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Archive for September, 2007

World Affairs Council Hosts Russian Dmitri Trenin

Posted in Politics, World News on September 28, 2007 |

On Friday September 21 at the University Club in Portland, Oregon the World Affairs Council of Oregon hosted Dmitri Trenin, a frequent guest on NPR, and leading expert on Russian US Relations. Trenin gave a fascinating 90 minute talk, including answering several questions. He highlighted that Putin has an 80 percent approval rating and added that Moscow alone, now the world’s most expensive city, has 95,000 millionaires.

When asked why so many former security agents are in key roles in Russia, both public and private, he noted that historically they have been more independent that military personnel. In general, military people did not do well with the breakup of the Soviet Union, he noted. They think of others, their regiment, etc. while security people were bred to be more independent and able to say, what in this for me. He added that the challenge for the next 20 years will be “rule of law.”

When asked about, Mikhail Fradkov, the financial regulator Putin has named as new prime minister, after discharging both his cabinet and the previous prime minister, Trenin noted that he was appointed due to his loyalty to Putin but added that he saw him as honest. This regulator’s primary role was addressing money laundering and restoring confidence among the international banks. He also made a major contribution in stabilizing Russia’s tax system. While in Saint Petersburg in June it was interesting to note that casinos, ideal for laundering money, and prevalent at metro stations, are being banished to Siberia.

Here in Portland Oregon, where lobbyists are representing Indian tribes battling over casino locations and other related parties, the debate is instead whether to site a casino in downtown Portland or in Cascade Locks, the heart of one of the world’s most beautiful places, The Columbia Gorge. Maybe Fradkov could do a brief consulting gig for Oregon’s governor Ted Kulongowski, The Oregon Legislature and the Portland City Council, and help protect this most extraordiary place, the Columbia Gorge.

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Inside Story on how Microsoft got Googled

Posted in Federal Reserve and SEC, News Analysis, Technology and Microsoft on September 28, 2007 |

I use various Google products, including Gmail. Yet I do so with the knowledge that Google’s primary business is the sale of privacy, not technology. It is hilarious to see Congress debate privacy issues surrounding Google’s proposed acquisition of doubleclick. And Microsoft’s attempt to block the acquisition misses the key point, a tax loophole Google is skillfully exploiting, just as Microsoft did prior to 2003.

Google is now accumulating vast amounts of cash via non-payment of income taxes and Microsoft has no hope of competing with this. When I first disclosed that Microsoft paid zero federal income taxes in 1999, Gretchen Morgenson, a reporter at the NY Times who went on to win a Pulitzer Prize doing stories from my core research, laughed, saying that was ridiculous. Here is the link to the NY Times front page June 2000 story based exclusively on this research, confirming Microsoft paid no income tax, for which she graciously provided a couple minor quotes at the end of the article. Frankly, I think this is why the NY Times is struggling. It simply can’t accept that news is news, no matter where it comes from.

What Google is now doing is using massive deductions from stock options to reduce its tax liability, thereby creating a cash machine in the form of non payment of taxes, exactly what Microsoft did prior to terminating its options program in 2003, roughly 30 days after my April 2003 article for Barron’s was printed. And the cost of these options for Google is also not fully reflected in Google’s financial statements, fueling the stock price and making it a more valuable currency for acquisitions.

Even after a multi-year heated debate, Congress and the SEC still don’t understand the significance of options accounting and how it corrupts the competitive market landscape. The solution is simple and that is to allow companies to issue all the options they want, provided that the expense is recognized when they are exercised by employees. Recognizing expense on the date of grant, the Black Scholes model, etc. – is all nonsense aimed at hookwinking the public and regulators.

Who would have ever thought that Microsoft would be done in by a scheme it invented, the scheme being the excessive issuance of options designed to pay employees without recognizing the respective cost in the financials, thereby creating vast sums of cash and a more valuable currency, its stock, for acquisitions.

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IKEA – A Brilliant Scheme

Posted in Federal Reserve and SEC, World News on September 28, 2007 |

It is easy to marvel at IKEA’s products, in addition to the low cost. They are indeed beautifully designed.  What struck me on my first ever visit to IKEA, however, was not only the designs beauty but the reality that the majority of their products come from China.   There were rows and rows of products and I kept thinking, what is the lead content and what other dangerous chemicals lurk in these products.  Unlike toys, families can keep these products 15 years, and use them daily.  The smart move for IKEA would be to test the products themself and add labels that indicate “lead free,”  etc.

IKEA’s powerful formula for success is simple.   Design products in Sweden, make them in China and avoid all income taxes in the US, both Federal and State, by structuring your business as a non-profit charity.  In addition, they file no disclosures with the Securities and Exchange Commission.

It’s not hard to see why they drive other competitors from the market, especially when they get location and infrastructure concessions from local politicians.  Here is a great inside read on IKEA from the Economist.  Me, I’ll shop elsewhere when I can.  I don’t mind buying products form China yet it is nice to know the sellor, for example, Costco, is supporting the nation via payment of income taxes.

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OIC Awards $1.2 B, Solomon Discloses Conflict, Leon Black Presents, Westlund Treasurer Candidate

Posted in Oregon-PERS, Politics on September 27, 2007 |

Yesterday the OIC met and awarded $1.2 billion in investment contracts. The meeting included a presentation from Leon Black (Pictured below) who is personaly worth $4-5 billion. Dick Solomon and Katy Durant both disclosed conflicts of interest, former OIC Chair Gerard Drummond was in attendance as was expected candidate for State Treasurer Ben Westlund. This was Westlund’s first OIC meeting. Here are my unofficial 9/27.07 OIC meeting minutes.  See OIC Commissioners below, left to right they chair Dick Solomon, State Treasurer Randall Edwards, Katy Durant and Harry Demorest, former managing partner of the Portland Arthur Andersen office.  Not pictured is Mark Gardiner, whose final meeting on the council was today.

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Toronto Dominion Bank CEO Ed Clark Called to Remove Joe Moglia as CEO of TD Ameritrade

Posted in Federal Reserve and SEC, Merger Review on September 24, 2007 |

 

To: Ed Clark

President and Chief Executive Officer

Toronto Dominion Bank

 

cc: Christopher Cox, Chairman SEC

450 Fifth Street N.W.

New York, NY 20549

(202)-942-0100

chairmanoffice@sec.gov

 

Simon Townsend, TD
Senior Manager, Corporate Communications
(416) 944-7161
td.capa@td.com

Nicholas Petter, TD
Manager, Corporate Communications
(416) 308-1861
td.capa@td.com

TD Economics
Stephen Hewitt
Senior Manager, External Communications
(416) 983-1315
td.capa@td.com

 

From: Bill Parish, SEC Registered Investment Advisor

Parish & Company

10260 SW Greenburg Rd, Suite 400

Portland, Oregon 97223

 

cc: Leading business journalists on Wednesday

 

Dear Ed,

As a Registered Investment Advisor, I have been using TD Ameritrade as a custodian for client assets since 1995 when it was Waterhouse Securities based in New York. You are fortunate to own such an outstanding franchise yet it is now at risk as a result of an astonishing level of arrogance, lack of a forthright perspective and outright incompetence on the part of the CEO you installed subsequent to the Ameritrade merger, Joe Moglia.

TD Waterhouse had many fine employees, including the current head of TD Institutional, Tom Bradley. In my opinion, you made a very serious error in not making sure they controlled the post merger integration rather than Moglia and his lieutenants.

Those are harsh words yet I value the security of my clients assets and you should also. Clearly, the SEC does.

Moglia made his mark peddling stocks at Ameritrade and clearly does not have the administrative acumen or forthright perspective necessary. Let me cite a few specific examples.

  1. For months now statements have been issued to clients in the US with Canadian treasuries listed in Canadian dollars, not US dollars. Imagine that, with everything else in US dollars. Supposedly a fix will be done this month yet this is too long in coming.

  2. Clients here in the US with maturing Canadian treasuries have been issued confirmations for sales in Canadian dollars, only to be reissued revised confirmations, with no attached letter of explanation, in US dollars to fix the mistake.

  3. As we enter a new rising rate environment, acumen on the bond side will be more critical. This should be a tremendous profit center, both for domestic and foreign bonds, as investors value fixed income more in the future. My advice, develop it rather than focusing mostly on peddling stocks and funds.

  4. The post integration was obviously tough yet there is no excuse for not communicating key admin issues more clearly to advisors like myself, one example being the issuance of zero balance statements, without an adequate explanation in June, only to issue regular statements shortly after for the same ending period. Imagine being a client and getting a statement for your $1.5 million account that has a zero balance.

In any event, I am generally recognized as successful in advancing key corporate governance issues, see my website at http://www.billparish.com for a sampling of articles ranging from Barrons to Bloomberg, and what I clearly see is a franchise with enormous potential at risk.

You may notice that I didn’t even mention the recent security breach in which millions of customers names and email addresses were compromised by an “outside vendor.” Was this a “strategic partner” data mining for advertising purposes? We’ll probably never know.

Regarding Etrade, with a $24 billion portfolio of mortgages, if those mortgages are worth only $20 billion, that erases two thirds of its equity and may even have pure banking considerations in terms of maintaining adequate capital. Think FASB 115 writedowns each quarter as far as you can see. A foolish merger in my opinion.

Rather than avoid the institutional area like Etrade due to its need to now cut costs sharply, I hope you realize that advisors like myself are your most valuable sales arm in that for every client I have at TD Ameritrade, there are probably 100 other investors who have accounts with you who are not my clients because they trust my judgement in selecting a good custodian.

Good luck, and again, I realize these are harsh words. Yet don’t lose site of the fact that my clients entrust me with their and their families financial futures. As custodian, you are part of that trust. Please take a step toward earning it by replacing Moglia immediately.

 

Best regards,

Bill Parish

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Oregonian Undermines New Independent Party, Does Not Disclose Website

Posted in Politics on September 21, 2007 |

Today the Oregonian printed a story by its top political reporter, a great reporter, Harry Esteve, that missed a splendid opportunity to celebrate a new political party in Oregon, the Independent Party. Instead the story, obviously heavily edited, looks like it was submitted by PR firms representing the Democrats and Republicans. In addition, the print version of the Oregonian did not disclose the party’s website.

The story featured a “die-hard independent,” Kurt Lootens, yet does not indicate his profession or anything else about him, even though his opinion is prominently featured in the first sentence. This is the height of shabby journalism. It is not until the 7th paragraph that Esteve introduces the founder of the party, Linda Williams, and its rationale. It’s theme, “not left, not right, just common sense,” prominently displayed on its website, was not mentioned in the article.

Also unfortunate is that the article does not have photos of Williams, Lootens or the keynote candidate, John Fronmayer. This is a pervasive weakness at the Oregonian with many of its top stories, that is , a lack of photos. I met Linda Williams some time ago and she is very credible in both substance and appearance.

More prominently highlighting the absolute level of political corruption orchestrated by the Democrats and Republicans that virtually prohibits independent 3rd party candidates from running, and sanitized by Bill Bradbury’s office, would also seem fair. Readers are tired of this nonsense and want to celebrate new opportunities for the democratic process.

The first few paragraphs of the story follow:

The Oregonian, Harry Esteve, Friday. September 21, 2007

Kurt Lootens, Southeast Portland resident and die-hard voter, cherishes his political autonomy. He tried being a Republican, he tried being a Democrat, but never felt comfortable until he, like 435,000 other Oregonians, chose to go without a party label when they registered to vote. I’m an independent,” he says proudly. At least he thought he was.

Then he read about John Frohnmayer’s announcement that he was planning to run for U.S. Senate as a member of the Independent Party — with a capital I. “Huh?” Lootens thought. “How can you co-opt that name and name a party after it?” he says. “I don’t think of a party as being independent. It irritates me.”

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PUC Staff Urged to Use Leverage to Enforce the Law

Posted in Federal Reserve and SEC, Merger Review, Politics, Public Power on September 12, 2007 | Leave a Comment »

Today Ted Sickinger of the Oregonian printed an excellent story, summarized at end of this post, noting that the public utility commission is “negotiating” to allow institutional investors in PGE to circumvent the law, as indicated by PUC analyst Bryan Conway. This is surprising and perhaps also a sign that the commission is still compromised by Neil Goldschmidt inspired utility interests, furthur compounded by Warren Buffet and his new considerable political clout via his ownership of Pacific Power. It was Buffett’s lieutenant David Sokol who led the effort to repeal the Public Utility Holding Company Act (PUCHA) that previously prevented such ownership positions without adequate disclosure to the SEC.

What the PUC needs to understand is that ownership by hedge funds is very dangerous to PGE’s long term stability given that it is not known what other investments they own and how they interact with PGE. For example, have they created derivatives based upon their shares, will they collapse due to subprime or other speculations and cause the stock to plummet, etc.? Or will they exercise board level authority via proxy and force a takeover by a related party.

The PUC has numerous tools, including the ability to punish PGE by pushing through a substantial utility rate reduction, in the event these institutional investors do not comply.

With Neil Goldschmidt back in town, one has to also wonder who is influencing these public utility commissioners, given that he and his former Tom Imeson annointed them. It is unlikely Goldschmidt is spending his days on the golf course.

Wednesday, September 12, 2007

TED SICKINGER

The Oregonian Staff

Oregon regulators say they’re close to settling a dispute with a hedge fund that owns 7.4 percent of Portland General Electric Co. but has refused to comply with a state law requiring the partnership to seek regulatory approval of the investment.

Meanwhile, three more institutional investors have acquired stakes in Oregon’s largest utility exceeding the 5 percent threshold that triggers a possible Oregon Public Utility Commission review. Collectively, those four investors own about 30 percent of PGE’s stock.

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Putin Sets Stage for Energy Sales in Russian Rubles

Posted in Federal Reserve and SEC, Politics, World News on September 12, 2007 | Leave a Comment »

Russia now conducts most of its energy sales in US dollars and this has greatly benefited Europe in the form of lower energy costs as the dollar has depreciated. The declining dollar may also explain why Europe and other big purchasers of energy have not pushed to have more energy sales in Euros, which would clearly bolster the Euros status as a global reserve currency.

As indicated in today’s WSJ today, Putin has made it clear that he will annoint the next leader in Russia as he is term limited by Russia’s constitution in 2008. Yesterday he dismissed the president and cabinet in preparation for next year’s election and, while he is harshly criticized here in the US, his approval ratings at home exceed 70 percent. Having made two trips to Russia in the last year, I can confirm first hand that he is quite popular, not because Russians love him but rather they are grateful for the increased stability his government has generated. Even Russian Alexander Solzinitchen, who was one of the harshest critics of the former Soviet system, has publicly stated he strongly supports Putin.

Already an energy exchange is being set up in Saint Petersburg, Putin’s home town, and clearly a key aspect will be the sale of energy in Russian Rubles, bypassing the Euro altogether, with the goal of making the Ruble one of the world’s top reserve currencies. This is nothing short of astonishing given where Russia was in 2000 and from a theoretical standpoint, the Ruble could indeed be the key reserve currency within 5 years, even surpassing the dollar.

The reason is simple and that is that the Ruble is backed by hard assets including energy, minerals and other basic materials. The Chinese Yuan is backed by manufacturing with little hard assets and the Euro has benefited from greatly expanding the Euro zone economy every couple of years, a trend that has long term limits. The dollar is meanwhile being systematically debased by gross financial corruption and incompetence here at home.

What this likely means is that Putin will control interest rates here in the United States and in Europe based upon how quickly he devalues the dollar, i.e. sells energy in rubles.

A big beneficiary of Russia’s new economic might could indeed be Germany as Russia rebuilds infrastructure using German talent, including the extensive base of Russian language skills from the former East Germany. Already former German President Helmut Schroeder is an official employee of Gazprom, the Russian state energy monopoly. Moving across to lead Gazprom would seem a natural for Putin.

Meanwhile here in the US Congress is debating the safety of Chinese toys, with lobbyists lined up on both sides. These likely include President Bush’s brother, Neil Bush, who has been a paid lobbyist for China according to a disclosure in a divorce filing.

Perhaps the good news is that everything could change quickly here in the US with a new set of leaders. The one powerful advantage we do have is the regulatory system, including the SEC and Federal Reserve, that has historically bred confidence and trust in our financial system, and with that investment in dollars.

For the time being however, at least the next 18 months, the downward pressure on the dollar will likely continue and it is Putin’s economic game to lose. Who could have possibly imagined that 6 years ago?

The following is the lead paragraph in the WSJ story.

By GREGORY L. WHITE AND ANDREW OSBORN
September 12, 2007 12:06 p.m.

MOSCOW — Russian President Vladimir Putin unexpectedly replaced his long-serving prime minister with a little-known financial regulator, fueling intrigue as the Kremlin gears up to ensure triumph in the coming parliamentary and presidential elections.

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Union Chief Under Fire for Wrong Reasons

Posted in Federal Reserve and SEC, Oregon-PERS, Politics on September 11, 2007 | Leave a Comment »

Today the Oregonian ran a story by reporter Jeff Mapes about SEIU President Joe DiNicola, Mapes noted that:

“The largest union for state employees in Oregon is embroiled in a messy political and legal struggle over a claim from its elected president for nearly $110,000 in back overtime pay. Outraged members of Local 503 of the Services Employees International Union, including several board members, launched a recall campaign against the president, Joe DiNicola. In turn, DiNicola is seeking a court order charging that union and government resources are being used to aid the recall, which SEIU denies. He also has filed a civil rights complaint charging he has been discriminated against for making his wage claim.”

Rather than engage in a conflict my advice would be for SEIU to cut the check for $110,000 with the stipulation that DiNicola advance two initiatives.

The first would be a natural for him, a tax auditor, and that would be to raise a discussion regarding the most abusive corporate tax loophole in 25 years, one that has both decimated union ranks through non sensical mergers and also short changed investors alike. Steve Duin referred to this tax loophole in an opinion piece and I also wrote about it in an article titled the “Amazing Carry and Tax Loophole Inside PERS” or Brainstorm NW magazine. If DiNicola is successful in closing this loophole the union could theoretically justify writing him a check for every dime it has and kissing his feet in gratitude because the net impact would be the preservation of millions of good jobs, a disproportionate share being union jobs.

The second recommendation to SEIU would be to encourage DiNicola to be more aggressive in representing issues key to domestic job growth at meetings of the Oregon Investment Council. This was not mentioned in the article by Mapes yet perhaps DiNicola’s most important activity of all is attending the monthly OIC meetings on behalf of SEIU, where the $70 billion of PERS investments gets awarded to various managers.

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TPG’s Attempt to Purchase PGE – Extensive News and Commentary Archive

Posted in Merger Review, Politics, Public Power on September 11, 2007 | Leave a Comment »

The following 142 page report chronicles news stories and related commentary surrounding the Texas Pacific Group’s bid to acquire Portland General Electric. The purpose of this archive, with dates ranging from August 26, 1998 to October 25, 2005, was to provide material to various parties involved in defeating the proposal. It is especially useful using key word browser searches, for example searching using the term, David Bonderman, CEO of TPG.

Included in the report is extensive commentary regarding Neil Goldschmidt’s business practices because Goldschmidt was the point person for TPG. This includes his involvement in Renaissance Capital, a credit card company, for which he was paid $6 million as a board member. During this period interest rate ceilings were lifted in Oregon due to a succesful lobbying effort and what resulted was explosive growth in predatory lending.

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