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  • The Israeli-Palestinian Impasse Faces A New Challenge: Divestment

    Israeli banks bear the brunt of global divestments - Major European companies launch disinvestment initiatives against Israeli banks, for financing construction of Jewish settlements in the West Bank

    For years, opponents of Israeli policies have sought to delegitimize the state by drawing spurious comparisons to Apartheid-era South Africa. This political hot potato has been the subject of intense debate by heads of states all over the world. The purported reasoning behind the latest divestment initiatives against Israel is to send a strong message to the Israeli banks and institutions: the international community will not support what it considers to be the illegal construction of Jewish settlements in the West Bank and other areas slated to be part of a future Palestinian state. While the issue of the de-legitimization of Israel is nothing new and broadly smacks of thinly-veiled anti-Semitism, this movement has gained significant momentum in recent years. South African Archbishop Desmond Tutu is largely credited with initiating anti-Israel policies. Of course, the reasoning behind these divestment initiatives is credited to Israel's 'inhumane polices' regarding the Palestinians. This highly-charged topic has generated tremendous support from African countries, Middle Eastern countries and European countries, but it has largely been stopped dead in its tracks in the USA.

    Dutch Pension Fund (PGGM) Withdraws Tens of Millions from Israeli Banks

    One of the world's top 20 pension fund asset managers - Dutch giant PGGM - announced that it has decided to review its overall policy with regards to Israeli banking institutions financing the construction of settlements in the West Bank and other occupied territories. The result of several years of dialogue with Israeli banks was such that PGGM decided to sell its shares in those banks. This pension fund asset manager controls over $170 billion in assets, and it represents a significant politically-based divestment initiative. According to reports, some 500,000 Jews live in settlements in the West Bank and occupied territories. Following the decision to divest from Israeli banks and institutions, the Dutch Foreign Minister was summoned by Israel. Frans Timmerman's response was unequivocal: the Netherlands is vehemently opposed to divestment from Israel, including any sanctions against the Jewish state. However companies operating within the Netherlands are free to invest their funds where they see fit. For many of these companies, they consider the issue to be one of socially responsible investing - not anti-Israel or anti-Semitic. The basis for these divestment initiatives is rooted in the International Court of Justice 2004 opinion that settlements are a violation of Palestinian rights. In addition to PGGM, another Dutch supplier of drinking water - Vitens - cuts ties with Mekorot (Israel's national water carrier).

    Well known Israeli banks include: Discount bank (OTC:ISDAF, OTC:ISDAY), Bank Hapoalim ('worker's bank - OTC:BKHPF), Bank Leumi (The national bank - OTC:BLMIF and the first International Bank of Israel OTC:FBKIF).

    American Academic Institutions Reject Sanctioning Israel

    However proponents of disengagement and divestment from Israel are marshalling their forces for their next battery of economic sanctions. After initially supporting a widespread move to divest from Israel, the Presbyterian Church in the USA - after significant pressure from the American Jewish community - decided rather than to single Israel out as the offending party, to embark upon a socially responsible approach by withdrawing financial support from all companies complicit in their support of terrorism. This even-handed approach has been welcomed within the USA. Several other religious groups have wanted to impose sanctions against Israel however careful consultation resulted in an overturning of those policies in favor of positive investment strategies. Recently, a broad-based anti-Israel movement - BDS (Boycott, Divestment and Sanctions) was instigated by Muslim student unions across the USA. The BDS campaign is currently being thwarted by many student organizations around the USA who disagree with blaming one side in the ongoing conflict. The American Studies Association is pushing for a sweeping boycott of universities in Israel. However, the result of their fervent push to ostracize Israel has in fact backfired on them. Now, the American Studies Association (NYSE:ASA) has itself been hammered by over 80 United States colleges. It is clear that the agenda of the anti-Israel camp has rather limited scope in the USA. A massive backlash by American colleges against the ASA makes clear the fact that a myopic and blatantly anti-Semitic approach to the Arab-Israeli conflict will not gain traction in the USA.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Jan 13 9:57 AM | Link | Comment!
  • 5 Reasons Not To Invest In Twitter

    1. Hyped-up IPO's are Dangerous

    As shown by the disastrous Facebook IPO, worldwide gushing does not always lead to good results. Twitter is - and has been - the talk of the town for months, even before its public offering. Analysts, experts and self-designated were talking and tweeting about Twitter as if it was the second coming. However, if you are a levelheaded investor, you should wait at least 6 months to a year before jumping the Twitter-enthusiasts' bandwagon.(click to enlarge)

    2. Twitter Ads - The Devil You Don't Know?

    The main difference between Facebook and Twitter is the fact that Facebook advertising works. Users click on ads displayed on Facebook and the social media networking site has become the second most popular advertising space online. With Twitter, the jury is out. Projections argue that Twitter will be huge, but the intensity of Tweeting and the fast-paced interface might not be conducive to ads. No one knows how it will play out, but waiting and seeing might not be a bad idea. Twitter's social function is different to Facebook's. Twitter users are more exclusive whereas everyone is on Facebook.

    3. Haphazard and Lofty Evaluation

    Twitter is currently one of the most overvalued shares in the stock market. It's currently at almost $41 a share which means that it costs almost 40 times its revenue over the past 13 months. This is by far the lushest valuation of any U.S. IPO since 1975. There's plenty chatter about companies such as Twitter and Instagram being worth the money, but since either one produces anything tangible, it's difficult to predict how such companies will perform in the long run.

    4. Where's the Money?

    Twitter has not showed a profit since launching, but it's clear that the company's future and potential success or failure will depend almost solely on advertisements as a key source of income. Twitter features three types of ads: promoted tweets, promoted accounts and promoted trends. Companies such as Apple can pay Twitter to advertise a single tweet or conversely can pay the company to ask twitter users to follow it. Such options obviously do not seem to work well considering that more that over half of all Twitter users claim that they don't notice ads on the Twitter feeds. Interestingly and rather promisingly, 31 per cent claim that they've clicked on or followed one of the promoted accounts. There's hope for twitter, after all.

    5. Advertising Killed the Social Media?

    Considering that most social media sites peaked in terms of user interest and hype before they became cash cows for the shareholders, it's likely that Twitter will follow the path of Facebook and LinkedIn. The question is: what happens when advertising starts brining in revenue? Usually this will irk many users and they start flocking away from the particular social media site. Being commercially successful is a double-edged sword. Facebook peaked and now its users are opting for YouTube instead. Indeed, when social media sites become cluttered with ads, users feel that their liberty is threatened.

    Twitter's future as a desirable share depends on its performance as a revenue generator. There's a good chance that Twitter will utilize its user base and make a bundle in ad revenue, but the IPO might lead to unintended consequences.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: TWTR
    Nov 28 10:00 AM | Link | Comment!
  • Teva Lessons: Israel - Once A Startup Always A Startup?

    Teva Lessons: Israel - Once a Startup Always a Startup?

    The Israeli pharmaceutical giant Teva Pharmaceutical Industries Ltd (NYSE:TEVA) announced that it will lay off close to 5,000 employees worldwide by 2014. Teva's drastic move raises the question whether Israel has the tenacity and consistency to produce companies that manage to break the startup barriers and become major companies that employ thousands of people. Teva's troubles are a timely reminder that Israel needs companies that are in it for the long haul. A startup is a means to an end, not an end in itself.

    The hype surrounding Israel's diverse industries is usually related to sexy startups like Better Place and Sodastream. Better Place went belly up when consumer interest and investor hype did not meet, while Sodasteram is swimming onwards.

    Israel needs companies that employ Israeli who graduate from universities. As wonderful as startups are, they seldom employ more than a few dozen people. Israel should consider designing its economy to better accommodate transitions from the initial startup stage to a successful exit. In other words, the country needs more Teva's, less Better Place's.

    Being a nation of startups, Israel is constantly attracting investors from all over the world. Tel Aviv is praised for its fearless and audacious spirit of entrepreneurship and the country's high-tech center Herzliya Pituach is referred to as Silicon Wadi (Wadi is Arabic for valley).

    Until a few years ago Israel's reputation as a startup heaven was recognized only by industry insiders and other professionals around the world, but today countries all over the industrialized world are attempting to emulate the Israeli success story.

    However, the often forgotten fact about being a startup is the fact that a company cannot be a startup forever. Israel is saturated with startups, but like the southern part of the country, desolate and dry when it comes to successful exits. Usually Israeli startups are either acquired by big American companies such as Google or Microsoft, or they simply go bust or hang on to the initial seed money as long as possible.

    Relying on startups as the economic motor of a country is a risky strategy because only a few manage to go public while many are bought in the early stages.

    Complicating things is a new bill circulating in the Knesset (Israeli parliament) which aims to impose an additional 7 per cent tax on profits of major companies. A Labor member of the Knesset proposed a bill to impose a tax on companies that are perceived to take an advantage of Israel's ingenuity and talent. The Orwellian wording of the bill aside, any law that punishes companies in an arbitrary fashion by confiscating profits will most certainly deter companies from investing in Israel.

    George Gilder, the author of Israel Test, wrote that "Cities and nations rise and thrive when they welcome entrepreneurial and technical genius; when they overtax, criminalize, or ostracize it, they wither".

    Governments around the world should perhaps begin to think in different terms. What is good for the country is sometimes bad for the individual and what is bad for the individual cannot be good for the country. For Israel to maintain and cultivate its entrepreneurial and fearless spirit, the government should stay away and let people rise and fall - without safety nets, financial incentives or punishments.

    Now, Finance Minister Yair Lapid has indicated that Teva's decision to fire thousands should come with consequences. Lapid suggested that Israel should consider ending its policy of giving tax breaks to big operators such as Teva. Lapid is right, but tax breaks aren't the problem.

    Why should Israeli tax payers fund a company that it has no stake in? Perversely, Israelis made redundant by Teva are indirectly funding Teva's operations via the taxes. To create a balance, the government should step aside and let the marketplace deal with Teva.

    When it comes to a giant like Teva, restructuring is a necessary evil. Scaling down a company and focusing efforts on specific industries is the trend most companies seem to be subscribing to. When governments, pundits and citizens express their outrage over redundancies they are forgetting that the only responsibility of a company is to profit its shareholders i.e. its owners. Shareholders invest in a company and therefore give it capital and liquidity which enables the company to hire people and invest in R&D. Investment isn't risk-free and the reason people invest is to make profit. So when profit margins decrease, a company must decide on a strategy.

    As Eli Hurvitz, whose father ran Teva as CEO for 25 years, said "As emotional as I am and as painful as it is, we have to bring shareholder value."

    Firing thousands of people is a human tragedy and should not be considered as a sign of anything else. It needs to be remembered that Teva will continue to hire, if hiring and firing are made easy. No company can operate in an environment in which they are too scared to invest or restructure and no company will open up offices in a country that introduces arbitrary laws to punish success. For Israel to grow up from its startup phase it needs a government that plays ball by simply staying out of the way.

    Tags: TEVA
    Oct 17 12:35 PM | Link | Comment!
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