1. Payment on a Parity Security: Reading the discussion board at the U.K. Motley Fool site about RBS, I wanted to verify what would happen in the event a payment was required to be made on one security that was in pari passu with others where the payment was non-mandatory. I asked myself the question whether a payment on one would in effect turn all securities at the same level into mandatory payments. To answer this question, I would look for any provision that deals with mandatory payment events connected with parity securities. Just to keep it simple, I will quote from AEB, a hybrid security issue from Aegon:
"(c) If a Mandatory Partial Payment Event occurs, then Mandatory Partial Payments will be mandatorily due and payable in respect of each Capital Security. Such Mandatory Partial Payments will be payable on the next four consecutive Interest Payment Dates, the next two consecutive Interest Payment Dates or the next Interest Payment Date, as the case may be, after the occurrence of such Mandatory Partial Payment Event, depending on whether the Parity Securities pay dividends or income distributions on an annual basis, a semi-annual basis or a quarterly basis, as the case may be. We may, but will not be required to, satisfy our obligation to pay any Mandatory Partial Payments in accordance with the Alternative Interest Satisfaction Mechanism." (S-23: /www.sec.gov)
The mandatory payment event occurs with a parity security when Aegon declares, pays or distributes a dividend or a payment on any of its parity securities. This kind of provision prevents the company from favoring one parity security over another. If they pay on one, this triggers a mandatory payment on the others. So, if I had a situation where the payment on one or more parity securities was mandatory, and I owned one where it was not mandatory, that is the kind of provision that I would try to locate in a prospectus in order to make the payment on my parity security mandatory.
2. Paul Krugman's Article in NYT's Sunday Magazine: I try to avoid reading too many opinion pieces written by economists, being a fan of Hayek's remark that economists have made a mess of things, which seems to me to be one of the absolute truths beyond any doubt, reasonable or otherwise. The silliest group of economists is what Krugman calls the "freshwater" school centered around the University of Chicago. Anyone who develops complex mathematical models based on human beings acting rationally can not be taken seriously by the LB. The only response possible by any observer of human history would be: "Is that a joke"? I have to wonder though whether Krugman is describing fairly some of the beliefs of the freshwater school. If he is, then they are more preposterous, and divorced from real world, than I previously thought.
NYTimes.com One theory was summarized as claiming that unemployment was caused by people choosing not to work. While some would undoubtedly prefer to stay on unemployment compensation as long as possible, that hardly sounds like a rational, let alone reasonable, explanation for over 7 million job losses during the Great Recession. I also found curious a statement by one of the freshwater economists asserting, without any concern of being wrong no doubt, that it was not possible to have a bubble in real estate prices based on how rational people were in buying homes.
3. ModusLink=CMGI: For those of us who remember the dot bomb era, the name CMGI might ring a bell. I was running one of my screens this morning, fishing for potential lottery tickets, and the name ModusLink popped up. I had never heard of that company so I looked at the YF profile, and discovered that was the new name for CMGI. Maybe if you change the name, people will forget over time. Looking at the chart, I noted a 1 for 10 reverse stock split in 2007, and a low of $1.75 after that reverse split in March 2009. The high was a stunningly crazy 1,384 in December 1999. Now, tell me again about how rational people are in making financial decisions.
I was curious enough, however, about ModusLink to look at its last 10-Q: Form 10-Q I noted that it is still trying to make money with venture capital investments in private companies, lumping those investments into a category called "@Ventures" (see page 16). The current operations are described at pages 18-19. Reading this description, I became sufficiently interested to place the company on my monitor list. Price to sales and price to book are both below 1, but I do not see a consistent level of profitability even after adjusting for impairment charges. The last quarter did show a Non-GAAP operating profit after eliminating such charges as depreciation, stock options, amortization of intangibles, and other non-cash charges: ModusLink Global Solutions Cash per share equalled $3.678 with a book value of $7.629 as of the last quarter's end, according to YF: MLNK: Key Statistics Possibly, if I had known about this company still being around with these kind of numbers when the stock was selling at $2, I would have let an order fly for 100 shares at $2 as a LT. I am more circumspect about buying it now at its current price.
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