Fadi El-Eter

In these crazy, crazy days, where many investors are thinking that the world is finally coming to an end, and where a lot of forex traders are thinking that the USD (and soon the EURO) is worth a bit more than the paper it’s being printed on, we are witnessing massive exodus to the so called safe haven currencies.

These safe have currencies are: The Canadian Dollar, the Japanese Yen, and the Swiss Franc. Investors that think that the previous 3 currencies are safe haven currencies, should think again, because most likely they’re following the masses who are apparently ignoring that the whole world is interconnected, and that these currencies are still, paper currencies.

Let me talk about the Canadian Dollar and the Japanese Yen before discussing the Swiss Franc…

The Canadian Dollar is currently priced based on the price of commodities, especially Gold and Oil, that are abundant in Canada. However, we know that the Canadian Dollar should be priced based on the strength of the Canadian economy, which is mostly tied to the under-performing US economy. Is the loonie overvalued? I think it is, but not by much. I’d say the loonie is overvalued by a maximum of 15% – 20%.

The Japanese Yen is tied to the Japanese economy, which is also strongly tied (but not as much as the Canadian economy) to the US economy. The Japanese Yen should be priced upon the strength and the continuity and the expansion of the Japanese economy, and not by investor speculation (as it is today). I think the real value of the Japanese Yen is much lower than it is priced at at them moment, and here’s a day-to-day example why… Toyota, for example, knows that the cost of each Toyota Highlander car is JPY 300,000. When the yen was trading at a 100 (in other words, each JPY 100 = $ 1), that amount was $30,000. The car was sold for $40,000 in the US for a profit of $10,000/car. Today, the JPY 300,000 are $39,473 (at the current price of 76), which means that Toyota’s profit is only about $500 for that car. GM and Ford, on the other hand, can still sell their equivalent models for $40,000 at a huge profit. Every company in Japan has the same problem when it comes to exports to the US and the rest of the world. Is the Japanese Yen fairly priced? I think not. I think it’s overpriced by at least 25%, and we should see a retreat either end of this year or next year.

Now let’s discuss the Swiss Franc, the powerful Swiss Franc and all the misconceptions about it, by asking and answering the following questions:

– Is the Swiss Franc backed by gold? The Swiss Franc was 40% backed by gold until the Swiss government sold all the gold back in 2005 following a referendum held 5 years earlier (in 2000) to drop the gold backing of the Swiss Franc. There is a huge misconception that the Swiss Franc is still backed by gold!

– Is the Swiss economy indifferent to the US and the European economies? Of course (add sarcasm here), it is indifferent. Switzerland is an island nation, bordered by an ocean from all sides. It has nothing to do with Europe or the US economies, it’s not that the majority of bank accounts in Switzerland are held by Americans or Europeans. It’s not that the Swiss banks have very strong ties to European and American banks. Apparently nobody is able to see this.

– Is the Swiss economy shielded from the European crisis? No it’s not, at all, in fact, it is heavily involved. All major Swiss banks and businesses have financial interests/investments in Europe, and all of them are affected by what’s happening there.

– Is the Swiss economy powered by things other than the financial services? Yes (again more sarcasm), Switzerland exports good quality chocolate (like the ones you buy at the airport for your significant other), beautiful watches, and, of course, Swiss knives. All three industries generate trillions of dollars (ok, enough sarcasm) to the Swiss economy.

– What is the real value of the Swiss Franc? Certainly not 0.78 for the USD. Of all the 3 currencies I mentioned in this article the Swiss Franc is the most overvalued one, at least by 30%, which means that the real value of the Swiss Franc should be 1.11.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I just received an email stating that my LinkedIn Account has been blocked, apparently due to suspicious activity such as too many failed login attempts. Thankfully, because I investigate all the links before clicking on them, I noticed that the link does not go LinkedIn, but to another website, where you will probably be greeted with something that will render your PC unusable (don’t click on that link).

I think email is becoming more and more unreliable, I’m receiving scam emails everyday claiming that they are being sent from legitimate companies (Google, Facebook, LinkedIn). There are two solutions to this problem:

• Email servers everywhere should not accept emails claiming to be sent from one domain while they are being sent from another (this is actually a setting on the mail server, but sometimes legitimate emails fall through the cracks).
• Create a global filter that all emails sent have to go through before reaching their final destination. That filter will check if the identity of the sender really matches the “Sender” information on the email. If it doesn’t, then the email is rejected. This is, however, the worst solution when it comes to privacy. Where will that global server be, who will monitor it, and who will have access to its logs?

In any case, I feel that the number of scammers is increasing exponentially over the last few months (I used to receive these emails every week, now it’s multiple times every day!). Apparently, governments (especially the US government) are no longer “tough” on them.

Now since this post is mainly about LinkedIn, how is LNKD doing? Apparently not very well, as the market has woken up since last month and has discovered that LinkedIn is way overvalued. Even at the current price of $78.62, LNKD is trading at a P/E of 1,121 – it’s only one thousand one hundred and twenty years before LinkedIn is able to pay back the investors at the current earnings, assuming, of course, in a thousand years from now, LinkedIn still exists, the Internet still exists, the stock market still exists, the world still exists, and stock traders are not all burning in hell!

In the past few months, I have read many articles on Google’s new innovation, Google plus. Apparently, with Google plus, you can connect with friends, share photos, stories, and other nonsense about yourself, that nobody cares about, except you, your wife (if you have one), and your mother (if she uses a PC). Sharing photos and stories about yourself? Now where have I heard this before? Isn’t this similar to Facebook? In fact, isn’t this just a Facebook clone?

It actually is. Apparently, Google is determined to create a competition for Facebook no matter what, and they think that by offering “Angry Birds” and other useless games on their platform they will undermine Facebook’s efforts to rule the Internet and become the world’s most visited website. Not only that, someone at Google (Larry Page, maybe?) seriously thinks that Google Plus is a decent competition to Facebook (or maybe is a Facebook replacement). Apparently, no one at Google wants to face the harsh truth: Google lost the battle of Social Networks, and Facebook is here to stay (well, unless Google buys it for something like a $100 billion dollars – the same ransom amount that the world had to pay Dr. Evil to stop him from taking over – or destroying – the world).

Now I haven’t used Google Plus before (and neither did any of my friends, well some of my not very close friends have used it, but only for experimentation), and I don’t expect to ever use it. The thing is Google claims to currently have 30 million users (or even more). Well, guess what, these are the gmail users, or the users with a Google account. I have taken a look at Google Plus myself (went to the homepage), and I didn’t know what Google wanted, or what is this at first glance, and I consider myself to have a decent technical background. Well, apparently I don’t!

Here’s how I think Google Plus has already failed:

– Google Plus seems to have been developed by a very young geek. It doesn’t look professional, and yet it’s very complicated.
– The only chance that for Google Plus to survive is to steal Facebook users, for good, and I don’t see this happening, at least in the next 5 years (I suspect Google will drop this stupid idea in a year from now)
– Google Plus is hailed by many solid Internet resources, the same ones that hailed Google wave and Google Buzz (both are now dead projects – the former was supposedly created to compete with Facebook and the latter with Twitter).
– A solid evidence proving that Google Plus has failed is by looking at the social activity of any post, for example, this is the social activity of an article on Bloomberg:

– Although Google is trying very hard to promote it by adding the +1 (an identical clone of Facebook’s like feature) next to each search result (or even advertisement), I suspect that all these +1s will only attract spammers, rather than real people.

I think the best thing to lure people into using Google Plus is to pay them money to migrate from Facebook (and maybe pay them extra for every friend they convince into migrating to Google plus). And even then, they will take the money and just go back to using Facebook.

I wish that Google can listen to all its investors: “stick to enhancing your search algorithm, do something innovative in the search area, and stop obsessing with Facebook and cloning other websites, it didn’t work before, it won’t work now, and it won’t work in the future”.

Not an easy question to answer. Unless you go through every stock and check how many historic splits that stock had so far, then there is no way you can know which stock has the most reverse splits.

I first thought that the stock which has the most reverse splits was INTC. This is because when I was a kid my uncle told me (and I still remember this, no idea why) that Intel used to split its stock in half every year. That was back in the 90s. So, I first checked Intel, and while the split used to happen every other year (and not every year as my uncle said), Intel had an impressive history of splitting its stock. It split it one time in the ’87, after that the stock dropped to a few pennies (that’s why there was a huge volume on the stock in 1988). Intel then recovered in the 90s and split its stock again in ’93, and then in ’95, ’97, and a final split was done in 2000, before the big NASDAQ crash. In total, INTC experienced 6 splits, all of them were 2:1 splits, with the exception of the one done in ’87, which was a 3:2 split.

But, to my surprise, INTC was not the stock with the most splits, there was one that had even more. After heavy research, I discovered that the stock that has the most splits is AFL (AFLAC Incorporated). In total, AFL (by the way, AFL is currently at a very attractive price – it is trading at a yearly low, I suggest you check it) has had 7 splits so far: 3 in the 80s (3 years in a row), 3 in the 90s, and 1 in 2001. Here are the details:

– 1985: 3:2
– 1986: 4:3
– 1987: 2:1
– 1993: 5:4
– 1996: 3:2
– 1998: 2:1
– 2001: 2:1

Just for fun, let’s see if you owned 2 INTC shares and 2 AFL shares in 1984 how many shares you would have had today:

INTC: 2 x 3/2 x 2/1 x 2/1 x 2/1 x 2/1 x 2/1 = 96 (2 INTC shares in 1984 equal to 96 INTC shares today)
AFL: 2 x 3/2 x 4/3 x 2/1 x 5/4 x 3/2 x 2/1 x 2/1 = 60 (2 AFL shares in 1984 equal to 60 AFL shares today)

So, while AFL had more splits than INTC, Intel gave its investors more shares for their 2 shares than AFLAC. I wish that Intel will return to its might once again. I don’t know why its stock is not performing well these days, most PCs are powered by their technologies.

I think it’s save to say that this article falls into the trivia category, it’s not essential information for investors to know, but it’s good to know!

Investors shouldn’t care less about stocks splits, because they won’t affect them at all, with the exception when they want to buy the stocks (if they don’t have a flat commission then their fees will be higher as some banks charge a fee/1,000 shares for the basic plan, however, this can work work to their advantage if there is a reverse split). Additionally, splits (or reverse-splits) have zero effect on the options of the stock. All the relative parameters will be divided or multiplied based on the split.

For example, let’s look at GOOG (which still is the second most expensive stock as you can see here) for a moment… Google is now trading at $490, which is, again, quite expensive for many investors. Here’s what might happen: Someone at Google thinks, hey, let’s split the stock in 10, this way we’ll lure many small investors into buying the stock. Another one thinks, I think a better idea is to split the stock to 100, so we can lure even more investors… The board then decides to split the stock in 100 (which is a 100:1 split).

Here’s the information about GOOG before the split:

Stock price: $490.92
Average volume: 4.71 million shares
Market cap: $158.51 billion
EPS: $27.73
Shares: 322,890,000

Here’s what will happen to GOOG after the split (if it’s 100:1 meaning 1 share before the split will be equal to 100 shares after the split):

Stock price: $4.9092 (no rounding will happen, but the market will soon adjust to a round number to the second digit)
Average volume: 471 million shares (the average volume will be multiplied by 100)
Market cap: $158.51 billion (not affected)
EPS: $27.73 (not affected)
Shares: 32,289,000,000 (the number of shares will be multiplied by 100)

Now that I have explained what happens to the stock when there is a split, let me answer the question in the title: When is a stock split most likely to occur?

There are four cases in which a stock split is most likely to happen:

– The stock is very expensive and the company board wants to lure small investors.
– The company is doing very well and has a plan to regularly split its stock in good times (that was the case of Intel back in the 90s when they were used to split their stock in half every other year) to maintain its price level.
– The stock has dropped below the $1 level, which is below the minimum amount to remain listed in the NYSE and the NASDAQ. This is when a reverse split happens.
– The company discovers that it has issued more stocks than it should in its IPO. I think Sirius falls into this category. In this case it will be a reverse split.

Finally, remember this: “A split usually means that the company is in good shape (again, take a look at Intel in the 90s), a reverse split means that the company is in a terrible shape. If you don’t believe me, take a look at AIB and C.”

When I started trading stocks, I didn’t care about dividends. I didn’t buy stocks because they had dividends, I just bought them because I wanted to sell them at a profit. But, to my (pleasant) surprise, I woke up one day, I logged in to my investor’s account on my broker’s website, and I saw that I had a credit transaction which was a dividend pay (I remember the first company paying me dividends was CVBF, which I have talked about many times before).

Here’s how it works:

– You buy a stock, for example, 1,000 shares of BAC
– When BAC (Bank of America) pays dividends to its shareholders, you will automatically see a credit transaction in your trader’s account (if your account is online)

How are taxes paid on dividends?

Taxes are deducted automatically from your dividends. In other words, there will be two transactions in your trader’s account: A credit transaction crediting you for the dividend, and another debit transaction taxing you for the dividend.

Do brokers take a commission on dividends?

You might wonder if your broker takes a cut from your dividends since it’s a transaction. But remember, brokers usually take commissions on trades, not transactions. I’m saying usually, because in my case, the broker didn’t take any commission, and this is a fair thing in my opinion. You might want to check with your broker about this.

Can dividends be paid by check?

My account is online, so I was never paid by check. I was paid electronically directly by the broker on behalf of the company I have stocks with. I think if your account is offline (the old way), then most likely you will be paid by check, or by direct deposit to your bank account if they have it.

How often are dividends paid?

Most dividends are paid quarterly. But some companies pay them semi-annually, some others pay them annually, and some others pay them at will (meaning when the company decides to pay dividends).

Is the amount paid related to the number of shares?

Since a dividend is per share (for example, if a company decides to give a dividend of $4, this means that they are giving $4 for every share that you have), then the more shares that you have, the bigger amount you will get paid.

What is the best way to know how much is the dividend of a company?

If you want to know how much a company pays in dividends, then just check it Google finance. On the top of the page, there is something called “Div/yield”. If you want you can check JpMorgan Chase (JPM) which has a Div/yield of 0.25/2.91. This means that their dividend is $0.25. So, if you own 1,000 shares of JPM, then you will receive 1000 x $0.25 = $250 as dividend every quarter.

Are dividends reinvested automatically?

New investors think that their dividends are reinvested automatically to buy more stocks of the same company. This is not the case. Dividends are paid in money. It is up to the investor to reinvest them (in the same stock or in other stocks) or not.

Will I be paid if I purchased stocks immediately before the company issues the dividends?

The regulation says that you have to buy shares at least 2 days before the company issues the dividends in order to be eligible. If you buy the shares 1 day before, then you will receive nothing.

I was just reading the latest newsletter from my favorite technology store, and on the front page there was an HP netbook for $199. That netbook used to cost $299, but now they’ve slashed the price a $100. I remembered that I already own a Dell netbook, and that that thing is in its original box in another box in a closet that I never open in a country that I’m not residing in at the moment. Which puts the importance of that netbook in my life to almost 0.

Here’s why I’m not using this netbook:

– It’s slow. I can’t do anything on it, when I start having a few web pages open simultaneously that thing starts to crawl like a turtle (do turtles crawl? well you get the point).
– I don’t need it. Why on earth do I need a netbook? I have a Sony Z series that is almost just as light as that netbook and thankfully, it can run anything.
– The original point of a netbook was to be something between a computer and a smartphone. But isn’t this role nowadays assumed by tablets (which I had doubts about before but nowadays I feel that they are the next big thing)?
– They are unreliable. They’re just a piece of junk running an Intel atom processor that is the slowest processor Intel has ever produced, even slower than processors made back in 2003 (How do I know this? Well my Toshiba laptop that I purchased back in 2003 is faster than my netbook?)
– Did I mention that I don’t need it?

I have seen a few people using netbooks in Starbucks or Tim Horton’s or Second Cup… But they were only a few. I’m sure companies had really high hopes for netbooks, but I think they’re now changing their minds, and all of them are shifting their focus to tablets to compete with Apple’s IPad.

If people want small laptops then they can buy the Z series from Sony for example (the one that I’m currently using to write this article), if they want cheap laptops then they can buy a Gateway 15.4″ for only $299, which is a real laptop with a real processor.

I think netbooks will fail, if they haven’t already, and soon all netbooks will be discontinued and there won’t be any left in stores. So go ahead, buy one while it still exists, and you might show it to your kid/grandson one day and tell him, that was one person’s crazy idea to “bridge the gap” between laptops and smartphones. Some people thought it was a cool thing for a few months, but after the glitter has worn off, nobody seems to care about these things anymore nor use them (forget about buying them).

I think if they want netbooks to survive, well, at least for a couple of years, then they should price them for $50. I’m sure companies can afford to, after all, they’re using the worst hardware ever in these things, so why can’t they? For $50 they will probably sell like hot cupcakes, and the netbooks will truly serve their original purpose, which is providing computers for poor people.

Now how does this article relates to stocks? Just think of all these computer companies producing netbooks and ponder the effect of the netbook failure on their stocks (think DELL, HPQ) .

There was some serious concerns last year about Sirius as a company. Its stock was, by all standards, a penny stock, and it was moving oddly everyday. Many investors thought back then that Sirius will go bankrupt (in fact, many investors thought that it will go bankrupt back in 2008).

Things have changed in the fourth quarter of last year, and the stock broke the $1 barrier for good. I have even written favorably about Sirius, even after I made fun of the stock before. I even bought a few thousand shares myself and sold them for a small profit end of last year.

But nowadays, I am thinking that in this day and age of social networks, I’m not sure how Sirius will still be relevant a few years from now, when probably all of us will have internet connection in our cars. Why will we need a satellite radio when we can have an Internet radio? Will we need both of them? Of course not, only one will suffice, and people will most likely choose to have Internet radio, simply because they will not only have a radio, but they will have Internet as well, which is a much better thing.

I go to fairs sometimes and I see the same Sirius stand they had for the last 5 years, the colors of that stand are even wearing off. I have to say that marketing people at Sirius are not the best, and for some reason, I think they have the 90’s mentality when it comes to marketing. When was the last time you saw an ad for Sirius on a website, or on Google, for that matter?

I think Sirius lacks a lot of innovation, and in this industry, and in this day and age, innovation is what makes or breaks a stock. Stop innovating and you’ll become a dinosaur like HP or Microsoft. Innovate and you will become something like Apple. You can’t be anything in between.

Before investing in Sirius, remember the following:

– Sirius is a technology company whose main job is to provide a satellite radio service for its subscribers. Read this sentence again, and focus on the word “radio”. When was the last time you spoke with your wife and told her “Hey honey, let’s see what they have on the radio tonight?” If it weren’t for cars, radios would be dead in developed countries (where the advertising money is) at least 5 years ago. Even TV stations are becoming obsolete nowadays.

– If you don’t know or you don’t care about the above sentence, then rest assured that other investors think about it all the time, which explains the bearish movement of SIRI for the past few months.

– As soon as people will have Internet in their cars, Sirius will become obsolete. The company will be worth nothing, and the ridiculous 3.95 billion stocks (why did they make 3.95 billion stocks, did they really think that the company was worth hundreds of billions of dollars?) will be worth 3.95 billion pennies (which is something like $39.5 million).

I would say if you’re thinking short term then you can play with the stock a bit. But remember, the company has no future, and it is trading at a ridiculous P/E of 60, which means that it’ll take them 60 years to buy back all the stocks. 60 years. Where would you be by then? 6 feet under? Driving a flying car? Watching movies on thin air (not on TVs)? Or would you be still driving the same car that you’re driving today, and tuning in to Howard Stern’s (who was reinstated as an entertainer on Sirius last year for the next 5 years – a bad and costly decision) station on Sirius trying to laugh at his (really tasteless) jokes?

Personally, I wouldn’t touch this stock, and I’m confident that the company is doomed, unless they completely change their business model (which will probably scare away their investors). Oh, and don’t even think that any company would be interested in buying Sirius (unless, of course, that company is HP, which seems to be after all the trash in the technology sector these days).

Yes, Sirius will go bankrupt, it’s just a matter of a few years…

Groupon was having an exponential growth for over a year now, traffic to the site has grown 6 folds from July 2010 to June 2011, and the website has reached a US ranking of 22 (meaning that it was the 22^nd most visited website in the US, which is very impressive for a website that is only a couple of years old). But all that traffic came at a very steep price: Groupon burned a ridiculous amount of money to acquire new customers, thinking that they have a zero percent churn rate and that their retention rate is infinity. Obviously, they were wrong.

As you have probably noticed, Groupon has reduced its advertising budget, substantially it seems, and that action has reflected immediately on its traffic. Take a look:

As you can see from the above graph, the traffic immediately decreased once Groupon reduced its advertising budget. But the thing is, Groupon had no other choice, it was costing them so much to acquire new customers and they were losing money like crazy. They need to prove to their main investors that they can be cash flow positive, but the problem is they know that they’re just buying time before the Ponzi scheme is called.

You see, Groupon discovered that their business model doesn’t work. Their customers are not loyal as they thought they were, and they can leave them for a better alternative, as soon as a better alternative is available (don’t forget, there are nearly a 100 Groupon clones at this very moment). Not only that, that better alternative might be Facebook or a Facebook application. Since everyone’s is on Facebook, why do they need to go to another website for coupons when they can get them from Facebook?

Groupon is now stuck. They can’t spend more money on adversiting because they need to show better balance sheets, yet on the other hand, if they stop advertising, then they will lose market share and they will be killed on the long run.

Is there a way out? Will Groupon survive? Unfortunately, I don’t think so, I think they should have accepted that $6 billion from Google a year or so ago. But then again, it seems that a lot of these new technology entrepreneurs have RIM’s stubbornness and weird mentality (that they will rule over the world).

I think the biggest sucker is the company who will buy Groupon right now, because in a year from now, Groupon will be another bebo, and whoever buys it will be another AOL, but hey, there are lots of suckers out there.

Groupon’s business model is a complete failure (they will never ever make money), and I feel pity for whichever company suckered into buying this piece of useless trash.

AIB (Allied Irish Banks, plc.) has been trading for less than a dollar for more than 10 days already. Now we know that a stock will be delisted from the NYSE if it trades for less than a dollar for over a month (apparently, NYSE does not like penny stocks). This means that if the stock does not break the $1 level in less than 20 days, then AIB will have to do another reverse split. If by the time of the reverse split the stock will still be worth $0.76 (which I highly doubt, this stock is cursed, it can go and will probably go down substantially more), then here’s what will happen after the reverse split (if the reverse split is 1:5, which means 5 stocks before the reverse split will equal 1 stock after the reverse split):

– The stock price will be $0.76 x 5 = $3.8
– The number of public AIB stocks will be 246,000,000 shares (1,230,000,00 / 5)
– The stock will keep on declining, this is because reverse splits are bad for stocks, and are not the sign of good times.

A quick note about AIB. Its market cap is now below $1 billion for the first time in its history. And to think that the company had a market cap of almost $400 billion back in February of 2007… I guess nothing is too big to fail!