The Pit - IMI Trust

The business of going green and becoming community and humanity focused has become increasingly popular amongst listed companies around the world.

Businesses have discovered it adds to their bottom line, governments have discovered they can secure votes with it and consumers are doing their bit to contribute to the planet. In fact, ethical investment funds is the fastest growing sector in Australia at the moment.

You know that it has become popular when Rupert Murdoch comes out and promotes that his company will be carbon neutral by 2012. Google are utilising alternative energy sources to power their server farms and Virgin Blue are offering heir passengers the opportunity to help them become carbon neutral.

Capital Raising is an important arm of the IMI Trust service and we are fortunate to come across some amazing companies, who’s innovation is quite astonishing.

Inventors out on their farms in the middle of nowhere, are coming through with breakthrough innovations that will go along way to contributing to the empowerment of our planet. They are quite possibly tomorrows billionaires and millionaires. Overnight success stories that are 10 years in the making and out of the spotlight.

What has been even more amazing is the amount of assistance the Federal and State Governments are providing to assist these technologies and innovations. Australia is often accuse for not ratifying Kyoto, and yet they are continuously sponsoring and investing in companies which can benefit the world. There are a multitude of programs, and people in place to advise and guide companies on the path to commercialisation.

As technology advances, it feels like the world is becoming smaller and smaller. Simply go back just 10 years and the idea of trading stocks on the NASDAQ or on the New York stock Exchange, was only for the elite traders. In fact go back 10 years and no one in Australia has ever heard of CFD’s.

Now… Online Trading has broken down all barriers and given Australian traders an all access pass to the world’s leading markets. Whether you are trading Stocks, CFD’s, Currency or Futures, if there is a market open… you can trade it.

Previously companies which has seen phenomonal growth in the US or UK were unable for Australian traders. Imagine if you were able to place trades on Microsoft, Dell, Yahoo, Ebay and Amazon at the beginning of the tech boom.

Now companies that we associate with on a daily basis are available for trading. Whether it be clothes, shoes, food, software, internet, electronics or cars from international companies… we can now trade them.

You dont have to go through the hassle of researching US brokers, placing your money in a US account, having currency risk (on placing your money in US dollars in an account) and having to stay awake at all sorts of strange hours to make trades.

Now, you just go on your computer, click on an icon to open your trading platform, and within seconds the world’s stock exchanges are ready for trading. You can also trade internationally, with your money in an Australian account. Another example of technology making life easier.

What is interesting is the CFD phenomenon. Australian can trade CFD’s over American stocks, but American’s can’t. it has been estimated that over 50% of trades on the London Stock Exchange are CFD’s.

This is what Australia Stock Exchange potentially has to look forward to. It is no wonder, that you can now trade ASX CFD’s on the top 50 stocks and a few major currencies.

Macquarie Bank is down 20% from it’s all time highs a fortnight ago.  This was mainly caused by concerns on the creditworthiness of consumers taking out Sub Prime loans in the US.  However, you shouldn’t cry for the bank here.  This is the reaction from Jim Cramer on CNBC about the market in the US at the moment.  Armageddon!

With the ASX 200 and the Dow Jones Index consistently achieving new highs, investors have now started to seek investments with higher risk and higher growth potential. Many sophisticated investors realise that this occurs before companies hit a stock exchange.

Sophisticated Investors, Retail Investors and Professional Investors are now seeking to invest in the companies of tomorrow. By investing in start-ups or early stage businesses they can reap large rewards if the companies lists or is bought out.  On the flipside, there is every chance the company could fail.

Why would they do this, when everyone knows the risk associated with companies in their infancy? Risk vs Reward is the simple answer. 

Investors are now looking to allocate risk capital to these companies as part of their portfolio.  When looking at asset allocation in a traditional portfolio, you tend to see cash, property, conservative investments, growth investments and aggressive investments.  Typically, early stage investment is seen as aggressive but in reality it sits in its own band even higher.

The rewards are great but the chances of losing money are just as high.  Which is why only risk capital, or in layman’s terms, money you can afford to lose, should ever be placed in these investments.

Even only as far back as 3 or 4 years ago, this kind of investment was only available to the wealthy who acts as business angels or venture capitalists.  Today, companies such as the Australian Small Scale Offerings Board (with whom IMI Trust is a member of) is making it easier for investors to gain access to these type of opportunities.

Early stage investment is an exciting prospect but carries heavy risks.  Investors should carry out their due diligence, ask questions, find out as much as they can about the Company, its Management Team, the Market, the Competitors and the Marketing Strategy for success.  By analysing these aspects, an investor can see if the Company is doing its best to be successful.

And by success, this can be defined in a number of ways.  As an early stage investor, a good result is a company takeover or a public listing.  Today’s penny dreadful may be tomorrow’s dollar dazzler.

Companies are looking for early stage investment but do they deserve the capital from investors?  Many don’t but some do.  To learn more, about emerging growth companies looking for early stage and expansion capital, click here.  Or if you have any stories to tell about early stage investment, please tell us here. 

This week the Australian Financial Review reported that 80% of the 96 companies which listed on the ASX this year, had their share price go up in the first day of trading.

Empowernet International (ENI.AX) is not one of those companies. In fact, on their first day of listing, their share price went down nearly 50%. Better yet, after a few days, Empowernet went from its list price of 0.55c to around 0.07c. For IPO investors, this signifies an 80% loss on their holdings to date.

If you do not know who Empowernet International is then you’ll see their main revenue stream derives from onselling Anthony Robbins personal development products and merchandise. Key person/company dependency. Check!

Empowernet International doesn’t have a written contract in place guaranteeing exclusivity either. No owned IP. Check!

Results can also be uncertain if their are changes to the marketplace - Few corporate processes or systems in place. Check!

When a company lists it needs to be able to drive by itself with the management team being custodians of the vehicle. If these continuity issues aren’t resolved then the market loses confidence and share prices fall. Incredibly, the one of the directors of Empowernet had the exact same issues when listing Sales Pursuit.
Our advice to Empowernet to get the share price up is a three step process:

1. Change the company name to Empowernet Resources International.
2. Announce that the company is now actively exploring Western Australia and Queensland for Uranium, Copper, Nickel and Gold.
3. Announce that the company was in negotiation to supply China and India with the new found resources.

If they did this, the share price will be hitting $10 or $20 in no time. Virtual miners are big on the ASX at the moment.

After the rumoured $70bn merger of Yahoo and Microsoft kind of went wet, news so astonishing began to come through the wires that if it happened I would believe that anything could happen. 

A couple of smart Merrill Lynch analysts figured that BHP Billiton is massively undervalued. Its divisions are worth more than the sum of its parts.  The multi-national resource conglomerate has a market capitalisation of approximately $117bn but if you split up all its divisions into individual resource companies the assets would be worth approximately $242bn.  Sounds great huh?  Let’s do it.

Perhaps in response to this analysis there has been speculation regarding BHP and Rio Tinto merging.  That would create a company worth over $250bn and surely would be protected from any kind leveraged buyout.

Please don’t tell me there is a bank or group of banks able to facilitate a quarter-trillion line of credit to buy a company?  If so, can I have Lo-Doc mortgage from you and don’t look to closely at my financials.  Thanks.

The traditional benchmark companies use for success is financial. Money talks. Now, there seems to be a trend towards ‘Triple Bottom Line’ values. Triple bottom line is to achieve success on three levels - Economic, Social and Environmental.

The more cynical of us would think that it is a ploy from marketers to exploit fears over climate change and the lack of community currently pervading society. However, members of Generation X and Generation Y inherantly have a ‘greener’ social compass and a Triple Bottom Line agenda is effective in speaking directly to these groups.

Investors and consumers alike are actively looking for companies, products and opportunities with that fit within a Triple Bottom Line agenda. The focus is no longer just on achieving solid to spectacular earnings from quarter to quarter, just to keep shareholders and employees happy.

Government, and shadow government, are both using Triple Bottom Line metrics to shape policy. Corporates, such as Westpac Bank, are spending millions on advertising to align their brands with consumers who are socially and environmentally minded.

Countries are looking at carbon offsets, people are looking to be carbon neutral, businesses are looking at sustainable practices. And seemingly, for the first time, profit can be generated too from these scenarios. This is why Triple Bottom Line is an important change to the corporate landscape. Historically, companies have looked at social and environmental initiatives to occur at the expense of profits. Today, there can be success on all three fronts: economic, social and environmental.

For instance, governments are allocating resouces and grants to ideas with a triple bottom line bent, corporates are willing to sponsor these initiatives and investors are passionately seeking companies with triple bottom lines to invest in.

In the last few weeks we have come across two powerful companies with solid triple bottom line structures. Companies from isolated rural areas in Australia, in areas that have had it tough because of drought and natural disasters, in recent years. They have now captured the interests of companies and governments worldwide.

This will be interesting space to watch in the coming months as we lead up to a federal election and over the next few years as the impact of triple bottom line companies is felt by society.

Contracts For Difference, or CFDs as they are known, have had a major impact in the Australian trading and investment landscape.  Just 3 years ago they were virtually unheard of and today they are the most heavily traded derivative in Australia.

Why the phenomonal rise in CFD trading? Why are education providers ready to give their left elbow to teach people how do trade CFDs

Firstly, we have jumped the gun.  Apologies.  Most of you out there probably are keen on managed funds or just trade shares (that’s uncool nowadays by the way) so you may not know what CFDs are.

A contract for difference is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. Thank you Wikipedia for that accurate CFD definition. 

It still may have not made any sense to you but here are some reasons why CFD trading in Australia has become popular…

1. CFDs are a leveraged trading instrument. As an example, for a $10,000 trade, the margin required is usually $1000 (10%). Some companies offer margin rates as low as 3% on Stock CFDs
2. CFD pricing movements are tied to the share price. This means if the share price is worth $10 and it increase to $10.10 (a 1% movement), you actually experienced a 10% growth on your margin invested. A CFD is not like an option, where the price of the option is NOT directly tied to the movements of the stock price. Obviously this is also reflected on the downside of a CFD movement.  (Special Note To Optimistic Traders:  CFDs Do Have A Downside.  Yes, They Really Do)
3. You also receive the dividends on the total investment, not just the portion of the holding you own. 
4. CFDs offer traders the opportunity to place Long CFD trades or Short CFD trades. So you can profit from rising or falling share prices. (Special Note To Optimistic Traders:  You Still Have To Position Yourself Correctly And The Market Must Respond Accordingly For You To Profit.  Making A Profit In A Falling Market Is Not A Right)
5. Trade Indices CFDs are available.  This means you can take advantage of the movements and stability of indices such as the ASX 200, Dow Jones Index, Nasdaq and S&P 500.
6. Margin is comparatively priced. The interest rate on the capital borrowed (the other 90% of the stock you don’t own) is relatively inexpensive and comparable to real estate loans.
7. Trading CFDs internationally has been made a lot easier with online trading platforms offering traders and investors international Stock CFDs. Some platforms make the process complex. Other online trading platforms like the SMC Trader, make international CFD trading as simple as trading Australian Stock CFDs.  We know.  We designed the support system that ensures you can trade CFDs in under a minute.
8. Americans can’t trade them. Sorry Americans!
9. Ability to hedge current stock holdings. Some CFD Traders, have used CFDs to hedge their stock holding in times of uncertainty, or when Alan Greenspan is talking (Sorry? What’s that Mr Greenspan? You did what?)

I hope this provides you with some more information about CFDs. Recent estimates of online trading in the UK show that 50% of all trading are CFD trades. With CFDs representing such a small segment of the Australian market, industry experts forecast more volume traded on CFDs in the upcoming months.  As the returns offered can be so attractive, CFDs seem like they are here to stay but traders should tread carefully.  Downsides can be painful is your CFD isn’t adequately hedged.  Did you hear us Optimistic Traders?!!?

In a week where we thought the biggest news would be Martin Scorcese finally winning the Best Director Oscar he deserves, the wily old man, formerly of the Federal Reserve, Dr Alan Greenspan manages to contribute to the largest drop in Wall Street prices since September 11.

Over the last 24 hours tens of billions, potentially hundreds of billions of dollars, of value was wiped from stock markets worldwide. $632 billion dollars in value was erased from the U.S. stock markets alone.
In this one day period, the Shanghai Stock Exchange, the main index in China, lost nearly 10%. The US markets reacted to this initially with the Dow Jones Index being down 1%. Doesn’t sound that much, buy 1% on over $10 Trillion means taking a bath on Wall St. Then throughout the day, that 1% turned into 3% plus.

The sequence of events give weight to one mans words and not facts produced.

On Monday, Alan Greenspan spoke at a conference in Hong Kong. During that conference he made a single statement which would greatly impact markets aound the world…

Greenspan said, “It is possible we can get a recession in the latter months of 2007, and we are seeing signs of that already.”

Now what is interesting he said this on Monday. The Monday trading in the US has no reaction to these comments what so ever. Record private equities were being announced and it was business as usual.

So when did the reaction take place. Bring on China. Although China’s economy is surging, it is largely due to the purchasing habits of the American consumers. China’s stock exchange is trading at 38 times earnings, so any poor economic news from the US, has a massive impact on China. Volatility… your best friend and your worst nightmare.

The markets knew this and they reacted extraordinarily. The sell of resulted in the largest 1 day drop in 10 years.

Now Greenspan’s comments suddenly had the attention of the world and more significantly the US markets. The US Markets had been waiting for a correction, with the longest bull run in many years. With no poor economic data coming out, the bull were still in there swinging… until today.

When the US Markets opened, the CNBC and Bloomberg commentators looked very distressed. Then mid trading session, the Dow Jones and Nasdaq went through the floor.

Billions and billions of dollars gone, because of a statement made by Alan Greenspan. What I find interesting is that he didn’t provide any numbers or stats to support his claim and yet… there was such a strong reaction. It just shows the power and respect that his words have in the markets.

These kind of days on the markets are rare, exciting and horrifying.

The question lingers… “Is this a great buying opportunity” or “Is there worse to come?”

Henry Paulson, former CEO of investment banking giant Goldman Sachs and now US Treasury Secretary is the man that the US financial markets are pinning their hopes on to stimulate the market for US exports to China.  The US is in a massive hole to China in its balance of payments.  Consider…

• Most junk found in street markets is ’Made in China’. 
• Most middle-order and high-end, manufactured items that are commonly known as ‘US Brands’ are Made in China
• In the US market alone, Chinese investors have around $1trillion in US Currency

The US is not happy with this and want to redress this imbalance.   They believe in ‘Hank’, as he is known, that Ben Bernanke, Chairman of the US Federal Reserve has deployed a dedicated to team to facilitate this ‘mission’.  If Hank can’t do it, no-one can. 

Henry Paulson is known for his ties in China. His relationship with the Government and Corporate Enterprise, is seen as the fundamental reason Goldman Sachs has strong credibility in China. But there is more to it than that.  John Thornton, his second in command while at GS, was the first western business leader to take up a full-time teaching role in China.  Tsinghua University is China’s leading business university and is producing 1200 MBA’s per year.  These link led GS to be Lead Manager in the ICBC IPO and numerous other domestic listings. 

Goldman Sachs, is one of the only US companies freely doing deals in China. Obviously, George Bush noticed the respect he received with his Chinese dealings, all this without the rigmarole of actually having to go to war. 

The US want him to make the US position in China stronger.  The first step is to encourage China to float their currency, the Chinese Yuan, to enable the massive trade deficit to close.  China’s approach is ”We will… eventually!”.  Without Hank on the case, it would have been a definite ‘No’. 

Hank Paulson is a faciliator of business.  He realised long ago you can’t just ‘take’.  There has to be a balance.  In order to receive you have to give. Funnily enough, as the US consumer ‘gave’ for Christmas, the Chinese manufacturers ‘received’.