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First a little postmortem. Every time I fail, I try to find the flaw in my reasoning. In my last post, I said, "I don't see anything very negative." Well, I didn't see what was right under my nose. I have made a Price-Volume chart for 2/17 to 3/8, which illustrates 2 negative signals that I did not recognize:
The green dot is 2/17 and the red dot is 3/8 (We all know what happened after 3/8) I recognized counterclockwise bearish rotation, but put my hopes in a continuation loop, which would look like a backwards cursive e. You can see that just as the loop was about to close, it failed. On a retest, it failed again, completing the loop in a negative direction (top left to bottom right). Negative signal. The second negative signal is a 15 day trendline, which is in a decidedly negative orientation, again left higher than right. This should have been strong enough to sell the tading shares, but I missed it. Live and learn. Nevertheless, this was not an easy one to see.
Now for the current price volume chart:
Red dot is 4/2. Here we have a large clockwise formation. If the bullish uptrend continues and pennetrates any of the green lines, we will have a new buy signal. Bullish move is bound to continue because these coordinates are based on a 5 day moving average. It is moving perpendicular to the trendline (In black), which looks quite nice.
I am going to keep my eye on the 15 day trendline, shown in yellow on this current chart (Red dot is 4/2):
The trendline is now in a bullish orientation - lower left to upper right.
On the candlestick chart (See previous post), many interesting things. It blew through 6.05 resistance, 50 SMA and 200SMA and closed above the upper Bolinger Band. I love it when that happens.
Short version - I don't see anything very negative. Actually, things look pretty good.
Here are the price volume charts. First of all. pay no attention to the dates in the charts. The dates are old, but the charts themselves are up to date. My bad. The first a larger chart goes all the way back to 12/8:
The yellow line corresponds to the date of the presentation at the Waldorf. It breaks perpendicular to a trendline, which was a clear sign that a new range may be established. When I first observed this, it was exciting. However, the change in range was not very big - about $.15, and not next resistance at $7.10, as I had hoped.
Since breaking the trend, you can see a pronounced counterclockwise rotation, which may be bearish. Yet, a sell loop would be confirmed only if the yellow or red line were penetrated. This is not likely. Here is a smaller chart showing the last 11 trading days, with the same red and yellow lines:
You can see price and volume moving along a trendline, while moving counterclockwise. The trendline is bearish (Top left to bottom right ), but only mildly so. However, this is a clear continuation buy loop in the making. If confirmed, it is a bullish formation.
Now, here is a candlestick chart. The way charts post here, this chart will update automatically. Keep this in mind if you read this later than 3/3.
I put Bollinger bands up, rather than the 200SMA (Free Stockcharts won't let me do both) because it makes a nice point. The 50SMA and 200SMA are trending up and are somewhat parallel, which is nice to see. The point though, is that the Bollingers have narrowed, and I think they will narrow more before the 6.30 resistance is definitively broken. I also put the Chaiken Money Flow oscillator up, because it is at a mildly bearish level, even after today's move up. The point is things are comming to a point.
Price is at resistance 6.3, maybe a little more. Support below is 6.05. Both are formidable. Thus the channel. It will probably fail to break the 6.3 a few more times, especially as the market digests the WHI estrogen only news. If so, the Bollingers will continue to narrow, which will indicate a move one way or another.
My trading shares remain at risk.
Trendline penetration?
I have proposed a tantalizing proposition that the lack of information from NVAV management may be the result of a power struggle between Dennis O'Donnel and Howard Simms. It seems that Simms has won. See: http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7077111&tid=nox&sid=7077....
Technical analysis, in my view, can provide very useful insight into the psychology of the market, when used in conjunction with with fundamantal analysis, i.e. the chart constitutes an accurate poll of the most recent investor sentiment regarding company fundamentals. The poll question, however, is never obvious. ;)
Now, let's test my proposition that investors believe that Howard Simms has won a power struggle that will make NVAX more transparent, which will add shareholder value. Here is the Price Volume Chart for 2/20:
On the bottom of this chart is an "almost" completed clockwise buy loop, ending 12/31/2003. This constituted a buy signal (IMHO), and I put my "trading shares" on the line.
The P/V chart shows indecision starting 1/29, which is the start of the green portion of the upper loop. A bullish clockwise rotation continues after 1/27, which is the end of the green portion of the loop.
The pattern reverses along a trendline, throught the orange portion of the chart. Decreasing volume and decreasing price keeps the buy signal in tact. We have a completed clockwise loop with the orange portion, which is not a classic buy loop - it is a bullish continuation loop.
After a price and volume reversal, the chart continues a bullish rotation along the trendline, as demonstrated by the yellow segments of the chart (2/13 to 2/19).
Today's action is in red. Looks like the trend line has been penetrated. Very bullish!!
As far as traditional TA, here is a candlestick chart:
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We are trading above the 50 SMA and 200SMA, which is bullish. If we stay above those levels, some NVAX institutional holders will stay happy, according to my estimation.
With today's close, the price is at the upper end of a channel. We have a bullish hammer formation on the candlestick chart, with today's close.
We do not have confirmation of penetration of 6.3 resistance. This will happen Monday, IMHO. Long time commin'.
I'd buy on open Monday a.m.
Here is the Price/Volume Chart ending today. I have made the last two points in red:
You can see a larg loop has formed, but this is not a classic buy loop, even though it moves clockwise. We can call this a continuation loop, so the buy signal has not ended. Chart shows alot of indecision.
Here is a candlestick chart:
Things look pretty rangebound. We have a worrisome inverted hammer, looking at the last candlestick. It's worrisome because the tip of the hammer is right up against the 50 SMA. We know that someone who trades this stock sells whenever it moves below the 50 SMA.
NVAX, IG, CLGY comparison chart
Not much has happened since the last Price/Volume chart post.
We see alot of indecision, which is not unusual after large loops. However, there is no counterclockwise rotation. Declining volume is moving along a trendline, which maintains the bullish pattern. If the price breaks resistance at 6.3 on higher volume, you will see a continuation of the bullish pattern
An argument can be made for a pennant formation beginning with 2004:
Price/volume charting is an unconventional charting technique that can serve to guide the investor through market-timing decisions. It was invented by Benjamin Crocker in the 1950's.
To draw a price/volume chart, you plot points on a grid with price on one axis and volume on the other -- and then over time you connect the points with lines. The patterns formed by the lines between the points generate buy signals and sell signals.
I have been experimenting with a variation of Price/Volume charting, which ordinarily is applied only to indexes. I use a five day moving average for price and volume to build the chart.
Here is a classic buy loop:
Completed loops are very significant in assessing the probable direction of the next market move.
Patterns in the clockwise direction are associated with bullish moves.
Patterns in the counterclockwise direction often precede down-moves.
The rally or decline following such a bullish or bearish loop may last for days or even months, so there is no way of knowing for how long. However, it is of considerable value in timing an investment that you have already decided to make or close for other reasons.
http://www.trendmacro.com/a/goodman/keyIndicators/pvCharting.asp
Here is a Price/Volume Chart for Biophan:
A perfect buy loop began November 24 and was confirmed December 9. The loop is in red.
The Price/Volume chart in Post 1 almost closed a buy loop on 12/31. Yahoo posters may remember this is when I changed my long term sentiment to strong buy:
Price volume chart came within about .02 of closing a bullish loop. If you throw out 12/26, it is a perfect loop.
Next resistance is about 6.3. If that gets broken today... :)
I am putting my trading shares to work this a.m.
http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7077111&tid=nox&sid=7077...
We have made a decent move since then, but as you can see, this almost loop is not near as tight as the almost loop in post 2. Here is a 3 month chart that shows the move since 12/31:
&r=1835>
We still could see a high volume price breakout predicted by the most recent loop. The price is still playing with the 6.3 resistance level. Next resistance is just below 7.
A little history lesson to show the power of Price/Volume charting.
Here is a Price/Volume chart beginning May 21, 2003 and ending June 25, 2003, also smmothed using 5 day moving averages. An almost perfect buy loop begins June 2, 2003, ends June 11, 2003 and is confirmed June 12 2003. This is a nice tight 8 point loop followed by a high volume and price breakout.
Compare this indicator to an ordinary line chart.
&r=8440>
Not so easy to see what is comming on an ordinary chart.
Here is the NVAX Price Volume Chart for December 5, 2003 through January 9, 2003:
I have smoothed the chart by using 5 day moving averages for both price and volume. You can see the clear clockwise rotation creating an almost perfect bullish loop 8 trading days ago. This type of loop often precedes a powerful and sustained move upwards.
For more info on Price/Volume charting:
http://www.trendmacro.com/a/goodman/keyIndicators/pvCharting.asp
I forgot how to post a chart
Are these the tags?
<chart> </chart>
I right click the chart, get the URL from Properties, but I do not put the whole thing in. What do I leave out?
Alley
Just saw your very old message from April. Thanks for the note. I have been involved in a political campaign and did not have the time to post. Just stopped back to see 12,000 unread posts - Yikes!
Took profits June 4 - high volume day.
Looking for re-entry, although I should do more fundementals before I do.
5 day MA price volume chart has been turning counterclokwise (bearish) slightly, but the action over the last 3 days has turned it clockwise. I will post the chart later. We could see a buy loop, but it wont be a strong one. Clockwise move may just be noise related to options expiration.
I will also be setting up a NVAX board (If I can do that with a free membership). It closed a classic buy loop by closing at 4.19 on 6/12. Today it went over 6. I'v got BIG long shares there.
OT: Go Devils. eom
Perils of Transition
By Richard A. Epstein
Published: January 22 2003 17:24 / Last Updated: January 22 2003 17:24
The world is always in flux, and nowhere is this more evident than in high technology, where innovation almost always counts as improvement. The legal arrangements that surround such technical advances are a quite different matter. It is tempting to think that the regulatory framework must always be adjusted to keep up, but the transition from one set of institutions to another is fraught with hidden perils that all too often undermine the success of the overall operation. Exhibit A for this proposition is, I think, the Telecommunications Act of 1996. Once hailed as the saviour of market competition, it has become a litigation quagmire from which there is no evident escape.
Before the 1996 Act was passed, I conducted a comprehensive review of its contents for Bell Atlantic (now Verizon) and concluded that this statute, unlike most others, actually had a coherent theme that promised some institutional success. The central problem working out ways to force interconnections at rates that compensated the incumbents for their costs while allowing new entrants to compete with them on even terms in the consumer marketplace. The 1996 Act mandated the sale of various network elements at prices that satisfied these dual constraints.
From the outset, however, it was clear that bargaining breakdown would always be a problem, so the Federal Communications Commission and its state counterparts were given authority to intercede on pricing issues when voluntary negotiations fell short of their intended goal. Much of the difficulty with the Act derives from a problem that is easy to state but difficult to overcome: there is no “natural” set of prices at which these exchanges can take place. And voluntary agreements cannot set those prices so long as the administrative back-up is in place, as no party will accede to terms worse than those they could obtain through the administrative system. In retrospect, it was always an illusion that voluntary agreements could take place at all.
It is at this point that the dangers of administrative runaway are most apparent. One of the central features of US administrative law is the so-called Chevron doctrine, under which the courts show deference to administrative agencies in the interpretation and application of complex regulatory schemes, at least when the statutory language is not clear enough to compel only one result. An outgrowth of the New Deal fascination with administrative agencies, Chevron is a judicial nod to the specialised expertise that administrators are supposed to possess.
What this formula overlooks, however, is that administrators often have agendas that do not mesh perfectly with those of the legislature that passed the statute which can easily happen when a Democratic administration is put in charge of implementing a statute passed by a Republican Congress. The Chevron doctrine therefore contains the seeds of its own destruction, because under such circumstances it will no longer be applied only at the appellate level. Instead, it will work its way back into the deliberations of the administrative body. In one sense that sounds like an absurdity, because there is no way that any administrative agency can defer to itself or to its own expertise. What can happen, however, is that an administrative agency cognisant of the applicable standard of judicial review can subtly re-orient its approach to a given statute. No longer need it ask the question: what is the right way to implement the legislative design? Rather, it can rephrase the question to ask how far can it can push its own agenda before it runs into trouble with a reviewing court.
Just this has happened with the 1996 Act. In this case the FCC thought that its mission was to “jump-start” competition, which it hoped to do by making pricing decisions that allowed for the transfer of key network elements at below cost, even though one advantage of competition is that it ruthlessly eliminates from the marketplace all those activities whose costs are greater than their benefits. The FCC found its opening in the text of the 1996 Act, which states only that rates should be based on “cost”, without specifying that “historical cost” was required. At this point the FCC could implement its own agenda by positing that costs referred to TELRIC, or total element long-run incremental costs the outlay that an incumbent would have to make to assemble an ideal network at the current lowest prices. And it was Chevron that allowed the Supreme Court to say that this system was not inconsistent with the basic structure of the Act, or so the FCC could decide.
Once that determination was made the die was cast. No new entrant will be prepared to pay more for network elements than the administrative system will require of them once push comes to shove. As my co-columnist Tom Hazlett has noted, new entrants will flock to take advantage of the artificially low rates, but none of them will be able to obtain a decisive competitive advantage so long as the same rate structure is available to all incumbents. So long as a legion of new entrants receives the subsidy, the marketplace will be saturated with excessive demand so that many of the new entrants will collapse in the free-for-all that follows. At the same time, the incumbents are all in the unhappy position of providing (often on credit) services and network elements to others at below cost, so that their transactional losses work themselves back into the declining value of their businesses.
The overall lessons from this debacle are two: first, regulatory transitions are always perilous because there are too many points of slippage between the design of a new scheme and its implementation; and second, systems that rely on forced purchases are especially dangerous, because the choice of price is not likely to be made correctly in face of the multitude of political pressures and agendas that exist.
There are many reasons to dislike the status quo ante. But one reason to like it is that it avoids a set of transition costs whose magnitude is discovered only when it is too late.
The writer is the James Parker Hall Distinguished Service professor of law at the University of Chicago and Peter and Kirsten Bedford Senior Fellow at the Hoover Institution
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Just for fun and the TA naysayers
I am sure that many of you think that these Price Volume loops I have been talking about are a little strange. I have taken a little trip back in time to prove a point. The green dot represents October 3, 2002 on this 5 day moving average price volume chart:
Except for a minor imperfection, October 3, 2002 confirms a rather clear clockwise buy loop.
In case anyone has forgotten what happened after October 3:
If anyone wants to see it, I can post a perfect sell loop beginning November 26, 2002 and confirmed December 16, 2002.
Now for the present:
The green dot is January 24. Lines oriented from upper right to lower left are bullish, even if they represent a selloff. For example, a selloff like we have seen on decreasing volume is better than a selloff on increasing volume, which woud create a descending left to right line.
We need a low volume price increase to create clockwise rotation on the present chart. If this happens, we would need a steady increase in price and volume to penetrate the rather small downtrend between Janyary 17 and January 21 coordinates. Not a likely scenario.
We'll have to just wait and see how this plays out.
Thoughts? Alley?
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
quartzman
I think we are dead on topic. Wireline and wireless are essentially in direct competition in America. Regulatory disadvantages for wireline should be well understood by wireless investors. The flow of subscribers to wireless seems to me to be a corrolary to Greshams Law (Good money drives out the bad).
Don't get me wrong. I think more should be done to deregulate wireless spectrum usage. See e.g. http://www.cato.org/tech/wireless.html. Why shouldn't spectrum be held in fee simple absolute? After all this is the form of property ownership that propelled western society to its present heights.
"Telecom undone—a cautionary tale" describes how competition was defeated, but let me take a stab at why. David S. Isenberg has written about telco permacession http://www.isen.com/archives/011216.html Eisenberg is a former Bell head and advisor to George Guilder. To paraphrase, rather than embrace and deploy disruptive technology, the telcos utilize legal resources and their allies in government and industry to keep the lid on potentially disruptive communications technology, to ensure that innovation within and around the communications network is predictable and approved. This is the only choice for the telcos, who have billions outstanding in bonds issued for the purchase of equipment which was obsolete within a year of purchase. The result is telco "permacession".
The "permacession" response applies to wireless carriers as well. Due to the regulatory environment resulting in excessive amounts paid for spectrum, wireless carriers will deploy new technology in dribs and drabs. It is the only rational way for them to behave. Thus, slow deployment of TDD, etc. in the US.
All a result of policy errors.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Was there a large print at the close?
I would hate to see another large seller, with the chart looking as it is. Last thing we need is more volume right now.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Quartzman
Many believe, as do I, that an inevitable business cycle is a fallacy and that all recessionary environments are caused by policy errors. Re-regulation in the guise of deregulation, executed by unbelievers thrust into the mileu, almost always has a disasterous result. Look at California and power deregulation.
When you get down to it, economics is not really a science at all. An economic hypothesis cannot really be conclusively disproven empirically. Much of economics is "a con game of a very odd sort." See "The Rhet-oric of Economics" Deirdre N. McCloskey, Journal of Economic Literature, 1983. More often than not, economics is used to support or undermine a political agenda. When it comes down to an economic argument, how can you say what is true and what is not?
To me, a lawyer expounding on economics makes me worry as much as when they start speaking latin:
Mr. Huber is also a partner in a Washington, D.C. law firm that represents a number of telecom clients, including several Bell companies.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
What killed the telecom industry?
Government did:
Telecom undone—a cautionary tale
January 2003
By Peter Huber
The demise of the telecommunications industry can be traced to a single source—the FCC's own implementation of the Telecommunications Act of 1996. Huber examines how utopianism and meddlesome arrogance on the part of the government have resulted in the near-total collapse of the telecommunications industry.
SELDOM has a chairman of the Federal Communications Commission (FCC) been heard to anticipate the demise of the most important sector of the industry he regulates. Yet in a speech to a Wall Street gathering in October, Michael Powell, chairman of the FCC (and son of the Secretary of State), summed up his view of the state of the nation's telecommunications companies as follows: "Few are prospering. Few are growing. Few are spending. Few are investing. The status quo is certain death."
Powell's biggest worry is the "wireline" telephone industry, which carries most of the nation's data and voice communications. It accounts for the lion's share of the industry's revenues-far more than broadcasting-and supplies critical infrastructure for our entire information-centered economy. Three years ago, this sector was seen as the epicenter of innovation and profitable new investment. Today, it is in shambles.
The hundred-year-old Bell telephone companies, once the rock-solid investment of choice for widows and orphans, are now in sharp decline. The $65 billion poured into the market by their competitors between 1997 and 2001 is now worth under $4 billion. AT&T's stock, which peaked at $60 in 1999, stood at $8 last July. Lucent, the owner of Bell Labs and not long ago the largest vendor of telecom equipment, has lost over 90 percent of its value since January 2001; it has announced a reverse stock split to escape delisting on the New York Stock Exchange. Nortel, its main rival, is in even worse shape. To top it all, antitrust trial lawyers have vowed to turn the older local phone companies-which are the few remaining pockets of solvency in the industry-into (in the words of one legal observer) the "next asbestos or tobacco companies."
Of course, the rest of Wall Street has had its troubles, too-but the collapse of the telecom sector may be what dragged it down. Information technology (IT) delivered about two-thirds of the rise in labor productivity in the last half of the 1990's. Circuit designers, chip fabricators, software companies, and many other elements of the IT economy now depend on new investment and innovation in the telecom sector. In an industry that has historically accounted for between $50 and $150 billion dollars of capital investment every year, capital spending has plummeted.
The telecom collapse is now often chalked up to several years of irrational exuberance on Wall Street, together with accounting fraud by WorldCom, one of the industry's leaders. But-as Michael Powell, for one, appears to recognize-there is a serious case to be made that the industry's refractory problems can be traced to a single source: the FCC's own implementation of the Telecommunications Act of 1996. Thereby hangs a most dismal tale.
THE LAST time Congress enacted a telecommunications law of comparable scope to the 1996 act was in 1934, when it created the FCC itself and codified the core policy of maintaining telephone companies as regulated monopolies. The 1996 act, passed by wide majorities of both houses of Congress and signed by President Clinton with great fanfare in the Library of Congress, was intended to do just the reverse: to open telecom markets fully to competition, and to deregulate them.
The job of deregulation had been started in 1984, when the courts split the old Bell System into its local and long-distance components. The decision left the local phone companies, which account for the majority of telephony's networks and revenues, to their "natural monopolies," barring them from entering other markets. Only on the long-distance side was competition opened up to new carriers and an emerging family of "online service providers," the companies we now know as dot-coms and Internet portals.
By 1996, it had become clear that this upstairs/downstairs division of the industry no longer made sense. Wireless services were booming. Cable companies were upgrading their networks to provide high-speed local connections to the web. Long-distance carriers were poised to invest tens of billions of dollars in new fiber-optic networks snaking through business districts in Manhattan, Chicago, and other major urban markets. E-mail, web pages, and other data services were beginning to offer distinct but nevertheless competitive alternatives to local voice calls. And local phone companies were clamoring for permission to extend their networks and businesses into long distance, video, and data.
One might suppose that the way to open an industry to competition and deregulate it is to do just that. In the early 1980's, that is pretty much how trucks and airlines were deregulated. But, for reasons that seemed sensible at the time, the 1996 act proceeded differently.
It started in the right place-telling states they could no longer forbid competition in local phone markets and outlining a process for admitting local companies into long-distance markets, state by state. The latter process, however, was tied to the development of a new body of regulation. Existing (or "incumbent") local companies would be required to interconnect, on reasonable terms, with their upstart competitors, and also to provide nondiscriminatory access to such things as 411 databases. The reasoning was that nobody would sign up for a new phone company's service if the new network were unable to place and receive calls to and from the old. In addition-crucially, as it would emerge-incumbent local phone companies were required to "unbundle" parts of their existing networks and lease them to competitors at wholesale rates. This would allow the competitors to get a foothold without having to replicate every last wire and switch from the get-go. In other words, unbundling would lower the costs of competitive entry.
But the 1996 act did not specify just how much unbundling was to occur; this is something the FCC was expected to work out later on. The single guideline in the act stipulated only that, before defining an "unbundled network element," the FCC should "consider" whether competition would be "impaired" without it. As to what these elements were worth-their wholesale prices-the FCC was told in equally cryptic terms that this calculation was to be "based on cost."
ENTER NOW the human element. In 1996, the man ensconced in the chairman's office at the FCC was Reed Hundt, an old and trusted friend of Vice President Al Gore. The two had been boyhood buddies at St. Albans, a prep school in Washington, D.C., and Hundt had advised Gore on his two Senate campaigns, his 1988 presidential campaign, and his 1992 run with Bill Clinton for the White House. Neither Clinton nor Gore ever bothered to interview Hundt for the FCC chairmanship. Clinton had handed telecom to Gore, and Gore handed it to Hundt.
Hundt was already in the third year of his tenure when the new act became law in early 1996. Up until then, his main focus had been on wireless services, where he had already orchestrated some dramatic changes that were a harbinger of things to come. Although something of a digression from our main concern, that story is too pertinent to ignore.
In 1993, the same year in which it confirmed Hundt's appointment, Congress had for the first time authorized the FCC to auction off licenses for radio spectrum. Such auctions, the reasoning ran, were the most efficient way to go forward, and would allow the wireless industry to get on swiftly with building its towers and rolling out service. Hundt proceeded to sell off a slew of new licenses. For a vigorous young administration committed to reinventing government, it made for a wonderful photo-op when he was able to go to the White House to present a symbolic check for $7.7 billion to the President.
But it turned out that Hundt had also embellished the new auction rules with many-too many-preferences, bidding credits, and low-interest loans. Successful court challenges delayed several of the auctions, and while the bidding went sky high, much of what was bid was never ultimately paid. The most costly misadventure was launched in 1995, when Hundt sold almost $5 billion of radio spectrum to a company called NextWave in an auction reserved for "small businesses and other designated entities." Hundt had neglected to make sure that the small and the designated were good for this kind of money; they were not. In due course, the FCC would reauction the same spectrum for $16 billion, NextWave would sue, and the wireless industry would find itself under a cloud of $21 billion of liability, with no usable spectrum to show for it. The issue is still unresolved today, and a huge block of idle spectrum still hangs in the balance.
While Hundt was conducting wireless auctions, Congress was drafting the 1996 Telecommunications Act. As soon as it passed, the industry began to learn the new meaning of "unbundling." It was unlike anything that had occurred before.
There was a day, remember, when you either leased your phone and your telephone line together, from the one and only phone company, or you did not lease either one; the freedom we enjoy today to buy our telephones and modems separately from Radio Shack or Dell can be traced back to unbundling rules that were put in place in the 1960's. Then came the 1984 break-up of AT&T, which forced a similar unbundling of local and long-distance services.
The unbundling required by the 1996 act was rather different. It was to be a wholesale unbundling of a wide variety of "network elements," and the new elements thereby created were to be leased not to consumers but to competitors. Admittedly, it made a kind of sense. If you live in an apartment on East 87th Street in Manhattan, you really have no interest in leasing a mile of "unbundled" copper loop leading to Verizon's fortress-like central office near the corner of 97th and Lexington so that you can then drop in at Radio Shack to buy a ten-milliondollar telephone switch and all the rest of what it takes to transform a wire into a functioning dial tone. But a long-distance company might well opt to do just that, using its own switches and operators to provide the rest of a service package.
What would this mean from the standpoint of government regulation? The old unbundling had shrunk the effective scope of such oversight: the regulated phone company sold you less, so the regulator had less to regulate. The new would apply a new layer of wholesale-price regulation to as much of the network as the FCC chose to unbundle. Some $300 billion of assets, with a depreciated book value of almost $150 billion, could now be put up for sale, in pieces and at prices to be determined by one of Al Gore's oldest and most trusted friends.
ISSUED JUST four months after the passage of the 1996 act, Hundt's rules unbundled absolutely everything. The $25 electrician's box on the outside wall of most houses, where the phone company's lines connect to the inside phone wiring. The loop that runs to the central office. The switching equipment and software in that office. The high-capacity fiber-optic lines that connect local offices to the long-distance network, along with operator and directory-assistance services. And more-much more.
Astonishingly, the new rules also required incumbents to offer all the unbundled elements as a single re-bundled package-at the new wholesale rate. New entrants, in other words, would not have to build a single new item or a single new inch of network themselves if they did not care to. They could compete simply by placing a new label on the facilities that they had requisitioned, customer by customer, from the old phone company.
No less astonishing were the prices of Hundt's unbundled elements. They were tied not to what it had actually cost to build things but to models that predicted what it would cost a perfectly efficient competitor to rebuild them from scratch, using the latest technology at the latest prices. In an industry characterized by rapid innovation and inexorably falling prices, the models thus effectively wrote off about half the book value of the existing investment.
A competing phone company can now lease from Verizon, in perpetuity, an unbundled copper telephone line from an East 87th Street apartment to the basement of 97th-and-Lexington for about $15.50 a month. It can also lease, at regulated rates and for as long as it may wish, a cage in Verizon's basement to house any equipment it might care to connect to the line. Switching service will run the new company $5 a month. Caller ID-which Verizon itself would sell to ordinary customers for $8 per month-will cost just twenty cents at wholesale. The prices are different in upstate New York, and different again in Kansas (where, above the corn fields, unbundled copper costs $23 a month). Nationwide there are many thousands of discrete prices for unbundled elements.
As Hundt would later explain, he intended to write rules that would "cause a flood of new investment and innovation that would wash away the advantages of the incumbents-and erode their market capitalization." Many would-be competitors enthusiastically supported that plan, as did their financial backers on Wall Street. Competition was going to develop quickly, and would soon be very profitable.
In the meantime, the one thing that was really growing was the regulatory enterprise. Regulating networks inch by unbundled inch required much finer oversight than regulating them by the bundled mile; setting prices by means of computer models required much keener judgment than setting prices on the basis of historical costs. In short order, the FCC added over 10,000 new pages to the Federal Register.
In the summer of 1996, Hundt attended the Democratic National Convention, seated in the Vice President's box. Gore's acceptance speech promised Internet access for every classroom. As Hundt has recalled the occasion, "the FCC, perhaps for the first time in history, drew extended applause from a political party's nominating convention." The following year, with the new rules largely worked out and Clinton-Gore safely reelected, Hundt resigned from the commission, a year before his own term as chairman was to expire.
WHAT WENT wrong? In early 2000, just before the crash, Reed Hundt published a book entitled, You Say You Want a Revolution: A Story of Information Age Politics. Reflecting the financial euphoria that still prevailed as he was writing it, Hundt's book is a recklessly candid, self-congratulatory account of what he did and why he did it in his nearly 48 months as FCC chairman. In hindsight, it makes for a devastating self-indictment.
The passage of the 1996 act, Hundt writes gleefully, offered "the chance of a lifetime." A Republican Congress had authorized a timid blueprint for incremental change in the information sector, but what the country really needed was a revolution. By means of his unbundling and price-setting rules, and in company with Al Gore and "an eclectic set of other political allies," he was going to help shape the new economy of "high growth, low inflation, productivity gains, and explosive entrepreneurial enterprise."
Economists on the FCC's staff warned that if wholesale prices were pushed too low, the stock market would be prompted "to sell off the Bell stocks, [and] bring the Dow crashing down." But Hundt was confident he could calibrate things just right. And he knew he was succeeding because "Bell stocks rose during our deliberations." Hundt's Democratic champions in Congress, Edward J. Markey and Fritz Hollings, gave him the cover he needed to forge ahead. For their part, the Republicans left him alone because they were sedated by the rising stock market.
By the end of 1999, according to Hundt's estimates, some $30 billion had been invested in the new enterprises made possible by his rules. There were hundreds of new local phone companies of various kinds, along with many dozens of new local carriers of data. Nine of the latter had gone public, or were about to do so.
Nobody was bankrupt in 1999, of course-but then, nobody had yet found out what Hundt's rules really meant. At that point, the lift in the telecom bubble was still coming from the promise and not the actuality of what the rules would deliver. The regulatory blueprints written by Hundt had to be implemented by state commissions and cleared through state and federal courts; that process did not go quickly.
Indeed, it was in large part because of all this back-and-forth between the agencies and the courts that the regulatory decisions Hundt made in 1996 and 1997 did not begin to have any real impact on the market until several years later. (Nearly 80 percent of the transfers of unbundled elements have occurred only in the last 24 months.) By then, Hundt himself had joined the party. Very soon after he left the FCC in 1997, he was advising or on the boards of Allegiance Telecom, Ascend Communications, Brience, CoreExpress, eYak, Global Connect Partners, Phone.com, and Sigma Networks, among others. Reportedly he made over $15 million on stock options received for his services, including millions of dollars of stock in NorthPoint Communications that he cashed out just a few quarters before NorthPoint filed for bankruptcy.
WALL STREET itself completely failed to grasp what Hundt's rules entailed, at least until the economic impact finally began to show up on the bottom line. Only then did the markets come to understand that something had gone terribly wrong. Since then, telecom stocks have been in freefall-- and not just some telecom stocks, but all of them. To understand why that should be so, one must consider how Hundt's rules look from the perspective of each major group of players in the industry.
Let us start with the incumbent phone companies, the principal targets of Hundt's unbundling. Every inch of their networks now has two prices. Retail prices-what the companies can charge to consumers-are still regulated, as they have been for the better part of a century, under schemes that are generally pegged to actual historical costs and that subsidize rural and residential users at the expense of urban and business users. Wholesale prices-what they can charge competitors-are regulated by Hundt's models, which look to future costs and which are not supposed to subsidize anyone. The upshot is that, for the exact same service, wholesale prices are sometimes lower than retail prices, and sometimes higher. Ordinarily, imperfections in the price-regulating machinery tend to cancel each other out; here, competitors buy wholesale where wholesale is cheaper than retail, and consumers buy retail where retail is cheaper than wholesale. One way or another, incumbent companies end up with sharply lower revenues.
But the regulatory impact is perhaps even worse for the new investors, who (one might suppose) should be making out like bandits. The trouble is that the serious ones have been building real, competitive networks, mile by mile, for many years-in fact, since well before 1996. Some have been running their own fiber-optic networks to reach large business customers in urban markets-WorldCom and AT&T, for example, spent some $25 billion to purchase two such companies in 1996 and 1998. And cable operators have been aggressively upgrading their own wires to provide both voice and highspeed digital channels. Thanks to Reed Hundt's computer models, however, competitors with real networks-and real liabilities-are now squared off against network-free competitors, and have found their stocks downgraded as a result.
And what about those network-free competitors themselves? Take a company like Z-Tel, founded and run by lawyers, bankers, management consultants, and an antitrust litigator. Such companies have brought to telecom the same talents that Enron brought to electricity. They build networks out of paper, and whatever actual money they invest is poured into complex software and computer systems developed and optimized for playing the regulatory game.
A big problem with running paper networks is that any number of others can play the same game. If there is any margin in this line of business, the competition quickly makes it razor-thin. And it may be razor-thin in any case: rebranding someone else's network as your own turns out to be an expensive proposition, and the cost of inserting a new middleman between the network and the customer often swamps even the ruinous discounts that regulators have imposed. (Z-Tel claims to have invested more than $100 million to create an interface with the incumbent phone companies, and perhaps it has.) As a consequence, many would-be Z-Tels-- there were hundreds of them at one point-have already landed in the financial dustbin.
As I say, all this took a while to work itself out. When Hundt testified about telecom's woes last October before the Senate Commerce Committee, almost his very first words were that it had been five years since he had left office. If the telecom industry was in a shambles (the implication was), it had not happened on his watch.
WILL REGULATORS ever recover their sanity and incinerate Hundt's rules? At this point, that will be more difficult than it sounds. Some nine million customers are now being served with re-bundled packages of unbundled elements, and both sides have a stake in the status quo. Besides, even if a decision were made to curtail unbundling sharply, it is hard to imagine it happening quickly, or things ever being taken back to where they ought to have started. The harried Michael Powell is now overseeing a major review, but fundamental changes in so large a regulatory system take years to implement and fight out in the courts.
The 1996 act could be amended, and the new Congress might conceivably do just that. The Senate Commerce Committee will now be headed by John McCain, one of only five Senators (and the only Republican) to have voted against the 1996 act. But in its six years of operation the act has so sharply divided the interests of telecom carriers that one cannot easily imagine how a coalition could be formed to bring about a change of direction. Climbing out of this quagmire will be far more difficult than sliding into it.
In the meantime, as Hundt's rules meander back and forth through the federal courts and the FCC itself, the center of action has shifted to the state commissions where they are actually implemented. In a handful of the most influential states, most notably New York, California, Texas, Ohio, and Illinois, ambitious regulators-mini-Hundts-see litde to lose and much to gain by pushing wholesale rates lower and lower. In the near term, the spoils of regulation can be spread around to create more friends than enemies.
Most ominously of all, the trial lawyers are now circling the regulatory road kill. Countless failed enterprises and disappointed investors are searching for someone to blame. They cannot sue Hundt, or his computer models, or the state commissions that now run those models; they can sue the still-wealthy companies that own the legacy network. So the plaintiffs' trial bar-the most loyal, aggressive, and well-financed interest group in the camp of the Democratic party-is now litigating to transform Hundt's rules into treble-damage antitrust suits. Some thirty-six such suits have already been filed.
Is there any basis to them? WorldCom, Z-Tel, and others have undoubtedly encountered many problems as they have labored to build new businesses out of unbundled network elements, but certainly no worse problems than those faced by the incumbent phone companies that they or their customers are now suing. Implementing Hundt's rules has been a logistical nightmare all around. Tens of billions of dollars have been spent to facilitate the transfer of tens of millions of elements from old companies that built them to new companies that want them. The incumbents have certainly fouled up in their scramble to comply with the new rules; the competitors have fouled up even more in administering their side of things, and in more than a few documented instances they have deliberately falsified their records in an attempt to shift the blame. Thrashing out these issues between carriers has been difficult enough; the antitrust suits now raise the stakes enormously.
Just what the courts will do with the suits remains entirely unclear. Two years ago, a federal appellate court in Chicago held that Hundt's rules go well beyond the antitrust laws; the 1996 act has its own enforcement structure, centered in the FCC and state regulators. This June, however, a second ruling by the federal appellate court in New York held just the opposite. It will take several more years to determine whether Hundt, an antitrust lawyer himself before he landed at the FCC, has indeed transmuted the law of telephones into the law of tobacco. If he has, the torch will have been passed-from Al Gore, to Reed Hundt, to the class-action racketeers.
AT THE end of this depressing tale one is still left wondering: how do generally rational and responsible people create such a gigantic mess?
There is no hint of outright corruption in this history, though there is something distinctly malodorous about an FCC chairman prospering so handsomely, and so quickly, when he signs up to help companies exploit the rules he wrote just a few months earlier. No, in the end the failure of the 1996 act reflects corruption of a different kind, a corruption of political culture.
Hundt was a Clintonite who eagerly embraced the Clintonite ethos. Exuding confidence, daring to be bold, he was a man in a hurry, impatient with the plodding engineers who build real networks. So his rules set prices based on models rather than on experience, and allowed new entrants to assemble new networks entirely on paper. All you had to do to compete in Hundt's village was to buy low and sell high. Potemkin could hardly have done it better.
But all this quick and painless competition required a stupefyingly complex labyrinth of rules. Such rules regulated the price of everything, not once but twice; they suppressed competition rather than promoting it; and they enriched no one but legions of lawyers (like me), plus accountants, economists, and still more legions of expert witnesses for hire. It was Hillary-care for the telecom industry, but better, since with it came the added conceit that this all-consuming regulation was just a stepping stone to-deregulation.
Tellingly, two of the strongest critics of Hundt's legacy have been Democrats of the old deregulatory school-in fact, the two men who orchestrated the deregulation of trucking and airlines two decades before Hundt took on telephones. They are Supreme Court Justice Stephen Breyer and Alfred Kahn, who chaired the New York Public Service Commission and later the Civil Aeronautics Board as it was being dismantled. Kahn has referred to Hundt's pricing rules as TELRIC-BS. TELRIC is the FCC's own acronym for Hundt's scheme-it stands for "total element long-run incremental cost." The BS is Kahn's codicil, which (he pretends to insist) stands for "blank slate": prices based on forward-- looking computer models rather than historical books of account.
Could it have been done differently? A less ambitious and more patient man than Hundt would have unbundled much less. In two separate cases, the Supreme Court and three appellate judges have since concluded that that is what the 1996 act required him to do. A more modest and patient man would also have linked prices to actual rather than theoretical costs. As Justice Louis D. Brandeis argued in a 1923 opinion about the telephone industry, tying price regulation to monies actually spent in the past anchors prices in solid reality. By contrast, forward-looking models of what things ought to cost in the future are unanchored to anything and can quickly lose touch with reality, especially when yoked to a wildly misplaced confidence in the power of a federal commission to reallocate several hundred billion dollars' worth of assets for the better.
AND THAT is pretty much the whole story: utopianism and meddlesome arrogance, both empowered by government. The telecom bubble of the late 1990's rose alongside the dot-com bubble because, like web programmers, regulators convinced many people that they could conjure up competition and wealth out of thin air. And behind this delusion lay politics-politics in the sense of public policy, and politics in the ruder, partisan sense as well. In fact the two were inseparable. As Hundt himself revealingly comments about a particular set of broadcast rules that he engineered: "we were helping the President and Vice President win reelection."
Hundt was in the room the day after the 1992 election when the new Vice President-elect huddled with his closest advisers in Little Rock. "Al grinned at us and said, `Now we're running the White House. This is going to be fun.' We all laughed. . . . We would slay enemies, reward friends, celebrate victories, and find out what the Navy stewards served at the White House mess." So they did. Reed Hundt was Al "Information Highway" Gore one step down in the federal bureaucracy, where the policy work does not just talk of reinventing government, he publishes 10,000 new pages in the Federal Register, sets the stage for decades of destructive litigation in the courts, and transforms a cautiously phrased law into a death warrant for a vital industry.
PETER W. HUBER is a senior fellow of the Manhattan Institute and the co-author of Federal Telecommunications Law. His contributions to COMMENTARY include "Guns, Tobacco, Big Macs-and the Courts" (June 1999) and "monopoly.com" (April 2000). Mr. Huber is also a partner in a Washington, D.C. law firm that represents a number of telecom clients, including several Bell companies.
©2002 Commentary
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Anyone know how much insurance
coverage is on the risk for the IDCC claim, if any?
Anyone know which carrier?
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
A little more unconventional TA
This is a January 2, 2002 to January 23, 2003 Price Volume Chart that is smoothed by using 5 day moving averages:
The green dot represents today's close. You can see the bearish counterclockwise rotation beginning 8 trading days ago. You can actually see a counterclockwise loop, which if valid is confirmed by last Wednsday's drop in price and volume. However, the remove on day rule prevents this from forming a true sell loop. If you remove the red dot the loop disappears. Additionally, the line closing the loop does not penetrate an uptrend. Nevertheless, this chart illustrates the predictive power of price volume charting.
The bearish line ending today will in all liklihood continue, given the numbers in the 5 day averages. However, Uptics in price on lower volume will continue keep in tact a mild bullish clockwise rotation forming over the last four days.
Price Volume Charting may be less predictive for single securities. This January 10 to 23, 2003 single day chart shows only decreases in price and volume, without any recognizable pattern:
There is some bullish clockwise rotation, but the remove one day rule would nullify any loop that may form tomorrow, unless we had volume in the magnitude of about 900,000 shares.
For a full explanation for Price Volume Charting: http://www.trendmacro.com/a/goodman/keyIndicators/pvCharting.asp
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Samsung will report before trading
tomorrow (I think).
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Anything goes spencer.
They are supposed to take the older cases first in theory. In practice, it's always different.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
So, who WAS that big seller
who we noticed hanging around for the three days before yesterday? That teecee noticed listed as much as 600,000 shares in play? And who probably cleared out their whole position after spreading a rumor that the case settled? Hmmmm???
Next publication of institutional holdings will prove interesting...
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
sj - You forgot to say
that Judges are lazy.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
boogie - better beverage for today:
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Well done dude! eom
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
q - huge oversight
Quite possibly. I am concerned that our Dallas minutemen may have disseminated information governed by a protective order. It should not be a problem if the information came from a publicly available source.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Seller seems to like
early in the day and the last hour. Very institutional in feel. 100,000 block and 50,000 block with little price movement means that there is an interested buyer. Hopefully these trades quietly cleaned out the seller. It would make sense if it was a 500,00 sh. position.
Best,
RAM
"There exists no problem that can withstand the assault of sustained thinking." -Voltaire, Philosophical Dictionary, 1764
Is the seller done?
Here is the IDCC Price\Volume chart, December 31, 2002 to January 10, 2003, with some hopeful demonstrative additions.
The red lines show a completed by buy loop on moves with increasing volume and price (A hypothetical 15.75 close tomorrow on 750,000 sh. and a 16 close the day following at 800,000 sh.). Notice how the red bullish line penetrates the downtrend to form a classic buy loop. The loop is then confirmed with a move that does not reverse back into the loop. Additionally, the downtrend must be penetrated above the January 8th close (15.46 on 800,000), or the remove one day rule would invalidate the loop.
This IDCC Price Volume Chart is smoothed through the use of 5 day moving averages for the price and volume coordinates for December 24, 2002 through today. The red dot represents today's 5 day moving averages.
Today we were heading for continued bullish clockwise rotation, until the 3:00 p.m. 100,000 and 50,000 block trades. As a result, the trend line continues straight down.
Interestingly, the 5 day MA chart would begin a bearish counterclockwise rotation if we plugged in the coordinates making a buy loop on the regular chart. What we need to continue the bullish rotation on both charts is about two days of decreased volume with an increasing price.
This leads me to the original question. Is the seller done?
Best,
RAM
Juries usually do the right thing
in spite of the lawyers and the judge.
Best,
RAM
Red Herring
Will the base station issue be decided at the Markman hearing or by the jury? If by a jury, the red herring story could be quite useful. I have often used the red herring story before juries with striking success - but you can only use it in the right case.
We often use the term "red herring". We know what it means, but the reason we use these words has been forgotten. In old England, the serfs had to work the land to supply the lord of the castle with enough crops to meet their yearly quota. If the crops were thin, it may be a hungry or worse winter for the serfs, because the lord of the manor got first dibbs.
When the lord went on a fox hunt, an unfortunate result could be that the fox might run accross your land, followed by the dogs and the horses, which would trample your crops. To prevent this, the serfs would put herring around the outside of their field to throw the dogs off the scent of the fox. The herring would lay out in the summer sun and when they rotted, they would stink terribly and turn a reddish color.
Erricson's one base station issue is nothing but a red herring. Look at the Abstract for patent 4,817,089. It says, "transmitter and receiver means both at said base stations and at said subscriber for providing direct communication between said base stations." Yet Ericsson wants you to believe that this patent applies only to one base station! This is nothing but a red herring.
Best,
RAM
Maybe never. eom
Best,
RAM
OH MY GAWD
There is not even enough time in the day to read this post!
brokentrade, you humble me.
Best,
RAM
Memphis - follow the classic buy
loop. You can read the psychology on each leg.
1. Upper right bearish line - market sells off on increasing volume. Bearish trend = bearish line.
2. Lower right - price drop moderates on decreasing volume. Stock is at support. Bullish move = bullish line.
3. Lower left - Price increase on decreasing volume. Could be a sucker rally. Bearish line
4. Upper left - Increasing price on increasing volume. Bullish move = bullish line.
IDCC charts, both single day readings and chart smoothed on 5 day moving average are rotating in the right direction. We just need the 3d and 4th legs! ;- )
Best,
RAM
Some unconventional TA
Looks bullish actually.
Price/volume charting is an unconventional charting technique that can serve to guide the investor through market-timing decisions. It was invented by Benjamin Crocker in the 1950's.
Here is the IDCC Price and Volume December 19, 2002 to January 10, 2002, which I will interpret below, after providing some basics on price volume charting. December 19 falls in the middle of the chart:
Patterns that form may be bullish or bearish depending upon the predominant direction of the lines making them up. Lines moving from the lower left to the upper right or from the upper right to the lower left are bullish. Lines moving from the upper left to the lower right or from the lower right to the upper left are bearish.
Completed loops are very significant in assessing the probable direction of the next market move. Patterns in the clockwise direction are associated with bullish moves. Patterns in the counterclockwise direction often precede down-moves.
A classic loop is where the crossover line moves negatively accross a negative line for a sell loop or positively accross a positive line for a buy loop. Loops that are not classic are continuation loops. A loop must be confirmed by a continuation that does not cross back into the loop. Additionally, if you can remove one day and destroy the loop, the loop is not valid.
The IDCC Price Volume Chart shows bearish counterclockwise rotation throughout December. However, the last four trading days have begun to form a classic buy loop. An increase in price, even on decreasing volume for the next trading day will continue the positive clockwise rotation.
I have also prepared an IDCC Price Volume Chart that is based upon 5 day moving averages:
As you can see the counterclockwise rotation on December is palpable. This is not a classic sell loop, because the line forming the loop moved in a bullish direction - slightly. This most likely is a continuation buy loop.
Following this loop you can see pronounced clockwise rotation. A classic buy loop will form with an increase in price on derceased volume, say less than 550,000 that moves over 15.8 over the next two days. We would need confirmation for one day thereafter. Keep in mind that this chart is based upon a 5 day moving average.
Best,
RAM
"The first thing we do, let's kill all the lawyers!"
Dick the Butcher - King Henry VI, part 2, Act 4, Scene 2. Makes you feel good to bash lawyers, doesn't it? What you don't realize Dick the Butcher is planning an insurrection. The lawyers are the first ones you want to neutralize when you want to take something unfairly.
The tone of the discourse on this board took a negative turn on Thursday. Those who do not believe in technical analysis should look at the charts. Price-volume chart has started to move in a bearish counterclockwise direction (I keep these charts in excel - I am trying to figure out a way to put them on earthlink free webspace so that I can post them here). We almost saw three black crows on the candlestick chart - a negative reversal pattern. http://stockcharts.com/education/Resources/Glossary/candles-threeCrows.html. TA measures aggregate sentiments. Many have been stricken by fear.
The astute have noticed that the recent prevalence of fear has coincided with vigoruous discussion of the one base station - two base station issue in the Special Master's report. This is old news, but enough to cause fear in latecommers to this stock. Many have an interest in inciting this fear - options players, shorts, etc. IMHO, questioning the bona fides of those who breathe life to this fearful subject is not necesarily a personal attack. In a court of law, the credibility of a witness may be attacked by extrinsic evidence unrelated to the material facts of the case. Exacting scrutiny of bias can lead you to the truth or to a dead end. If it's a dead end, you have one possibility eliminated.
I was one who picked up the 2 base station ball and ran with it. Many thanks to parq for applying facts to our collective decision making matrix. Sjratty, however, picked up the same ball and ran with it more times, even after complaining about limitations on the number of posts. People are suspicious of lawyers to start with - especially if someone thinks a lawyer is acting suspiciously. Maybe George Washington will have to put on his shades so sjratty can get personal messages, rather than whining for information publicly. ; )
Regardless, the collective fear reaction of the boardin questioning sjratty reached a dead end Friday afternoon by the time Bob Zumbrunnen stepped in. I, for one find, sjratty's posts insightful and valuable. I trust we will see more.
Best,
RAM
Seriously, can F&J have an accounting expert witness show a jury the filed rights prospectus and explain what a "Provision" is??
Probably not. First, this expert would have hade to have been disclosed quite some time ago, in order to comply with discovery limitations. More importantly, this may fall into the speculation rather than relevant category. What material fact would proof of the "Provision" tend to make the existence of more likely? The rights prospectus refers only generally to patent infringement claims - no specific IDCC claim. Much extrinsic evidence would be needed to make this into an admission of liability. Could easily bog things down. Court wouldn't want that. The jury probably wouldn't like that messy fight. Would make IDCC look a little desperate. I can also think of quite a few arguments to keep it out. Haven't researched the issue though. Cold be interesting...
Best,
RAM
A Capital Connection
A wrinkle in the Bush plan spells cap-gains relief.
By Donald Luskin
I haven't been much of a fan of the proposal to eliminate taxes on dividend income. But a new wrinkle in the Bush administration's tax plan is making a believer out of me. What our growth-challenged economy needs most right now is a cut in capital-gains taxes, to spur new investment and new risk-taking — and this new wrinkle is a clever way of transforming dividend tax relief into just that.
As described in internal policy documents circulating the White House and Treasury Department, the Bush tax plan will include a provision for "deemed dividend reinvestment plans," or DDRIPs. The name is a little confusing — the provision would not create a new kind of shareholder account or stock purchase plan. Rather, a DDRIP would be a notional "account" — an accounting category on the books of a public company — to record the value of retained earnings that have been subject to corporate income taxes. When a shareholder sells stock, any per-share growth in the company's DDRIP account would be deemed dividend — and dividends would now be tax-free — thus reducing the amount of capital gains subject to taxation.
Suppose you buy a stock at $100. Over the next year, the company makes $2 per share in earnings, after paying corporate taxes. At the end of the year, you sell the stock at $110. Instead of paying capital-gains taxes on your whole $10 gain, you get to exclude the $2 in earnings — just as though it had been paid out in the form of a dividend. You only pay capital-gains taxes on $8 instead of $10 — effectively, it’s a 20% reduction in capital-gains taxes.
In terms of its effect on economic growth, the capital-gains tax is the cruelest tax of all. It is a direct penalty on capital — and capital, in the end, is the one and only source of real economic growth. Tax capital, and you get less growth.
Dividend tax relief in isolation would have done little to remove this penalty on capital. But now it looks like we have a capital-gains tax cut on the table.
There are many details that remain to be worked out, including deciding whether to start DDRIP accounts at zero, or to grandfather in some number of years of past-taxed retained earnings. It is also not clear how the tax advantage of DDRIPs would accrue to a shareholder who realizes a capital loss, or for whom the change in basis due to DDRIPs converts what otherwise would have been a capital gain into an effective capital loss. And most important, it isn't law yet.
One surprise that may help it become law is the fact that, for many years at least, the DDRIPs provision may be a revenue gainer for the U.S. Treasury compared with dividend tax elimination in isolation. According to a Treasury official I spoke to, the DDRIPs provision can be expected to defer dividend tax elimination to whatever time in the future a stockholder decides to sell his stock. Without DDRIPs, companies might be moved to pay out retained earnings as dividends immediately — thus accelerating any tax revenue losses to the Treasury from dividend tax elimination.
But all that said, if these proposals do become law, we could be looking at the most exciting pro-growth tax policy since the Reagan years. And after three miserable years of the worst bear market in a generation, and after 15 years of wandering in the tax-policy wilderness, it may just be morning in America again.
Best,
RAM