Office Rumors

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Posts Tagged ‘Markets

New Firm to Develop Algae-Based Fuel

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A new company called AXI, LLC is looking to develop next-generation algae that makes the production of biodiesel more economical. Specifically, the company looks to algae as

[having] the potential for producing vast quantities of biostock for conversion into biofuels for transportation and heating. Our proprietary methodology for developing specific growth and productivity traits will help any algae production system improve its output of inexpensive, oil-rich algae as the raw material for the production of biofuel.

Further information about the company, as seen on AXI’s company profile is as follows:

AXI is a University of Washington spin-out Company created in partnership with the founders, the University and Allied Minds, Inc.  Allied Minds is a seed investment company creating partnerships with key Universities to fund corporate spin-offs resulting from successful early stage technology research.

This is interesting, as I have documented that algae may be one of the most promising “alternative” energy source in development (see prior posts “Algae Based Biofuels Are The Future“, and more recently “Alternative Fuels“).

Also, it is an example of the type of firms that venture capital has been flooding to, as I discussed in a June 10th post.

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Written by walonline

August 15, 2008 at 2:13 pm

Hidden Excel Columns: Who’s Negligent?

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The Management Blog at the Financial Times has an interesting post on a recent SEC complaint and subsequent settlement. The gentleman who settled was said to have covered up his work (normally checked via printed versions of spreadsheets) by using white text on white backgrounds and hiding columns.

The meat of it:

The SEC claimed that Mr Hirth – whose lawyer declined to comment this afternoon – exploited the fact that accounting checks used printed copies of spreadsheets rather than on-screen versions. It alleged that Mr Hirth used a “hide” function on his spreadsheet program that meant certain fictitious entries were invisible when printed.

In another spreadsheet, the SEC claimed, the company’s running tally of expenditure on commissions was distorted by a $4.1m cell entry located well away from the other figures. Because it was in white font on a white background, this entry – which had no basis, according to the SEC – could not be seen when a hard copy of the spreadsheet was printed.

This is interesting. Yet another addition to an auditor’s constant need to look for reasonableness of materials. All auditors should still foot any column and subtotal any row of numerical information submitted by a client. They also look for entries on non-business days (such as Christmas Day, New Years Day, Independence Day, etc.), strings of zeros (“000’s”) and other simple-looking numbers that normally don’t appear in business. Now auditors (and anyone reviewing financial work) should be selecting the entire worksheet and setting all of its text to black. Double-checking formulas may not be out of the question.

The comments, as in many financial blogs, are filled with good commentary. Most notably from Grenville Croll, EuSpRIG Chair, who lists a number of helpful links:

You can find ways to avoid spreadsheet risk if you look at the non-profit European Spreadsheet Risks Interest Group (www.eusprig.org).

EuSpRIG offers Risk Managers independent, authoritative & comprehensive information on Spreadsheet Risk Management. You can see published peer-reviewed conference proceedings on Cornell University’s moderated scientific repository www.arxiv.org

Some relevant papers:

On the problem of Spreadsheet Errors: http://arxiv.org/abs/0802.3457

On the Impact of Errors: http://arxiv.org/abs/0806.3536

Protecting Spreadsheet against Fraud: http://arxiv.org/abs/0801.4268

On the Scale of the problem: http://arxiv.org/abs/0709.4063

Testing Spreadsheets: http://arxiv.org/abs/0807.3187

Also, “G. Moore“:

Yet another example of why firms need to implement and control accounting and reporting systems that actually do accounting and reporting. The case here, most probably, is of yet another firm that cut corners on their system implementation/process and accepted having to finish the (reporting, etc.) job in Excel. There really is no reason to do any formal financial statement publication via Excel. Seriously, a $150 off the shelf accounting package can provide both reasonable reporting AND an audit trail.

And finally, “Chris Wilson” who rather negatively notes:

[…] when I worked at a Big Four accounting firm (tax, not audit), the culture from the manager level up was always on hard copies, always purportedly on the big picture. I sometimes got the feeling they felt they were entitled to be so far removed from the actual work because of their position on the totem pole. At any rate, the only hope for quality control on spreadsheets was in junior level peer review, and I imagine that’s true at a lot of firms.

Nasty. Just another reason to look closely at the numbers (and those that might not be visible).

Written by walonline

July 29, 2008 at 8:10 am

Just For Perspective

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Running back through my starred items on Google Reader, I came across an interesting post from Accrued Interest posted on May 19 on the GSEs (Fannie Mae, Freddie Mac, etc.).

Let’s just say the markets have known about the Fannie and Freddie mess for a while. This post might be from a few months ago, but different people have been calling to phase out these out-dated institutions for quite a while.

Written by walonline

July 27, 2008 at 9:53 am

So True

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Hahaha. How the tables have turned, Mr. Banker!

Now, what happens when the application goes through? Did we taxpayers realize that we’d be allowing our government to do things like this when we gave the ‘o.k.’ for our representative system? Maybe we should pay a little more attention to these folks we’re delegating our decisionmaking to…

Written by walonline

July 17, 2008 at 11:33 pm

Feds to Bail Out Fannie and Freddie

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The links to that news are everywhere. I’ll link to the Financial Times. Also, analysis from Matt Yglesias and Market Movers.

What a piece of work is a man, how noble in reason, how
infinite in faculties, in form and moving how express and
admirable, in action how like an angel, in apprehension how like
a god! – Hamlet, Act 2, Scene 2

Shakespeare provides an incredibly deep and accurate summation of the varying faces of man in my favorite of his tradgedies. After recent outcry following Bear Sterns move regarding moral hazard from talking heads, pundits and the such (me too!), the Feds have provided a great example of one of humanity’s many downfalls–our shortsightedness.

The “moral hazard” topic will start to appear even more cliche starting tomorrow morning, which is something that did not need to happen. People need to know that it is a real risk–not be suffering from message fatigue in its regard. Also, the markets will be off heavily pending that oil doesn’t tank overnight.

Where do we go from here? Let’s say that this was not unexpected. Not just last week, but with the constant–nare I sound like a liberal and call it criminal or treasonous–failings of our top leadership in government. In this case, specifically a number of Senators and Congressmen who have opened the door for this situation’s moral hazard. The Washington Post has a few particularly damning accounts of Senator Chuck Schumer, Congressman William Clay Jr. and others.

These folks, acting with political shortsightedness, corruption, or whatever, helped build these companies into their present states. Our capitalist system is supposed to work best with limited, active regulation. Nothing like right now with the rubbery-spined Congress we’ve been so willing to elect/accept.

UPDATE, July 14 @ 4:00p:

Via Digg, the Provocateur has an interesting take on the whole Fannie/Freddie/Moral Hazard mess:

By turning these two giants into the only game in town when it comes to mortgage securitization for loans for good borrowers, and making them an extension of the government, they created their own terrible moral hazard. These companies can’t fail, and thus, they take extra risks knowing this.

This bailout is no surprise, but furthermore, it is the equivalent of giving a crackhead more crack. These two engaged in terribly risky behavior. It was behavior they never would have engaged in if they didn’t know they would be bailed out if that behavior didn’t work out.

Certainly read the whole thing.

Written by walonline

July 13, 2008 at 11:04 pm

Leading Indicator: Volume of Mail?

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A very interesting post at Odd Numbers (Portfolio.com) compiles reports from FedEx and UPS’s and shows how much those have dropped in the instance of recession. The numbers from the recession around 2002 show a significant drop. FedEx just announced a pretty stiff fourth quarter loss. Is this adding to the body indicators pointing to a recession?

Have a look at the post for the charts and further analysis to decide for yourself.

Written by walonline

June 20, 2008 at 4:11 pm

Two Bits on ETFs and Mutual Funds

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It is nice to be back. I’ve been taking care of some personal stuff over the past few days. That said; let’s look at a few articles that have caught my eye since Friday.

First, while you are busy funding your IRA or 401k, your broker and the mutual funds take cuts out of your investment. The hope is that they can exceed this in the overall growth of your investment. Sometimes they may swing for the fences, leveraging themselves to the hilt (the case with many hedge funds), and miss. Greg Wolper at Morningstar wrote yesterday about a different situation: how fund managers (aka “Smart Money) can–for lack of a better term–get into bed with the companies they’re buying.

Specifically, he points to the case of Cerberus’ investment in GMAC, Chrysler, and others (see articles from the Financial Times here). While regulators are stepping in here, what can the average investor do? Is there any way to determine the strategy of a fund manager and to insure they are going about their business professionally? The Wall Street Journal has an occasional report on mutual funds that features fund manager commentary. These managers are the statistical anomalies, though, with returns (generally) well above average.

From this, the author moves to ask the question of how the average investor can determine the strategy of their fund managers. If it is a follow-the-leader strategy, the fund manager is probably slightly behind the returns on the index tracked by the fund. (See any fund’s prospectus for this information. It should be plainly spelled out.) Also, look at the fund management’s descriptions of the market environment of the fund. These are often found on the fund’s website. For example, here is one for Annaly Capital Management, Inc. (a REIT). Red flags should go up if the manager (or management) cannot explain what they are doing based on current conditions with a reasonable degree of clarity. Managers won’t tell you that they’re buying something on the basis of what a friend said, but it should be of some comfort that they are able to marginally sell you on it.

The second article comes from Index Universe, where Matthew Hougan writes on what ETFs really bring to investors. After a bit of discussion, he narrows it down to two things:

  1. Tax efficiency, and
  2. Easy access to high-caliber investments in new asset classes.

Easy examples of number two are the United States Oil (USO) and other ETFs previously mentioned on this site (see links below). Hougan gives a more exhaustive list as well:

Today, you can buy the entire stock market for 7 basis points, and you can also buy into commodities and real estate and timber. You can buy Treasuries, and you can also buy global TIPS, sophisticated quant strategies and buywrite funds. You can buy currency exposure, and you can also get leverage, sell short without using a margin account and tap into the carry strategy.

And the author means YOU, the independent investor that doesn’t have the millions required to invest in complex securities, hedge funds or venture capital. Now we just have to figure out how to invest in them properly!

Disclosure: at the time of publishing this, I do not own any securities specifically mentioned in the post.

Also, thank you to all the visitors looking at my posts on ETFs (especially here and here). If you have any questions, comments or ideas to add to the discussion, please offer them up!

Written by walonline

June 18, 2008 at 5:16 pm