Al, Steve, Scott Edwards, Island mutt: I have the following answers from Ike on your questions especially Al's question on Iraqi strategy. Ike thinks this is a forward looking value added thread so naturally the issues raised should be not what New York Times or Post will be reporting, we will have our own reads and in his opinion, there are serious issues in this whole crisis that need to be answered. I'm putting all the answers in one go as connection is a problem. I've taken dictation on separate messages but decided to put them together:
1. Al: Ike wanted to congratulate you on BROD & GTE, what a great run we had on this stock...keep it up!
2. Steve: Ike thinks that fundamental bull case is intact. For Basle adequacy ratio, this is a Bank ofInternational Settlements requirement, this is actually central banks' central bank which enforces certain financial ratios on banks in OECD countries. According to these ratios, the banks should meet the minimum capital requirement of 8%; you will get more details on 'Yahoo'. In case the banks are unable to meet the capital requirements, they are either asked to inject new capital or subordinated loans are sought from the ultimate shareholders. It is these capital requirements and Basle adequacy ratios due to which Japanese banks are said to be in risk of liquidating treasury bills if Nikkei kicks out 15000; because if Nikkei takes out 15000, the banks which are holding Japanese equities and other market assets will not be able to meet the 8% threshold and as such would require to raise the cash levels. So on one hand they bring a lot of strength to the market, on the other, these ratios also create a lot of volatility but this volatility is for the overall good of the market, because bank assets have to be carefully monitored and reviewed by the bank management to maintain their compliance with international standards. One of the problems of South Korean markets and hyped up markets is that they don't let the conglomerates fail. But to keep the banks on a tight leash is good for the monetary system. I have taken notes of this over the phone, as I read your message to him, but if you need more information, he will answer you from London. He also wanted the thread to know that these type of basic questions are important and would welcome more of such queries as it meets the objective of continued education of international financial markets.
3. Scott: Ike thanks you for liking the thread. He would love to know more about smaller companies but he's maintained his universe of stocks, not more than 150 stocks that he monitors all over the markets like in Nikkei he monitors Sony, Canon, S&E, Hitachi, and key stocks like Koycera, in Hong Kong he's after Henderson Land, in Philippines Long Distance, some Thai banks and some key Malaysian and Indonesian stocks. He's also very hot on Singapore Webs and Italian Webs for long positions; in CAC and DAX he likes AXA, stocks like LMVH; in FTSE he's looking out at HSBC and Cabal and Wireless, and of course technology index in US along with stocks like consumers, like ETH and HMY, so at the moment he thinks that year 2000 problem stocks can be played off technolgy but he hasn't researched into it and has kept himsel out of the small stocks. In his big picture, year 2000 problem do not take much of space. In his opinion, he believes that these problems are well exaggerated and will be fixed without much fanfare. He also thinks that because of his lack of technical background, he may be off mark but would like to be educated and certainly thinks that it would be good for the thread if he can have someone who contributes on this subject.
4. Island Mutt: I think Klic and Klac have done extremely well. It is a good idea to keep the option of covered calls if SOX 292 is taken out. Again on Sudan, the political prospects of the country do not seem very bright; there is a north-south divide within the country and extreme political polarization. Its a country dominated by Sunni Islam and the general who runs the country has been holding onto power with scant regard to general public and minorities are persecuted. I don't know where this oil field is located but if the stock has been going up in good volume and has increased 3-fold, then I'd check where the geographical location of this oil field was. Will there be a possibility to ship this oil out, especially the kind of sanctions Sudan is under? These are good lucrative places to be in but unfortunately Ike's restricted universe of stocks his only advice would be to check out for transportation and geographical location of oilfields, especially in context of north-south divide this is a very important element. If you send Ike a private e-mail, he will send you some details on north-south divide and persecution of minorities in Sudan which may not bode very well for the future of Sudan. Of course, you will take a decision based on all the above facts, but all this is from the "big picture" point of view. As individual stock he has no idea about this company, maybe you've hit a goldmine. Ike believes that stocks like SFR, Sonat and Tidewater, once OSX 103 is taken out and if oil prices globally stabilize, they have already gone below $15, they will certainly pop up in a week's time if the shooting starts in the Gulf, but the fundamentals even in wake of a spike for a week or two are poor for oil. The Brent has declined from last 4 months from $21 to $14.85, I think we'll see it moving up to resistance of $17 and falling back to $12-13 level. I noticed speculators are holding big shot positions on Brent future contracts, that has also to be taken into account in context of a longer view. Check out what the breakeven points are for these oilfields, what is the production cost, if the production and transportation cost is below $10 that provides you a good enough cushion but above that you have a problem on profitability. Although at the beginning of the year I had a different view on the oil prices but I think we'll see some softness to continue, because I believe that Saddam will be taken out, the crisis in the Middle East is not about opening of presidential palaces, it is about containment of Iraq and elimination of Iraqi leadership. The consensus has been reached and I think that Iraqis who have never been loyal to any of their dethroned leaders will once again demonstrate by soon dragging their leadership in the streets of Baghdad. This has been happening from time immemorial in Iraq and will continue to happen. Once Iraqi leadership is removed, I think the new leadership and the new public will be waving American flags for freeing them from the clutches of Saddam, and in this scenario of mine, you will see pumping out 4-5 million barrels, that would really bring prices down to $12. Of course if the military strike does not happen, which might be a bluff, although I don't think so, and if Saddam stays in power, you have permanent imbalance in the region and the crisis will continue and oil prices instead of heading south may head up to $18-19. Political instability in the Middle East will not bode well for mid term for world equity markets because the reason strikes will not happen and regime not eliminated will be due to Americans and British yielding to Russian and Chinese new assertiveness. That indecisiveness on the part of US-British alliance will be viewed by the financial markets as an unsaid division or accepted doctrine of Russian-Chinese's new influence in the balance of power, especially in context to southern hemisphere and Middle East. If that happens this would be the first time after the Iron Curtain was ripped apart that Russia and China would show along with renegade France a new axis on the other side of the Atlantic. A capitalist Russia, a capitalist France, and a semi-capitalist China agreeing to contain unabashed American influence, in my big picture, continuity in Saddam's regime is implicit acceptance of this new role of three other Security Council superpowers in the balance of power equation and this is going to be a big change. Markets are not priced for this assertive nature of strategic combination; it will have its own ramifications, but I think we have gone way off the original topic but I'm keeping a very close eye on the Middle East and will be watching events very carefully. For me, these are moments of historic proportions in the world of diplomacy. Russia will have to yield and France will have to fall in line with its traditional alliance.
Dictated over the telephone by Iqbal Latif |
