March 29, 2006

John Dvorak Thinks France is Right to Open Up iTunes.

posted by MR WAVETHEORY at 3/29/2006 10:42:00 PM
Dvorak writes that even though the French are crazy, they are right that Apple's insistence on maintaining iTues as a closed system is "BS", a waste of law enforcement and legislative resources, and the by product of heavy lobbying by the entertainment industry:

"While the world moans and groans about the French and their attitude of cultural superiority, you sometimes have to give them credit, often in hindsight, for their ability to see through all the BS out there."

John also points that the punishment for piracy is ironically and unjustifiably harsher than more egregious crimes:

The French are also skeptical about the whole movie-piracy phenomenon. Why should illegally downloading the equivalent of a $19 disc result in a $250,000 fine and 5 years in prison?

While law enforcement is focused on protecting the wealth of the ultra wealthy, it is failing to address real crime:

So while drug-dealing, cocaine use, murder, mayhem, armed robbery, rape, and illegal corporate shenanigans run rampant in the U.S.A., law enforcement has to be on the lookout for movie downloading, to protect Hollywood billionaires.

Mr Wave Theory

Google Announces Secondary

posted by MR WAVETHEORY at 3/29/2006 08:49:00 PM
I give Eric Schmidt great credit for seizing the moment to do a $2 billion secondary on the heels of the S&P 500 addition. At least, Eric knows that he should take advantage of the fact that his stock is richly valued to do a secondary while there is robust demand. Google closed at 394.98, up +17.78 (4.71%) and then proceeded to drop -12.07 (-3.06) in after hours. What a yoyo. This is the fallacy that is Google. Now if somebody can tell me how they chose to the number 5.3 million shares.

Mr Wave Theory

Did You Know Your Congressmen Can Trade on Non-Public Information?

posted by MR WAVETHEORY at 3/29/2006 06:32:00 PM
Neil Cavuto from Fox News reported earlier today that that members of Congress are allowed to trade on non-public information. Cavuto said that Congressmen and Congresswomen can trade on information from the non-public information they are privy to, as a result of their work on legislation pertaining to appropriation bills, government contracts, and Federal grants. One blogger commented that Senator Tom Delay and Frisk had day traders working out of their offices. The members of Congress would pass on information to these traders. Hill News reports there is a cottage industry around this type of information.

What is insider trading?

According to SEC staffers,

Insider trading is "the trading that takes place when those privileged with confidential information about important events use the special advantage of that knowledge to reap profits or avoid losses on the stock market, to the detriment of the source of the information and to the typical investors who buy or sell their stock without the advantage of "inside" information."

When an investor acts on material, non-public information that a rational investor would want to know before making an investment decision, that is considered insider trading.

Why is it such a big deal that Congressmen can get away with insider trading?

It is a big deal because Congressmen have access to material, non-public information on a daily basis. Members of the House Finance Committee, Appropriations Committee, or Senate Banking Committee know ahead of time what types of companies may be receiving government assistance or government sanctions. Such access means they have access to material, non-public information that a rational investor would want to know before making an investment decision.

What is ironic is that, in 1984, Congress enacted the Insider Trading Sanctions Act of 1984, to remedy the "inadequate deterrent provided by enforcement remedies for insider trading." Apparently, according to Cavuto, this does not apply to members of Congress or their aides.

Future hedge fund managers and insider traders of America, time for you to get a job in Congress!

Mr Wave Theory

March 27, 2006

It is Tough to Break Up in the Digital Age

posted by MR WAVETHEORY at 3/27/2006 06:29:00 PM
The WSJ has a neat article on breaking up in the digital age. It seems like it is, in a word, impossible. My favorite part is the Nokia mention.

Some exes are unwittingly reunited in cyberspace. One Philadelphia couple of 29 years got divorced and both the ex-husband and ex-wife posted profiles on, entering in details such as their age, education, marital status and location. Shortly after signing up, the ex-wife says, she received a message from the site declaring her a match with her ex-husband.

The cellphone is usually among the first items that need cleansing. Wireless-handset maker Nokia Corp. even touches on the idea in a TV ad that features a woman named Jill, who says cellphone-number deletion is a sort of post-breakup therapy.

"It is so great because when you go to the phone and you delete [the number] and your phone asks 'Are you sure?' You look at your phone and you're like, oh yeah, I'm sure," she says in the ad.

The cheesy human interest articles on the front page of the Journal are always a treat. I think it's time to do a mass cleaning of my address book. Who do I start with?

Mr Wave Theory

Skype Founders Getting Skyped by Morpheus!

posted by MR WAVETHEORY at 3/27/2006 03:37:00 PM
The founders of Skype always seem to be getting into trouble. They are a magnet for trouble. Or are they just trouble itself?

This time, Nikklaus and Janis are getting sued by Mike Weiss of Streamcast. The story of Skype is incredible. Mike hired the dynamic duo to build Streamcast's Morpheus client - which they did. Mike launched the product. It became an instant hit reaching over 20 million uniques in several months. And that's when the plot thickened. The two miscreants had built a backdoor into Morpheus without telling Mike. (A backdoor is a secret way of controlling a piece of software.)

Not content to see Mike's success and their meager consulting fee for all that work, the duo used the backdoor to disable Morpheus and shut it down - on over 20 million desktops - overnight. Yes. Overnight! What a plot? Huh? It gets better.

So Mike's overnight success was shutdown overnight. To add insult to injury, Nikklaus and Janis launched Kazaa and they updated the entire based of Morpheus users into Kazaa users. The rest as they say is history. The duo sells Kazaa to Sharman Networks, use the P2P technology they developed to launch Skype and sell it (or unload the legal liability) upon eBay for a cool $2 billion.

Someone should make a movie of this story.

Mr Wave Theory

Google Gets Added to S&P 500: Post Addition Performance is Disappointing

posted by MR WAVETHEORY at 3/27/2006 01:21:00 AM

The WSJ writes that many trading desks overestimated the number of Google shares index funds were required to buy because the S&P is float weighted rather than market cap weighted. Instead of being required to buy 28 million shares as most of the Street had expected, index funds were only required to buy 18.8 million shares. That means most buyers of Google overestimated the potential demand by 48%. No wonder the stock opened at $368.62 and closed at $365.80. Frankly, the performance was underwhelming.

The S&P 500 is a "float weighted" index. That means a company's prominence in the index is determined by the value of shares available to the public. In the case of Google, a big chunk of shares aren't publicly available. Instead, they are held as a separate class by founders Larry Page and Sergey Brin as well as other insiders.

The information S&P first provided on Google last week left many Wall Streeters thinking the company would go into the S&P 500 index as if all its shares -- including the ones held by insiders -- were freely floating. But the announcement was misinterpreted, says S&P managing director David Blitzer. Insider shares aren't counted.

Instead of needing to buy about 28 million shares, index funds will need 18.8 million, according to Credit Suisse's derivative strategy group. When S&P corrected the misimpression, a flurry of selling resulted. In 15 minutes on Friday, the share price fell to $363.70 from $368, a 1.2% decrease.

For the record, Google traded 15.1 million shares on Friday which means if index funds all started to buy on Friday (rather than earlier), then there are 3.7 million additional shares to be bought. This is a far cry from most estimates that there will be multiple days of supply imbalances. I seriously doubt index funds would have waited until Friday to buy.

Did A Few Large Hedge Funds Trade on Inside Information Prior to Google's Addition into the S&P 500?

Some bloggers have pointed out that some funds may have had advance information on the S&P addition. Large numbers of deep in the money puts were apparently sold prior to the close on Thursday. On Friday, they would have been worth substantially less, netting the put sellers a substantial profit. While I don't have the figures on hand, I have seen figures estimating that the value of the puts sold is anywhere between $50 to $100 million worth of contracts.

Google's Valuation Is Guilty Until Proven Innocent

Frankly, I find it unforgivable that most investors still haven't realized that Internet stocks go from undervalued to overvalued and are never fairly valued. When Google completed its IPO, it was undervalued and the valuation was "innocent until proven guilty." Today, Google is overvalued especially after the latest earnings miss and the valuation is "guilty until proven innocent."

Mr Wave Theory