All posts by Peter Jefferson

About Peter Jefferson

Peter Jefferson is a full-time researcher for www.businessdistrict.com, a task he took on in 2011 when the site was launched. He brings to the position a wealth of practical experience in the field of fiscal policy, having consulted with various government bodies on revenue collection, expenditure and economic growth. Contact Peter at peter[at]businessdistrict.com

Activist Investors Call For McGraw-Hill Divestitures

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McGraw-Hill shareholders have met with the company to discuss breaking the business apart and selling less profitable divisions. Jana Partners LLC, founded by Barry Rosenstein, and the Ontario Teachers’ Pension Plan jointly own about 5.2% of McGraw-Hill. These two shareholder groups are pushing hard for McGraw-Hill to split its 4 divisions into different companies. Jana Partners is a hedge fund once associate with the Carl Icahn group and has already attempted to dismantle 40 companies in order to make greater profits for its shareholders.

According to McGraw-Hill spokeswoman, Patti Rockenwagner, “McGraw-Hill’s portfolio review is well advanced.” The McGraw-Hill Chairman and CEO, Harold W. McGraw III, has said that McGraw-Hill is planning to make an important announcement in the second half of 2011.

According to Goldman Sacks analysts the sum value of the parts of McGraw Hill is greater than the value of the entire company as a whole. According to analysts at Piper Jaffray, if McGraw-Hill spun off some businesses, its share price would be trading closer to $53 rather the low $40’s.

One of the advantages of economic recessions is that it forces businessmen and investors to review the health of their companies and to push for improvements where possible. I think that we are seeing this business review and improvement process now. Its all for the best!

Former Moody’s Analyst Reveals Deep Seated Problems In Moody’s Ratings

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Analyst William J. Harrington, a Moody’s analyst from 1999 to 2010 sent an 80 page report to the sec outline Moody’s poor and immoral practices. Essentially the Moody’s scandal is a fascinating conflict of interest between the service group and the marketing and management professionals. The management team knows that “the customer is always right”, even when they’re not. The service group is comprised of professional financial analysts who are trained to analyze the financial condition of a company and give a professional evaluation, similar to CPA’s.

The conflict arises because the client company is paying for its own evaluation. If the client doesn’t like the evaluation it will take its business elsewhere, to another rating agency. The management obviously wants to please the client and so it pressures the analysts to portray the company’s financial condition as better than it really is.

The problem is that investors and lenders to the company are relying on this information to make decisions which may involve hundreds of thousands of dollars. Therefore falsified ratings should be illegal as deceptive to the public. In addition, rating agencies” have a connotation of being objective or else they are unreliable and essentially useless. A law should be instituted that rating companies can only sell their information to third parties but cannot enter into a buyer-seller relationship with the companies that they rate.

Warren E. Buffett, a major shareholder of Moody’s, claimed that the ratings agencies could not be blamed for the financial meltdown. “I would say in this particular case [The sub-prime mortgage crisis] that they [the analysts] made a mistake that virtually everybody in the country made.” This of course begs the point because the analysts are financial professionals whose job it is to know better.

Moody’s CEO, Raymond W McDaniel said that the results were “deeply disappointing.” From the years 2000 to 2007, Moody’s revenue rose from $600 million to $2.2 billion as the housing bubble evolved. Moody’s bestowed its highest rating to 42,625 residential mortgage-backed securities during that time. The securities were later downgraded when the bubble burst.

Phil Angelides, the chairman of the Financial Crisis Inquiries Commission (FCIC) said that “This comes as close as you can to the very product being fraudulent or of no use to the marketplace in reality.”

In my opinion, a law should be passed that rating companies can only sell their information to third parties but cannot enter into a buyer-seller relationship with the companies that they rate.

McDonald’s Corp Is The Leader

Companies, Investments

McDonald’s is a multinational blue chip firm which will hold its own no matter how bad the market gets. That’s because McDonald’s is not only well entrenched in mature markets like the United States and Europe, but is growing rapidly in the emerging markets such as India, China, Latin America and Eastern Europe.

In fact, McDonald’s has a program to build a new restaurant every day for the next 3 to 4 years in China. They will have 2000 restaurants in China by 2013. The emerging markets are developing a new middle class which works hard and loves to eat fast food. McDonald’s is there for them.

In addition, McDonald’s has discovered that they earn much more from their franchises than they do from running the restaurants themselves. It’s good income with very little work. Out of 32,800 McDonald’s restaurants, 26,400 are franchises (80.6%) and only 26,400 (19.4%) are company owned and operated. The company uses these stores for training and for testing new foods.

According to Simon Baker, the CEO of Baker Avenue Asset Management, multinationals such as McDonald’s stand to benefit from the weakened dollar and make good investments in these volatile markets. By the way, as a bonus McDonald’s pays a 3% dividend which is better than treasury bonds.

Buy Phillip Morris International

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This highly volatile market is not a safe havens by any means, and fixed income investments yield very little. In this situation, one might be wise to take some moderate risks and examine equities. Equities which offer both growth prospects and dividends with help to stabilize portfolios.

Phillip Morris International (PMI) is an economically insensitive business because people will smoke in good times and in bad times. In bad times people want the upper to calm their nerves and therefore they will not quit smoking easily. PMI is not connected to the American Phillip Morris Company and therefore is not exposed to the American Company’s legal problems. Pmi is headquartered in Switzerland and operates in 180 countries. It owns the 15 top cigarette brands in the world and employs 75,000 workers worldwide. Whether you smoke cigarettes or not, the company is on its way up and looks like a good short to mid-term investment and also pays a decent dividend.

Hope You Bought BIDU

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Bidu the Chinese search engine has been on an upward trend after last week’s volatility.  If you didn’t buy it you may have missed out at a great opportunity.  That being said the 6 month trend has a lot of volatility, with prices ranging from 115 in mid June to its current trade at 150.  Expect this value to lat only a little while as it will probably dip in the next few weeks.  If you didn’t grab it already you can grab it then.