Hours ago, Blackstone Group (BX) announced they were purchasing all outstanding shares of Hilton Hotels (HLT) for 47.50, a whopping 32% premium .  for around 26 billion (including debt) .  Wow!  This comes within a year of Blackstone buying out CarrAmerica Realty for 5.6 billion and most recently Equity Office Properties for (EOP) 36 billion.  The buyout of EOP was a bit questionable and came at what many consider a possible top of the REIT market.  Now the big Hilton buyout which undoubtedly makes Blackstone one of the (if not the largest) holders of real estate in the world (they now own 580,000 hotel rooms in 76 countries).  Wouldn’t a purchase like this with a large premium have made more sense a few years ago.. before global real estate prices went parabolic?  Perhaps this is more about greed, ego and power than doing what’s in the best of interest of shareholders.  After all, Schwartzman already made his money with the IPO. You’ve got one unhappy shareholder here – I bought a very small position today with expectations of some kind of snap back rally.  Those expectations are gone after tonight’s announcement.   I’ll take a hit on Thursday.

I wonder if a few folks didn’t catch wind of this deal going down at a few cocktail parties this weekend?  The stock was up 6% with volume more than twice the daily average… and with a pre-holiday half day of trading!  The rich get richer.  Surprise, surprise.  I look forward to reading all the commentary on this one. 

I just had to get this quick update out before I head to the airport this morning.  Davis Freeberg and I as you may know have been following this issue of major financial publications running full page ads for a penny stock – Global Telecom (GZGT).   Just the running of ads for penny stocks is bad enough, but considering the players involved in running GZGT have a bit of a shady past, it makes the running of these ads highly unethical.  Kiplinger’s originially broke  this story and I followed after seeing the ad in Investors Business Daily (note this is the online version of the ad, I first saw it in the Friday, June 1st edition of the newspaper).  This story has been getting more attention of late (hear Chuck Jaffe of MarketWatch’s Stupid Investment of the Week last week) and following an inquiry from Davis Freeberg, Forbes mentioned that the ads are being discontinued.  They stated:

“Thanks for your note- we obviously take this very seriously given our
reputation in the industry. Just so you know Forbes.com and Forbes
magazine are separate organizations with separate sales teams. I had
some people here at Forbes.com run a check and it appears that we’ve
never shown those ads online. I can confirm that there had been ads run
in the print mag in the past but from what I’m told those are going to
be discontinued.”

Thank you Forbes for doing the right thing!  How about you Investors Business Daily?  Here is  their response:

“Thank you for your email regarding the advertising from GrowthStockGuru. Investor’s Business Daily does have a policy in of rejecting display advertising that promotes penny stocks. Display advertising refers to the ads that are placed throughout the newspaper.

The ad you referred to ran in our Corporate News section. This is classified advertising section designed as a forum for public companies to increase awareness of their stock. Most of the ads that run in Corporate News are penny stocks. Many of our readers regularly read this advertising feature searching for new and interesting investment opportunities. The section is labeled as advertising and in no way is an endorsement by Investor’s Business Daily. We also run a small disclaimer in the section stating that we can not guarantee the accuracy of the information in the ads.

Thank you for taking the time to share your concerns with us. We value your input and take all suggestions and comments very seriously.”

It appears IBD doesn’t want to let go so easily of those penny stock promotion profits.. hmm.  They get around the issue by distinguishing between display ads and their Corporate News (er advertising), which is different.  Whether you call it Corporate News or whether it appears on one page or several pages, does it really matter?  An ad is and is an ad and it may hurt your readers financially not to mention your reputation and credibility.  Do the right thing IBD and quit providing an avenue for penny stock companies to pump and dump.  If you’re going to provide an avenue for companies to promote themselves, why not at least stick to companies listed on the major exchanges who must adhere to certain standards?

You can read the entire story about these responses to the GZGT stock scam over at Freeberg’s blog. 

What do you think?

Tomorrow I head out for a week long wedding/travel trip and a little R&R along the way, so I won’t be posting here for the next week.  Be back soon!

I wanted to follow up on two articles I wrote recently, one which mentioned the recent full page ads in Fortune, Forbes, Business Week and Investors Business Daily ( I heard Smart Money was running them yesterday) promoting a questionable penny stock GuangZhou Global (GZGT).  There is more to the highly irresponsible running of these ads by major financial financial pubications.  As Davis Freeberg points out, the players behind GZGT and other shady businesses are at best immoral and at worst criminal.   This was a follow up to an aricle called "Spam Goes Postal". 

UPDATE – looks like GZGT is aware of all the attention surrounding its company.  As expected the company is distancing itself from this and issued a press release yesterday that read in part:

"The Company is aware of the massive media campaign surrounding our company and our stock, good and bad. Much of what is being said is out of our control and the Company would like to distance itself from much of what is being circulated. One thing that we suggest to all potential investors is to speak to a registered investment advisor before making any investment. That being said, the fact is that we are a growing company inside one of the greatest growing wireless markets in the world. We are open and available to talk to our shareholders, brokers, and media to address any questions, comments, or concerns that they might have."

Now, how about a statement from growth stock guru, IBD, Business Week, Forbes and Fortune!

Note: this story is starting to get some traction – Techdirt has picked up on the GZGT stock spam issue as well.

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I also recently wrote up an article taking a look at the consequences of an ethanol solution to decreasing our dependence on foreign oil.  Jim Jubak  wrote a very similar article the very same day and agrees, but also points out some ways to profit from this issue.

A couple days ago I was reading Investors Business Daily and something caught my eye  – no it wasn’t a great piece on technology trends or the next hot company.  It was a full page ad from growthstockguru.com promoting a pink sheet penny stock, Guangzhou Global (GZGT)!  I read a lot of financial publications and don’t ever recall seeing a full length ad with the same kind of flashy promotion you get in your junk email.  Is the desperation for ad dollars this great?  To me it’s unbelievable that respected publications like Investors Business Daily would put their credibility on the line for a few bucks like this.  IBD isn’t the only one.  Apparently Forbes, Fortune and BusinessWeek were running these ads as well but I haven’t seen them.  The IBD ad is right in front of me on page A13 of the Friday edition (the ad is running yet again on page A15 of the weekend edition).  Shame on you IBD and other publications for being a part of the stock spam problem and not a part of the solution.  How do you live with yourselves knowing that some of your readers may have naively jumped into this stock before the big dump.

The IBD ad ran in the Friday edition.  After all the pumping from these slick ads, Guangzhou Global (GZGT) began the big dump with a little more than an hour to go in  trading Friday.  A nearly 38% drop.

chart via MSN

I would like to commend Kiplinger’s for being responsible and not running these ads.  According to Thomas Anderson of Kiplinger, they were also approached and declined to run the ad.  There is some interesting background in this article about the relationship between growthstockguru.com, GZGT and the advertiser as well as the financials of the company.  Some highlights:

– The editor of growthstockguru.com, Aharon Bronfman doesn’t show in a search of private and public databases.  It’s entirely possible this person doesn’t even exist! Do a search in Google and you’ll see what I mean.  Fifteen years of investment experience and this guy is invisible?  Also interesting to note that the website went online just days before GZGT started trading.  So much for the hype in the ad that claims Aharon’s 3 recent stock picks went on to extraordinary gains. 

I’ve taken this a step further and uncovered the following:

– The listed address for GrowthStockGuru.com is

Growth Stock Guru
1461 A First Avenue, # 360
New York, NY 10021-2209
USA

If you do a Google search for the address 1461 A First Avenue, #360, New York, NY 10021-2209 you start seeing other unsavory companies with the same address such as

– A Witherspoon, Seymour & Robinson Inc which looks to be a fairly shady company in its own right. 

– Is it coincidence that another investing site tradesoeasy.com with rumored links to a german spammer has the same address?  I think not.  It appears that the address used by growthstockguru.com and many other unscrupulous companies is some sort of address forwarding service. 

It’s unclear just who owns what and all the parties behind the pump and dump scheme.. but the bottom line is that Business Week, Forbes, Fortune and Investors Business Daily, whether they realized it or not,  all were a part of that.  That is mighty disturbing.  Could they not do a simple background check as I have done and realize this was most likely a classic pump and dump scheme? Or was the desperation for ad dollars too  great to pass up? 

I don’t have the time or resources to research this any further but the moral of the story is to be careful out there avoid those pink sheet stocks!

I came across an interesting story over the weekend at the Consumerist.com about a study published in the Journal of Marketing claiming well above average returns in the stock market by focusing on companies that score in the top 20% of the American Customer Satisfaction Index (ACSI).  I don’t place much importance on theoretical gains based on backtesting and paper profits but from 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.  I won’t go into the details of the study here, but the bottom line is that treating employees well leads to happy employees, leads to less turnover, leads to lower customer costs, leads to higher customer satisfaction which all leads to greater company profits and a higher stock price!  While customer satisfaction scores may be important for the long term, Warren Buffett style investor, I’ll stick to technical analysis for entries and exits.

So which companies are leading the way in customer satisfaction now?  I’ve listed only the top companies in each industry – you can get the full lists at the ASCI website

• Restaurants: Olive Garden – it’s owned by Darden Restaurants (DRI) [score: 80]
• Limited Service Restaurants – Starbux (SBUX) [78] and Wendy’s (WEN) [78]
• Hotels – Marriot (MAR) [79]
• Cable & Satellite – DirectTV [67]
       * interesting to note that Comcast which is the subject of frustration for many consumers scored near the bottom with   [56] although I’ve never had any problems with them
• Cell Phones – Motorola (MOT) [72]
• Fixed Line Phone Service- Verizon (VZ) [72] and Qwest (Q) [72]
• Wireless Phone Service – Verizon (VZ) [71]
• Airlines – Southwest (LUV) [76]
• Express Delivery – Fed Ex (FDX) [84]
• Energy Utilities – Southern Company (SO) [82]
• Ecommerce – Ebay (EBAY) [80]
• Internet Brokerage – Charles Schwab (SCHW) [80]
• Internet Retail – Barnes & Noble (BKS) [88] & Amazon (AMZN) [87]
• Internet Travel – Expedia (EXPE) [78]
• Finance & Insurance – Wachovia (WB) [80]
• Property & Casualty Insurance – GEICO [83] which is owned by Berkshire Hathaway (BRKA)
• Department & Discount Stores – Kohl’s (KSS) [80]
• Health & Personal Care Stores – CVS Corp (CVS) [78]
• Specialty Retail – Costco [81]
• Supermarkets – Publix Super Markets (private) [83]; Kroger (KR) is second with score of 76
• Apparel – Sarah Lee (SLE) since when does Sarah Lee make apparel?
• Athletic Shoes – Reebok [78] which is owned by Adidas and doesn’t trade in US market; Nike (NKE) is next best option
• Breweries – Molson/Coors (TAP) [83]
• Food Manufacturing – HJ Heinz (HNZ) [87]
• Personal Care & Cleaning Products – Clorox (CLX) [86]
• Soft Drinks – Cadbury Schweppes (CSG) [86] & Pepsi (PEP) [86]
• Internet News – USATODAY.com owned by Gannet (GCI) [74] & CNN.com owned by Time Warner (TWC) [74]
• Internet Portals – Yahoo (YHOO) [76]
• Internet Search Engines – Google (GOOG) [81]
• Automobiles – Toyota (TM) [87]
• Appliances – Whirlpool (WHR) [82] & General Electric (GE) [82]
• Personal Computers – Apple (AAPL)

That’s quite a list of outstanding blue chip companies!  I’ll have to revisit this post in a year and see how these companies did collectively vs. the S&P500.

We’ve all heard about the large, publicly traded sub prime lender meltdowns, but I thought I’d highlight a few significant local implosions that have happened in the past couple months.  The first high profile mortgage implosion in the Seattle area that I’m aware of happened at the end of last year with Merit Financial.  It was run by an ex UW Huskies football player, Scott Greenlaw.  During boom times, Merit Financial could be described as one big party where staff meetings turned into keg celebrations of their new found riches.  That was then.  Now, 400 employees are out of work and company executives are on the verge of bankruptcy, not to mention battling lawsuits left and right.  It’s an interesting read:
http://seattletimes.nwsource.com/html/businesstechnology/2003459108_merit03.html

Just two days ago, another private sub prime lender in the Seattle area, Mortgage Lending Associates, shut its doors abruptly, leaving 300 workers just minutes to pack their things.  Certainly, business isn’t good for lenders right now, but you have to believe that greed greatly contributed to the demise of these two companies.  Said one employee: "We would see things that shouldn’t have been happening," she said Monday. "When we pointed it out, instead of being grateful, they’d get mad at us."  The articles certainly alluded to some of the arrogance and greed of the founders of these two companies, who just so happened to win awards for excellence in business.  Hmm.. where have we seen all this before? 

Here’s the full article: http://wwww.examiner.com/a691341~Lauded_Mountlake_Terrace_subprime_mortgage_wholesaler_collapses.html