home. But an average down payment of 2% meant the guy just had no incentive to try and hang on to his house. When the going got tough he simply walked out. With foreclosed properties flooding the market there is increased pressure on home prices to the point we have a downward spiral in place. Prices were down 14.1% in the first quarter of the year , and are predicted to fall further.
The crisis has led to some welcome developments however, which will protect home owners in the long run. Lenders for one, are now asking for higher down payments and greater documentation of income. Although this is irritating, it ensures you end up buying only what you can afford. The most interesting development is that some builders are now offering price guarantees of up to three years. Although this may not help if the builder himself files for Chapter 11, such offers are likely to help the market find a bottom sooner rather than later.
To get a fair idea of the extent of the problem and also why it isn't going away, you only have to look at some of the figures. For instance, during the boom years 43% of first time buyers purchased their houses with no-money-down loans. The average first time home buyer put down only 2% of the price of the house before moving in. He then usually managed a second loan to make improvements to the house according to his liking. Predatory lenders pushed innovative financial instruments to induce more Americans to buy a home. But an average down payment of 2% meant the guy just had no incentive to try and hang on to his house. When the going got tough he simply walked out. With foreclosed properties flooding the market there is increased pressure on home prices to the point we have a downward spiral in place. Prices were down 14.1% in the first quarter of the year , and are predicted to fall further.
The crisis has led to some welcome developments however, which will protect home owners in the long run. Lenders for one, are now asking for higher down payments and greater documentation of income. Although this is irritating, it ensures you end up buying only what you can afford. The most interesting development is that some builders are now offering price guarantees of up to three years. Although this may not help if the builder himself files for Chapter 11, such offers are likely to help the market find a bottom sooner rather than later.
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