After the collapse of the HYPO Real Estate bank on Saturday, the German Government agreed a rescue deal to save one of the biggest banks.

Anyway back to this news.. as the FTSE drops by 5%, UK shares have also fallen after another torterous weekend for the worlds economy! Its approaching meltdown!
Such banks as HBOS were down nearly 15%, Royal Bank of Scotland down 14%, and LLoyds TSB down a good 7%.

"The pound fell against the dollar, hit a five-year low against the yen and a seven-month low against the euro." (Quote from the bbc website)
After more speculation about a recession happening, i feel by towards the end of this year we will most certainly have a recession.

My next topic will be about a recession, and what it is? As i get asked what is a recession, what will happen and when will we know when we are in a recession.

Share buybacks are when a company buys and then cancels its own shares either through a tender offer or on the markets.  Buybacks reduce the total dividend payout, reduce the risk of a takeover and increase earnings per share (EPS), but they give the impression that a firm has more cash than it can comfortably invest.  It may also imply that management has run out of better ways to increase EPS.

The dividend payout is an interesting aspect.  Normally, companies with high dividend payouts provide the highest return, not just because of the dividend but because of increased investor confidence in future growth.  High dividend payouts imply a bull market, this London Times article states that between 1997 and 2007, companies which increased dividend payouts gave a 12.7% return per year.  Companies with buyback plans returned just 8.2%.

The only years in which buyback companies provided higher returns were 1997, 2001 and 2002.  What do those years have in common with 2008? An intense bear market.

When the bear market ends, Shell will have a strong balance sheet with which to borrow debt at a cheaper rate.  This debt will have lower tax payments and the cost of interest may be less than the cost of dividends.

Usually money spent on buybacks means less money spent on research and development or asset investment.  But a buyback can be considered an investment in the company's future financial stability.  Depending on future performance and the markets, It will be interesting to find out which is the case for Shell.

*RDS has two classes of shares: 'A' and 'B'.  Unlike tracking shares which are responsible for different divisions of a company, Shell's dual stock system exists only to provide dividends in different currencies.  When Royal Dutch, a Dutch company, merged with British Shell, RD shareholders were issued class A shares in Royal Dutch Shell, which pay dividends in Euros and Shell shareholders were issued class B shares, paying dividends in Sterling.

P.S-for some reason that annoying 'this video is no longer available' message appears when I try to play it here. Try the link if it doesn't work.

Costello v. Sykes, 143 Minn. 109 (Minn., 1919).

143 Minn. 109

JOHN P. COSTELLO
v.
ALICE G. SYKES AND ANOTHER.1

No. 21,227.

Supreme Court of Minnesota.

June 20, 1919.

Page 110

Action in the district court for Hennepin county to cancel a sale of bank stock and to recover $1,300. Defendants demurred to the amended complaint on the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was sustained, Rockwood, J. From the order sustaining the demurrer, plaintiff appealed. Affirmed.

Daniel F. Foley, for appellant.

Lancaster & Simpson and James E. Dorsey, for respondents.

LEES, C.

Appeal from order sustaining a demurrer to the complaint on the ground that it failed to state a cause of action. In substance the material allegations are as follows:

The Calhoun State Bank was a Minnesota banking corporation, having, according to its books, a paid-in capital of $35,000, a surplus of $5,250 and undivided profits of $6,000. Respondents were stockholders. The par value of a share of stock was $100. If the bank's capital was unimpaired and it had the surplus and undivided profits shown by its books, a share of stock was worth at least $136. Respondents sold ten shares of stock to appellant for $1,360. At the time of the sale the parties to the transaction believed that the bank's capital had not been impaired; that its assets and liabilities were as set forth in its books; that it had the surplus and profits referred to; that its books were kept correctly,

Page 111

and that the book value of its stock was not less than $136 per share. In fact it had neither surplus nor undivided profits. Its employees had kept its books so as to conceal defalcations of which they were guilty, and its assets had been depleted until its stock was worth but $60 per share. Such employees are insolvent and there is no way of making good their defalcations. The parties to the sale were mutually mistaken as to the assets of the bank, the actual value and the book value of its stock, and the amount of its surplus and undivided profits. Upon discovering the truth, appellant tendered the stock to respondents and demanded repayment of the purchase price, and, his demand being refused, sues for a rescission of the contract of sale.

The sole question presented is whether the mistake alleged is of such a character as to give rise to a right to rescind.

The subject matter of the contract of sale was ten shares of the capital stock of the bank. There was no mistake as to its identity or existence. A mistake relating merely to the attributes, quality or value of the subject of a sale does not warrant a rescission. Neither does a mistake respecting something which was a matter of inducement to the making of the contract, where the means of information were open alike to both parties and each was equally innocent and there was no concealment of facts and no imposition.

A leading case is Kennedy v. Panama, etc., Mail Co. L. R. 2 Q. B. Cas. 580. Like the one at bar, it involved a contract for the sale of corporate stock. The corporation owned and operated a line of steamships. Both parties bona fide believed that it had obtained a valuable contract to carry government mails, but it turned out that the contract was made without authority. The government refused to ratify it, and so the value of the stock was much less than the parties supposed. It was contended, as it is here, that there was a difference in substance between shares in a company with and shares in a company without such a contract; that this was a difference which went to the very root of the matter involved, and that, therefore, the purchaser was entitled to rescind. The contention did not meet with the court's approval, and it was held that the case was one of innocent misapprehension, that a rescission could not be had, and that there was not such a complete difference in substance between what was supposed to be and what was taken as would

Page 112

constitute a failure of consideration. The purchaser got the very shares he intended to buy and they were far from being of no value.

Such are the facts in the case at bar, for appellant got the shares he intended to buy. His complaint is that they are worth but $60, instead of $136 each. The Kennedy case has been widely and approvingly cited by courts of last resort in this country. The principles it lays down are those which have been approved in the following, among many other, decisions: Otis v. Cullum, 92 U. S. 447, 23 L. ed. 496; Dambmann v. Schulting, 75 N. Y. 55; Hecht v. Batcheller, 147 Mass. 335, 17 N. E. 651, 9 Am. St. 708; Cavanagh v. Tyson, 227 Mass. 437, 116 N. E. 818; Sankey's Ex'rs. v. First Nat. Bank, 78 Pa. 48; Wheat v. Cross, 31 Md. 99, 1 Am. Rep. 28; Sample v. Bridgeforth, 72 Miss. 293, 16 South. 876; Smith v. Tewalt, 9 Ind. App. 646, 37 N. E. 294; Wood v. Boynton, 64 Wis. 265, 25 N. W. 42, 54 Am. Rep. 610; Moore v. Scott, 47 Neb. 346, 66 N. W. 441.

Appellant takes the position that there was a mistake as to the existence of the bank's supposed surplus and undivided profits. In this connection it is argued that, since banks are under the supervision of public officials whose duty it is to examine their books and obtain quarterly reports which are published, he had the right to rely on such books and published reports, and that respondents are blamable because they are not correct. It is therefore asserted that the parties to a sale of bank stock do not stand on the same footing as the parties to a sale of stock in other corporations. There are a number of statutory provisions which lend support to appellant's position, but we are not convinced that a mere stockholder in a bank is chargeable as a matter of law with responsibility for the manner in which its books are kept or that greater reliance may be placed upon their accuracy than may be placed upon the accuracy of the books of any other corporation, by a purchaser of its stock.

Thwing v. Hall & Ducey L. Co. 40 Minn. 184, 41 N. W. 815, and Cobb v. Cole, 44 Minn. 278, 46 N. W. 364, are cited as cases committing this court to a doctrine at variance with that generally adopted in other jurisdictions. Chapman v. Cole, 12 Gray, 141, 71 Am. Dec. 739; Sherwood v. Walker, 66 Mich. 568, 33 N. W. 919, 11 Am. St. 531; Hannah v. Steinman, 159 Cal. 142, 112 Pac. 1094, and cases of similar nature are

Page 113

also cited, and Professor Williston's language at section 656 of his treatise on the subject of Sales is quoted to sustain appellant's contention.

Thwing v. Hall & Ducey L. Co. supra, differs from the case at bar in that it was an action for the specific performance of an executory contract of sale instead of one to rescind an executed contract, and especially in that there was a representation made by the seller to the buyer, relied on by the latter, as to a material fact which was untrue, although the seller believed it to be true.

In Cobb v. Cole, supra, the parties had been partners. There was a dissolution and it was agreed that one of the partners who retired from the firm should receive from the others a sum equal to his interest in the firm "as the same then appeared upon the books." A statement was prepared from the books, which was erroneous in fact, although the parties believed it was correct. The retiring partner was allowed to recover the sum actually due him as shown by the books after he had been paid the sum which appeared to be due him according to the erroneous statement.

We see nothing in either case indicating that this court has departed from the generally accepted rules which we stated at the outset.

In Chapman v. Cole, supra, plaintiff gave defendant a gold piece, believing it was fifty cents, and was allowed to recover it back on the ground, as stated by the court, that there was a mistake as to the identity of the subject matter of the transaction.

Sherwood v. Walker, supra, and Hannah v. Steinman, supra, fairly sustain appellant's contention. The former case was decided by a divided court, with a dissenting opinion by Sherwood, J. The effect of the decision was subsequently expressly limited to the peculiar facts of the case in Nester v. Michigan Land & Iron Co. 69 Mich. 290, 37 N. W. 278.

The views of Professor Williston also favor the contention and are entitled to respect. His views do not appear to be shared by other authors. Leake, Contracts (6th Ed.) p. 229; 1 Story, Eq. Jur. § 160; Page, Contracts, § 155; Hammon, Contracts, § 99; Black, Rescission, § 141. The weight of authority is with the respondents so far as the general principle under consideration is here involved.

If the question were one of first impression, we should not be inclined to open up a new field for litigation by adopting the rule that a contract

Page 114

for the sale of corporate stock may be rescinded merely because both parties were mistaken about the nature or extent of the assets or liabilities of the corporation, if the means of information are open alike to both and there is no concealment of facts or imposition. Upon the sale of a note both parties may be mistaken as to the solvency of the maker or of an indorser or guarantor of payment, and may deal on the assumption that the paper is good, when in fact the unknown insolvency of the parties liable for its payment makes it worthless.

In the absence of fraud or inequitable conduct on the part of the seller of property of that kind, we had supposed the buyer could not have a rescission. He can always protect himself against possible loss by requiring the seller to guarantee or secure the payment of the paper. Day v. Kinney, 131 Mass. 37; Burgess v. Chapin, 5 R. I. 225. We think this should be the rule when stock in a corporation is the subject of a contract of sale, and conclude that the learned trial judge correctly disposed of the case and the order sustaining the demurrer is affirmed.

---------------

Notes:

1. Reported in 172 N. W. 907.

---------------

HALLAM, J. (dissenting).

I dissent:

In my opinion the following statement by Williston:

"If parties enter into a bargain on the assumption that certain things are true, it is inequitable to enforce the bargain, to allow it to stand if the mistake relates to a matter so fundamental that it must be assumed that the parties would not have entered into the transaction had they known the truth." Williston, Sales, § 656, and the following statement by Benjamin:

"When there has been a common mistake as to some essential fact forming an inducement to the sale, that is, when the circumstances justify the inference that no contract would have been made if the whole truth had been known to the parties, the sale is voidable," Benjamin, Sales (7th Ed.) § 415, are good law.

In Thwing v. Hall & Ducey L. Co. 40 Minn. 184, 41 N. W. 815, this court stated the same rule in this language:

"The mistake we are now considering was occasioned by the ignorance of both parties of a fact under the influence of which they entered into

Page 115

a contract that would not have been executed had they possessed full knowledge of the situation. * * * It may also be stated, generally, that affirmative or defensive relief, such as is required by the circumstances, may be granted from the consequences of a mistake of any fact which is a material element of the transaction, and which is not the result of the mistaken party's own violation of some positive legal duty, if there be no adequate remedy at law."

In that case specific performance was asked by plaintiff. Rescission was asked by defendant. The court rescinded.

This court has repeatedly re-affirmed and applied the same principles. Cobb v. Cole, 44 Minn. 278, 46 N. W. 364; Marple v. Minneapolis & St. L. R. Co. 115 Minn. 262, 132 N. W. 333, Ann. Cas. 1912D, 1082; Becthold v. King, 134 Minn. 105, 158 N. W. 910. Ketchum v. Catlin, 21 Vt. 191; Hoops v. Fitzgerald, 204 Ill. 325, 68 N. E. 430: Fritzler v. Robinson, 70 Iowa, 500, 31 N. W. 61.

I do not think we should depart from them. It cannot be said that no mistake as to either "attributes, quality or value" gives ground for rescission. In Thwing v. Hall & Ducey L. Co. 40 Minn. 184, 41 N. W. 815, there was a mistake as to "attributes" of the property. I cannot distinguish this case from Cobb v. Cole, 44 Minn. 278, 46 N. W. 364. It seems to me there was a mutual mistake, not as to quality or value but as to certain tangible facts so fundamental that it must be assumed that the parties would not have entered into the contract had they known the truth.

VietNamNet Bridge – Domestic share prices went up slightly yesterday, as a revised version of the US financial rescue plan was endorsed by the Senate.

The latest economic indexes for the US showed that the world’s leading economy was on the edge of recession.

The US Senate approved a US$700 billion bailout of the financial industry, putting pressure on the House of Representatives to approve the plan that political and financial leaders called crucial to averting economic catastrophe.

The VN-Index gained 5.84 points or 1.29 per cent to close at 460.25. Trading volume fell by 20 per cent to 15.16 million shares, with a total value of VND552.35 billion (US$33.47 million).

The HCM City Stock Exchange saw 123 gainers and 26 losers at the end of the day.

Sacombank (STB) led the market in terms of trading volume with orders for 1.83 million shares. STB was followed by Viet Nam Tanker Joint Stock Co (VTO) and Hoa Phat Group (HPG) with around 900,000 shares traded each.

Transaction levels for foreign investors were modest, with 933,000 shares bought and 2.75 million units sold. Net sales value reached nearly VND95 billion ($5.75 million).

On the Ha Noi Securities Trading Centre, the HASTC-Index closed at 152.96 after increasing 3.26 points or 2.18 per cent on the day. Trading volume fell slightly to about 10.5 million shares with a total revenue of VND352.2 billion ($21.35 million).

Kim Long Securities (KLS) showed the most action on the northern bourse, with 1.32 million shares traded. This was followed by Asian Commercial Bank (ACB) with about 800,000 shares, and Petroleum Technical Services Corp (PVS) with about 720,000 units. Some domestic moves also helped stock indexes rebound.

Three leading local petroleum importers, including the Viet Nam National Petroleum Corporation (Petrolimex), cut their kerosene prices on Wednesday by VND1,000 to VND17,000 per litre, following the Ministry of Finance’s approval.

Petrolimex said the cut in retail prices for kerosene was to support production activities, as world oil prices had declined significantly to around $100 per barrel. Meanwhile, banks have given lending incentives to small- and medium-sized enterprises (SMEs) and exporters to boost the private sector market during difficult economic times.

The Bank for Investment and Development of Viet Nam (BIDV) offered SMEs an annual rate of 17.8 per cent starting Wednesday, compared to an average lending rate of 18 percent amongst commercial banks; while ACB decided to reserve VND2 trillion ($121.2 million) for lending to private enterprises and household businesses.

Ngo Van Minh, director of EuroCapital Securities’ Analysis Department, commented on the potential effects of the $700 billion US bailout plan, saying it would help stabilise the financial arena, but would not be able to help the US economy recovery yet.

The latest economic indexes for the US showed that the world’s leading economy was on the edge of recession, he added.

(Source: Viet Nam News)

Update from: http://english.vietnamnet.vn//biz/2008/10/806800/

$7 billion - that's what California governor Arnold Schwarzenegger has requested from the federal government in emergency funds so he can, oh - like meet the state payroll for example.  And as the first governor to do so, he gets dibs.  (But I suspect he wouldn't have had much of a problem anyway.  Would you cut in line to stand between $7 billion and the Terminator?)

This is exactly what I was talking about in yesterday's post about the failure of the commercial paper market, and its ramifications - though for the state of California to be the first to hit the wall is absolutely stunning.   No-one willing to lend to California - think about that.

Of course there was the other bad news about jobs.  Then we hear that Wells Fargo steals the carcass of Wachovia out from under Citigroup - and Citigroup is upset about it!  What the hell was that all about? There are bigger fish to fry than fighting over who gets a dead bank.  These guys need to get more sleep.

The tepid response by the markets yesterday to the absolute certainty that congress would pass the $700B bail-out bill portended today's reaction.  It was a classic example of buy on expectation - sell on news. In fact the market started rolling over while Congress was still voting and the result was not yet announced.

After they did announce it, prices continued to fall, but there was a real battle going on.  To me it had the feel of the screeching brakes, smoke, and sparks of a train on a steep hill trying to keep from running away.  The markets did however close on their lows of the day.  At 3PM I was expecting it to either turn into a rout or a huge rally.  I was wrong, as it did neither.

Given the big rally on Tuesday after the failure of the first vote, I was looking for a good entry point on CME Group (the Chicago Mercantile Exchange) and Apple Inc.  hoping they wouldn't get away.  I got what I wished for - they didn't get away.  At least I bought them after the vote when they had lost all their earlier gains, but they both still of course closed lower.  Same thing happened yesterday with Potash Corp.  I didn't buy a huge amount of each, but because the market could go either way depending on what kind of news or goverment intervention happens next, I was thinking I could use a little more upside exposure, and in relative terms these prices are not bad for the Merc and NYMEX futures exchange franchises and the iPod/iPhone/Apple franchise.

Did I make the right decision to add back some risk at this point? I don't know.  As long as the stock and futures markets don't seize up altogether like the credit markets (I can't see that happening even in a depression), it will all eventually come back.  It's a little-known fact that even in the 1930's stocks still returned about 1.5% a year.  REAP will still work as long as there is some volatility.  If the markets go flat, it will be hard for anyone to make money.

There was also another REAP signal and trade today.

The is the first instance where one of the stocks I sold would actually have been the sell side of a re-allocation based on its relative price performance.  I simply just bought the HGU out of the cash originally raised from selling RXL.

Here's where the portfolio stands after another precarious week.

I'm down 3.2% on the year in absolute terms, and holding steady against the S&P500 with an 11.8% lead.  It's been pretty much like this since mid-September.  I'd have been doing much better against the S&P had it not been for the weakness of the Canadian dollar.  The portfolio's net long bias has risen to 29.7% with the recent additions of Potash, CME, and Apple, but there's still 21.1% cash if we get some really good bargains.  I'll lose some money if the markets go down hard but gain on the S&P500, and will lag the S&P500 if the market rallies.  At this point the decision to liquidate 9 stocks last week has worked out, as I am further ahead than if I had held.

So far so good, except for that nagging feeling of what the hell are we going to do if we do get a depression (not just in the markets but in life in general).

And now it's on to Monday.

Cheers,
Allocator
a.k.a George Parkanyi
gparkanyi@hotmail.com

Copyright 2008 - all rights reserved

Steve Jobs was rushed to the ER just a few hours ago after suffering a major heart attack. I have an insider who tells me that paramedics were called after Steve claimed to be suffering from severe chest pains and shortness of breath. My source has opted to remain anonymous, but he is quite reliable. I haven’t seen anything about this anywhere else yet, and as of right now, I have no further information, so I thought this would be a good place to start. If anyone else has more information, please share it.

Was this just a short seller trying to make a quick buck, or someone trying to see how fast and far they could spread a false rumor? And what does it say about the value of citizen journalists?

CNN’s iReport site lets anyone put up posts and videos about the news. Its tagline is “Unedited. Unfiltered. News.” Sometimes these reports get on CNN proper (presumably, after being vetted). But as this incident shows even the an unvetted report carries more weight than if it had appeared on Twitter or a random blog because it is on a CNN site. And that may be purely because it gets distributed more broadly.

Original URL: http://www.techcrunch.com/2008/10/03/citizen-journalist-hits-apple-stock-with-false-steve-jobs-heart-attack-rumor/