Market Buzz

Market Buzz – MOSAID Creates Special Committee to Evaluate WiLAN Bid

While they begun Friday’s session heading sharply lower on the downgraded U.S. GDP reading stocks quickly reversed to finish in positive territory after Federal Reserve Chairman Ben Bernanke proposed no new measures to stimulate the weak U.S. economy, saying he’s confident strong growth will resume without a potentially inflationary lift from the Fed. Confident strong growth will resume…really? Did it every restart?

On the day, the Dow Jones industrial average closed ahead 134 points at 11,284, while the S&P 500 rose 17 points to 1,176. The TSX gained 43 points to finish at 12,327. Toronto ended the week up 2.67% on the weak.

“Although important problems certainly exist, the fundamentals do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said at the annual conference of U.S. central bankers in Jackson Hole, Wyo.

The Fed boss also went on to state, “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

Again, we say underlying fundamentals…really? Do those strong underlying fundamentals include excessive public debt, persistently high unemployment, real GDP that grew at a less than 1.0% in the first half of this year, consumer spending, exports, and equipment and software spending that show a significant deceleration in the first six months of the year?

Switching gears to our Canadian Small-Cap Research Universe, we look ahead to next week to report on earnings from one of our top rated tech stock, which will release its third quarter fiscal 2011 results after market close on Thursday, Sept. 1, 2011.

We will also have an update on the MOSAID/WiLAN potential acquisition. This week, Mosaid Technologies announced it created a special committee of the board of directors on Aug. 18, 2011, to evaluate and consider Wi-LAN Inc.’s unsolicited offer for the company. The special committee has retained Barclays Capital Canada Inc. and GMP Securities LP as financial advisers, and Davies Ward Phillips & Vineberg LLP as legal adviser to the special committee. The members of the special committee are Carl Schlachte, chairman of the board, Ian Giffen, director, and Barry Reiter, director. All of the special committee members are independent directors.

MOSAID reiterates its recommendation that shareholders take no action until they have received further communications from the board of directors.

Looniversity – Of Crashes and Bubbles

A bubble is an investing phenomenon that demonstrates the influence human emotion has on investing. A bubble begins when investors put so much demand on a stock that they drive the price beyond any accurate or rational reflection of its actual worth, which should be determined by the fundamental performance of the underlying company. Like the soap bubbles a child likes to blow, investing bubbles often appear as though they will rise forever, but since they are not formed from anything substantial, they eventually pop. When they do, the money that was invested into them dissipates into the wind.

A crash is a significant drop in the total value of a market, almost invariably attributable to the popping of a bubble, creating a situation where in the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses during a crash, investors resort to panic selling, hoping to unload their declining stocks onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone. Typically crashes in the stock market have been followed by a depression.

The relationship between bubbles and crashes is similar to the relationship between clouds and rain. You can have clouds without rain but you can’t have rain without clouds, bubbles are like clouds and market crashes are like rain.

Put it to Us?

Q. Is all “Insider Trading” illegal?

– Romy Renard; Calgary, Alberta

A good question. In the markets, there are two types of insider trading: legal and illegal. Because it’s no fun hearing about what you can do, let’s talk about what you can’t. Essentially, this is the buying or selling of a security by insiders who possess material, nonpublic information about the security. The act puts insiders in breach of a fiduciary duty or other relationship of trust and confidence.

A common misconception is that only directors and upper management can be convicted of insider trading. However, anybody who has material and nonpublic information can commit insider trading. This means that almost everybody can be considered an insider, including brokers, family, friends, employees, and yes, even you.

Having said this, there is an important thing to distinguish here; insiders don’t always have their hands tied. In fact, insiders can and do buy and sell stock in their own companies all the time, but they are restricted as to when they can execute their buy and sell orders.

In terms of legal trading, the OSC (Ontario Securities Commission) considers insiders to be company directors, officials, or any individual with a 10 percent or more stakes in the company.

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