Taking Stock / Seven questions
1. How far do share prices of shell corporations, and of little bitty "dream" companies, have to fall before investors remember the tremendous risk in companies with no history?
Will the 70-percent slide in Biomedics Medical from the day we wrote a column ("Take 1 shell and one slob. Mix") about it do the trick? Or does it have to lose another 50 percent before investors realize that the prefix "bio" is not much different from the suffix "dot.com" of five years back?
Will it take Biomedics Medical's utter collapse for investors finally to grasp that even though the ideas behind biotechnology companies are thrilling, they are the riskiest venture in town?
2. If insurance companies are the big winners of the Bachar reform, then why has the index of insurance companies fallen 10 percent this year, while the bank index has remained unchanged?
Perhaps the market understands what the bankers refuse to acknowledge: that the Bachar reform doesn't mean the banks will "lose" their provident and mutual funds. The provident and mutual funds will be sold for hard cash to whomever pays the most. Maybe the market simply understood that the prices the insurance companies paid a year ago for the pension funds were very high, because the selloff was handled through auction.
Maybe the market understands that a few managers were overly keen to buy customers and market share, especially given the rapid contraction of margins in the pensions industry.
3. Do the slogans Ilan Ben Dov used to pepper his announcements - "turning the pyramid upside down," "separating operations," "concentration" - regarding his insider transactions with Suny Electronic and Yarden Investment simply conceal that a giant exit from the cell phone business is in the works?
If Ben Dov really is planning to exit his cell phone importing business, what does that portend? That he thinks growth is history in that sector? Or that he wants new thrills, because importing cell phones doesn't do it for him any more?
4. Was Lambda Crossing, a company that raised $32 million during its lifetime and announced its closure this week, the last remnant of the bubble era, when the word "optic" sent shivers down the spine? Or is Israel's hi-tech scene still littered with companies that received massive funding and that are kept barely alive by investors embarrassed to admit failure - companies that, among other things, are blocking other young companies with better business models and management from raising money?
5. Will the Medinol-Boston court hearing that began this week result in a verdict, or will the companies settle outside the court, with Boston giving the Richters the stunning sum of about a billion dollars?
6. Do investors in the bond-based mutual funds that lost 1 or 2 percent in the last week, hardly befitting their image as "conservative" investments, understand that any fund that in the past achieved high yields also entails some risk?
Do these investors realize that the process of rapid interest rate cuts in Israel during the last two years is a rare episode that created capital gains that won't be recurring? Do they realize that the managers of the bond-based mutual funds won't be able to repeat their performance?
7. Did Finance Minister Benjamin Netanyahu, who found the time for a courtesy call to California and a photo-op with Arnold Schwarzenegger, make a mistake when he leaked the news that he may oust Bank Leumi chairman Eitan Raff over his opposition to the Bachar reform?
Raff immediately armed himself with legal opinions stating that his duty is to Leumi and its shareholders. As long as he can prove the reform will hurt the bank, he is entitled to fight it, Raff argues. The leak was designed to hamper Raff's fight against the reform, but may boomerang and wind up serving it while also assuring him of an extension to his contract.
Wouldn't Netanyahu be better advised to leave the threats to the bankers and fight for reform more transparently and effectively? He could blitz the members of the Knesset Finance Committee, explaining exactly how the bankers are trying to pull the wool over their eyes and why they should stand firm and support the Bachar recommendations. He should state that he will expose the committee members if they are found collaborating with the bankers for political or personal reasons. When the Knesset Finance Committee had to vote on the idea of giving Bank Leumi stock options to the people, Netanyahu proved he can create a majority. Yet in this battle, over the most important reform he has ever conceived, he is flagging in the last mile.
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